Growth IQ: Growth Strategies
Cover & Diagrams
Finding the right strategy to grow your organization can seem challenging in a rapidly changing business environment. However, growth is not as complex as it seems. Tiffani Bova, Growth and Innovation Evangelist at Salesforce distills decades of tested strategies and consulting expertise to outline ten clear pathways to growth.
Read this summary of Growth IQ: Growth Strategies to learn from the growth paths of hugely successful companies and craft your next winning growth strategy for top-line growth and bottom-line profitability.
TOP 20 INSIGHTS
- 87% of companies go through a growth stall and very few actually recover. A Bain and Company study shows that 94% of executives running companies with over $5 billion in revenue considered internal factors as key impediments to profitable growth.
- 86% of customers are willing to spend more for a better customer experience. 70% of customers use customer reviews as the top source to make purchase decisions. A survey of 3000 B2B companies showed that over 75% consider customer experience to be a major factor in choosing suppliers.
- Acquiring a new customer costs between 5 to 25 times more than retaining one. Further, loyal customers are 5 times more likely to purchase again, 5 times more likely to forgive and 7 times as likely to try new products. Customer Base Penetration can provide growth at a reduced cost while improving customer loyalty.
- In a connected world where 70% of customers use reviews as the key source to choose among brands, focusing on customer experience can be a powerful growth strategy. For this, customer experience must guide every business unit and every decision. Leverage big data analytics to create deeper engagement with loyal customers through educational content, messaging and personalized promotions.
- Customer and Product Diversification creates top line growth by selling new products to new customers. It is risky as it requires entirely new organizational capabilities like fresh distribution channels, new retailers and servicing for new products. The reward is reduced long term risk as a diversified portfolio is better equipped to withstand market shifts.
- Market Acceleration takes your company's products into new markets to create top-line growth and increase customer base. It can extend market share in new high-growth segments, offset growth stalls in the home market, and give your organization the ability to fund other growth paths. However, a company can overextend itself, leading to poor customer experience.
- There is enormous growth potential in optimizing sales. 64% of customers are willing to pay for a simpler buying experience. However, only 54% of sales organizations align their sales process to the journeys taken by customers.
- Training sales teams on ethical best practices is crucial. Mintel's research suggests that 56% of US customers stop buying from companies they think are unethical. 35% stop buying from unethical companies even if there is no substitute available.
- The boundaries between online and offline retail is blurring. Showrooming allows customers to trial products in a physical store and complete the order online eliminating expensive real estate, overstock and inventory control. While Amazon bought Whole Foods to expand its physical presence, Walmart has created a "click and collect" model to optimize sales experience.
- In a subscription economy it is possible to acquire new customers while rapidly losing them to churn resulting in a growth stall. Therefore it is crucial to measure Customer Lifetime Value (CLV) and not only top-line growth.
- Retaining customers and reducing customer churn can be crucial for revenue. A 5% increase in customer retention can increase profitability by 75%. 67% of customers cite bad experiences as the reason for churn. Smooth resolution of customer issues and proactive support using technology can help organizations get ahead of churn.
- Partnerships can leverage differing expertise to avoid costs and reduce risks while entering new markets, acquiring new customers or even in product development. 85% of business owners consider strategic partnerships to be important or extremely important for their business. However, they feel less than 60% of the partnerships are successful.
- Co-opetition is based on the idea that even competitors can find ways to create mutual benefits that cannot be achieved individually. Co-opetition revolts against the idea that the market is a zero-sum game. In contrast, competitors leverage synergies to grow the pie.
- Co-opetition can be highly risky. It works best when strategic goals converge and competitive goals diverge. When organizations are small, the market share to be captured is vast and each can learn from the other while safeguarding their proprietary skills, co-opetition can accelerate growth.
- There is increasing customer demand for responsible businesses. 79% of customers prefer to purchase from a company with a social purpose. 61% of customers are willing to spend more for products from sustainable brands. Sustainable business can be your next growth strategy.
- 75% of millennials were willing to take a pay cut to work for a responsible company. 83% would be more loyal to a company that helps them contribute to social and environmental issues. 64% would not take a job from a company without strong Corporate Social Responsibility (CSR) practices.
- Companies are experimenting with different forms of "conscious capitalism" ranging from matching employee donations, donating fixed percentage of profits to supporting a shift to social entrepreneurship. Unlike nonprofits, they do this while being disciplined by customers, shareholders and the market.
- Timing the jump is critical. Shifting too early means losing potential revenue from the earlier path while shifting too late may mean losing the opportunity entirely. Shifting paths depends on monitoring, preparation and execution.
