Welcome to the 88th edition of Heartcore Consumer Insights. Curated with 🖤 every two weeks by the Heartcore Team.
If you missed the past newsletters, you can catch up here. Now, let’s dive in!
Most people think retention is so crucial simply because it means you lose fewer users than you otherwise would. Though this is true, it misses the critical point.
Retention is the core of your growth model and influences every other input:
1. Retention drives acquisition: as you retain more users, those additional users accelerate acquisition through sharing, inviting, word-of-mouth, or creating content. When a retained Pinterest user creates a new pin, Google indexes it. When people land on it, this experience introduces new users to Pinterest, and some % of those people sign up. Some % of those registrations become active users who also create new pins, and on it goes.
2. Retention drives monetization: regardless of the business model, two critical things happen when retention rate improves: (a) revenue within a given period of time increases as you retain a greater proportion of a cohort, (b) LTV increases as you retain the same portion of a cohort for a longer period of time.
3. Retention builds an acquisition competitive advantage: this dynamic is most impactful for companies that predominantly rely on paid acquisition. Let's consider two companies: company B has a higher LTV, and is, therefore, able to spend more than A. Since paid acquisition channels are efficient marketplaces and ad inventory goes to the highest bidder, if Company B has a higher LTV, it can afford a higher CAC. This means it will be able to outbid Company A for the same inventory, effectively pricing Company A out of the channel. Additionally, this can also open up other channels that were too expensive when it had a lower CAC.
4. Retention accelerates payback period: a lot of teams at the fastest-growing companies focus heavily on LTV. The problem with this is that LTV typically is not the limiting factor in growth - the payback period is because the payback period determines how much cash is needed to fuel growth. Since improving retention drives monetization - it also shortens your payback period. If you have a shorter payback period you will be able to reinvest the cash earned sooner in acquisition to kickstart flywheel effects.
When it comes to e-commerce, last year in China often means this year (or next) in the US/Europe. A Chinese trend worth closely studying is called private traffic. It’s a customer relationship management strategy that emphasizes direct communication between brands and customers.
Private traffic is much more personalized than the one-to-many, one-way email marketing model we’re used to. Here’s an example of how private traffic might work:
Ctrip, the biggest travel company in China, allows consumers to join a group chat with other travelers who booked tickets to the same destination, around the same time. A sales rep is present in the chat to act as a travel concierge before and during the trip. The sales rep answers questions about anything from what to do about a lost passport to which type of outlet converter to bring.
The best part is, once your vacation starts, you’re not only asking the customer sales rep questions - often, you’re talking to other group-chat members too. You might ask how long the line at an amusement park is, or even invite people to meet up for dinner. Essentially, the group of strangers becomes a community.
While you probably wouldn’t respond to a promotional email from a mattress brand and expect a real conversation to unfold, that’s exactly what happens with private traffic.
In the last couple of years, the retail industry has been thinking a lot about how to make brands more accessible to customers. A lot of Western brands have interpreted more accessible to mean more relatable and leaned into the idea of making people think we’re just like them. In contrast, many Chinese marketers came away with a different interpretation of accessibility. They seized on the literal definition of the term, using technology to make it easier for customers to reach brands and vice versa.
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Heartcore Consumer Insights is a weekly newsletter covering notable consumer rounds and exits and top content in the B2C space.