- Monitoring requires putting systems in place to track the company's health and growth path data. Company health metrics include orders, returns, market share, employee turnover and profit margins. Each growth path has its own specific metrics. It is important to monitor metrics for both the current and future growth paths to time the jump.
- Ultimately, growth must be countercyclical. The best time to create the next big opportunity is when business is doing well, not when the company is struggling with a slowdown.
"How do you stay ahead of ever-rising customer expectations? There's no single way to do it-it's a combination of many things" - Jeff Bezos
Organizational growth strategies can be classified into one of ten growth paths. The right growth strategy for your organization depends on first understanding the business context, then choosing the appropriate combination of paths, and finally executing them in the right sequence to create a multiplier effect.
Path 1: customer experience
In a connected world where 70% of customers use reviews as the key source to choose among brands, focusing on customer experience (CX) can be a powerful source of competitive advantage. To do this, CX must inform every business unit and every decision. It can take years to build customer relationships and there is no way to fake this path through spending or advertising more. However, the rewards are loyal customers who are repeatedly willing to spend more for your brand. A good way to track your CX is to monitor your Net Promoter Score (NPS), Customer Satisfaction Scores (CSAT) and Voice of the Customer (VOC) research. This path is a prerequisite to the success of every other growth path.
Starbucks, renowned for its artisanal coffee experience, embarked on rapid Market Acceleration (Path 3) expanding from 2800 stores in 2002 to 13000 stores in 2007. They also embarked upon Customer and Product Diversification (Path 5) adding snacks and merchandise to further monetize their customers. The rapid expansion resulted in a loss of CX focus alienating customers and creating a growth stall. When Howard Schultz became CEO again, he brought the focus back to the coffee experience. In February 2008, seven thousand stores across America were closed for three hours to train baristas in the "art of espresso". The company lost over $6 million but established its commitment to quality and customer experience. From 2007 to April 2017, the stock's total return was 551%.
Path 2: customer base penetration
In the rush to acquire new customers, organizations can ignore the Customer Lifetime Value (CLV) of their existing customers. Acquiring a new customer costs between five to twenty-five times more than retaining a current customer. Further, loyal customers are five times more likely to purchase again, five times more likely to forgive and seven times as likely to try new products. Focusing on Customer Base Penetration can provide untapped growth opportunities with reduced acquisition cost while improving customer loyalty. This is among the safest of the ten paths with a high probability of success. However, this path can be executed only when there is a strong customer base to penetrate and sufficient customer data to create accurate VOC profiles with customer attitudes and interests. Customer Penetration includes capturing market share of rival brands.
When McDonalds hit a growth stall in 2006, it responded by pursuing Customer and Product Diversification (Path 5) expanding its menu by 75% in ten years. However, the chaotic menu confused customers slowed down service and led to an overall decline in customer satisfaction. Recognizing this, McDonalds focused on Customer Base Penetration (Path 2) and Customer Experience (Path 1) once again. It responded to a long-standing customer demand to make its breakfast menu all-day. To ensure success, it shrank its menu options and reorganized operator kitchens for faster delivery. US sales grew by 5.7% in 2015. Customer Base Penetration need not mean stocking more products. For McDonalds it meant reducing the number of products to focus on their bestselling breakfast menu.
Path 3: market acceleration
This is the path of taking your company's products into newer markets to create top-line growth and increase customer base. It requires finding similar new customers in a different market segment, customer size or geographical area. This path is risky as it may be difficult to understand market context and varying customer demands. While entering a new market it's easier to sell products similar to what customers are already familiar buying. Introducing unfamiliar products demands significant marketing spend on brand awareness and product education.
Done right, the path extends market share in new product and customer segments, offsets growth stalls in home markets and taps into high-growth markets giving your organization the ability to fund other growth paths. However, a company can overextend itself leading to poor customer experience. A failed launch makes it extremely difficult to reenter the same market. Finally, not understanding local customs and norms can alienate customers and dent your brand image.
Identifying suitable strategic Partnerships (Path 8), relationships and channels can minimize risk and reduce time to market. Optimizing Sales (Path6) to create repeat sales and eventually a loyal customer base is a powerful way to cement your position in the new market.
Path 4: product expansion
The motivation for product expansion must stem from providing customer value by solving a felt need. It's important to create products that are adjacent to your existing product base and aligned to your core value proposition, in order not to confuse your customers. The current market context demands a shift from being "product led" to being "customer led". This path requires a proactive market intelligence department that is on the lookout for market opportunities for new products, enhancements to existing products and even partnerships.
A new product requires a support ecosystem of sales, service and marketing to succeed. This can be achieved by Partnering (Path8) with organizations that can fill gaps in your go-to-market strategy. This can extend even to Co-opetition (Path 9) with your competitors to attain common interests.
Kylie Cosmetics, Kylie Jenner's brand, grew to $600 million in revenue in two years. Kylie created a niche brand within the family, focusing on beauty through endorsements and partnerships. Riding on their success with her fans, she launched Kylie Cosmetics leveraging strategic partnerships (Path 8) with established companies for manufacturing and distribution. Kylie Cosmetics embarked on an aggressive Product Expansion strategy in two directions: new cosmetic categories and thematic bundling of products into editions and collections. Through a solid understanding of its young customers, strategic product expansion and smart use of social media, Kylie Cosmetics has grown to $600 million in revenue within two years with zero paid advertising campaigns.
Path 5: customer and product diversification
This path creates top line growth by selling new products to new customers. It is one of the riskiest growth paths requiring entirely new organizational capabilities like fresh distribution channels, new retailers and servicing for new products. The reward is reduced long term risk as a diversified portfolio is better equipped to withstand market shifts. Before embarking upon this path, it's imperative to be confident about the company's ability to launch a new product and penetrate a new market without damaging existing operations. This is to be chosen only after exhausting all other growth paths. Its best pursued during periods of prosperity with surplus revenue and high shareholder confidence. Attempting this path during times of crisis could be fatal. Even a big multinational diversifying into a new product and a new market is an unproven underdog in the new market. Therefore Partnerships (Path 8) across Product Design to Sales and even strategic Co-opetition (Path 9) are crucial for the success of this path.
Marvel experienced a decade-long growth stall from 1993 declaring a loss of $105 million in 2000. When Iron Man released in 2008, Marvel had captured leadership in character-based entertainment segment. It achieved this by adopting a Customer and Product Diversification strategy. It realized that it core value proposition was not comics but its iconic characters and diversified into making movies. Badly struck licensing deals ensured that Marvel made little money even when movies like Spiderman became blockbusters. Desperate, Marvel formed Marvel Studios to retain 100% profits. In 2008, Iron Man was released beginning an incredible run of blockbusters. In 2009 Walt Disney acquired Marvel for a $4 billion.
Path 6: optimize sales
Sales optimization is a powerful way to create growth with existing resources and enhance the effectiveness of other growth paths. Like Customer Experience (Path 1) this must be a constant organizational focus. Today customers demand to be served where and when they want to buy in a seamless manner. Therefore, companies must increase productivity of existing resources and leverage AI, Customer Relationship Management (CRM) and marketing automation for smarter selling. However, unrealistic sales targets and pressure tactics may produce initially performance but are bound to backfire as employees begin to game the system. This was clearly seen in the 2016 Wells Fargo investigations that found that over 3.5 million accounts were opened without customer permissions. The detailed customer profiles generated from this path can be used to significantly improve Customer Experience (Path 1) and deepen Customer Base Penetration (Path 2).
The threat from Amazon forced Walmart to rethink its sales strategy. It responded by opening its ecommerce platform in 2016 and acquiring Bonobos, a retailer that had successfully blended ecommerce with retail stores through showrooming. Showrooming allows customers to trial products in a physical store and complete the order online eliminating expensive real estate, overstock and inventory control. Soon, Walmart announced its "click and collect" model to optimize sales experience. It followed this up with further innovations including automated pickup towers that allow customers to pick up their order in minutes. This is stunning Sales Optimization for an organization of this scale.
Path 7: churn
The shift from product to subscription-based models makes retaining customers extremely important. Customer Churn rate is the percentage of customers who end their relationship with the organization in a time period. It is possible to grow the top line by acquiring new customers while rapidly losing them to churn resulting in a growth stall. Therefore, it's crucial to measure Customer Lifetime Value (CLV) not only top-line growth. Reducing churn takes lesser cost and guarantees higher returns than acquiring new customers. Smooth resolution of customer issues and proactive support using technology can help organizations get ahead of churn. Ultimately, customer retention depends on having a great product and offering quality service.
Spotify grew to 140 million active users and 70 million subscribers in less than ten years while simultaneously reducing churn to just 5.1% in 2017.It offered an excellent Customer Experience (Path1) through curated playlists and personalized recommendations to make customers stay. Interestingly, Spotify offers customers the ability to "downgrade" to a cheaper plan. While this may sound counterintuitive, it's an effective strategy to prevent churn by getting ahead of customers who might leave because they wish to pay less. The company has an extraordinary focus on scaling its excellent customer support along with its growing customer base. Spotify allows Artists to sell merchandise without taking a fee to increase artist and customer loyalty to the platform.
Path 8: partnerships
Partnerships are important to revenue growth offering possibilities that a company cannot create on its own. Partnerships can leverage differing expertise to avoid costs and reduce risks while entering new markets, acquiring new customers or even in product development. Partnerships should be proactive and well-thought out with clear measurable deliverables. They continue to evolve with time as newer opportunities come up. The right partnership can be valuable in Market Acceleration (Path 3) by opening new market opportunities without the associated risks and uncertainties. In the Product Expansion Path (Path 4), Partnerships can reduce expenditure in product development and leverage another organization's market understanding and intellectual capital.
Path 9: co-opetition
Co-opetition is based on the idea that even competitors can find ways to create mutual benefits that cannot be achieved individually. Co-opetition revolts against the idea that the market is a zero-sum game. In contrast, competitors leverage synergies to grow the pie. Companies can work together in basic product research and even platforms to open a market, while simultaneously competing for market share. A recent example is Tesla which open-sourced all its patents in order to grow the electric car market. Besides increasing the demand for its own cars, it would increase the usage of Tesla's batteries and charging technologies.
This is an extremely dangerous growth path which could lead to a competitor gaining access to proprietary knowledge and competitive advantage. It's important to proceed with caution. Co-opetition works best when strategic goals converge, and competitive goals diverge. Ideal conditions are when organizations are small, the market share to be captured is vast and each can learn from the other while safeguarding their proprietary skills. Sometimes it is safer to first engage with a competitor is through a Partnership (Path 8) before proceeding further. Strategic partnerships can be used for Customer and Product Diversification (Path 5) through sharing R&D costs and IP. Expect significant internal pushback particularly from sales and legal departments as these teams have competed for decades.
In 2016 BMW, Intel and Mobileye teamed up to develop autonomous vehicles. They needed a mass market manufacturer, even if it was BMW's competitor. In a move unprecedented in the competitive automobile industry, they partnered with Fiat Chrysler. The rise of autonomous driving technology and the massive investments by Google, Apple and Tesla made co-opetition imperative for BMW and Fiat's survival. For Intel, it was its chance to dominate the next big chip market. The partnership aims to develop a common vehicle architecture that could be used by multiple automakers while maintaining their unique capabilities.
Path 10: unconventional growth strategies
The line between for-profit and nonprofit organizations is blurring. Increasingly, executives are concerned about leveraging their products, employees and partners to create social transformation. Unconventional strategies demand embarking into the unknown making up rules on the way to build organizations with social purpose. Done right, it can lead to breakout growth or even pioneer new markets. This path can significantly boost employee morale and improve customer loyalty, making them both feel part of something meaningful.
Lemonade Insurance was started by two technology entrepreneurs with no previous insurance experience. Along with a simplified Customer Experience, Lemonade pioneered a Giveback Program, promising to donate up to 40% of premiums to a customer chosen cause. Customers select a charity when they sign up. The choice of charities is used to group customer premiums into common pools and purchase reinsurance. Whatever is left after payouts goes to charity. This is possible because Lemonade operates on a flat 20% fee on the customer's premium. The Giveback program enhanced Lemonade's reputation and reinforced honest customer dealings. In less than two years, Lemonade became the largest insurer of first-time renter's insurance buyers.
Know when to jump paths
Timing the jump is critical. Shifting too early means losing potential revenue from the earlier path while shifting too late may mean losing the opportunity entirely. Shifting paths depends on monitoring, preparation and execution.
Monitoring requires putting in place systems to measure the company's health and growth path data to provide real time insights. Company health metrics include orders, returns, market share, employee turnover and profit margins. It is important to monitor specific metrics for current and future growth paths to time the jump.
Preparation requires a clear understanding of the marketplace and creating detailed plans of what needs to be done in each department with clear deadlines for the same. Employees must be oriented for their new role and teams must be ready to hire needed fresh talent.
Execution depends on the orientation of the employees. Therefore, it's important to clearly communicate the new growth strategy. A good way to enable transition is to create two teams, one focused on maintaining the existing business strategy and the other tasked with planning and executing the new growth path.
Ultimately, growth must be countercyclical. The best time to create the next big opportunity is when business is doing well, not when the company is struggling with a slowdown.