(Editor’s note: Michael Greenberg is COO of Loyalty Lab. He submitted this story to VentureBeat.)
It’s easy to think that your start-up is centered in a green field or blue ocean, but typically, that’s not the case. Only the lucky few are truly creating new customers out of thin air. Most have to steal them from someone else.
This is a fact that few entrepreneurs want to hear. But smart start-up owners know when to face reality and focus on luring customers to their side of the fence. The most important consideration before doing so is determining whether they’re chasing a regular expenditure or one that only occurs once.
Regular expenditures are the easiest and potentially most lucrative to attack. There is long-term recurring revenue available, plus customers are more likely to try a new option when it’s just one in a series of purchases - think home DVD delivery (like Netflix), SaaS software, anything retail or ad networks. In these cases, purchasers spend money regularly and are more open to trying something new. The downside risk for them is low, as they can always revert to their current provider.
Winning these customers entails two tasks – trial and retention.
Sales and marketing have to work together to generate the first purchase, convincing customers to shift their spending, at least temporarily, away from the current choice. Your operations team then has to deliver on marketing’s promise, ideally exceeding customer expectations. Customer relationship management and social marketing are crucial to support and engage customers throughout this period.
Irregular expenditures – for products such as laptops, enterprise software, car tires, or tuxedo rentals - don’t have a regular purchase cycle. Customers generally have a brand or provider they trust and fall back on them when they’re looking to buy – or they go through a short, intense research period to find the appropriate source.
Winning these customers is a much harder process – and primarily comes down to trial and error. It’s critical to be in front of the buyer when she is ready to buy. The time between original intent to buy and choice can be very short, meaning all of your resources need to be in front of her when she needs to make a choice.
You’ll have plenty of ways to do this, but things like search engine marketing, positioning on Yelp, good word of mouth, SEO, thought leadership, strategic locations and good reviews from independent editorial sources can be crucial.
Whether you’re targeting regular or irregular customers, you can drive business by creating alternate products with vastly superior price or quality attributes. Without this, in fact, there isn’t much point to launching a new enterprise. Good examples of this include Craigslist for classifieds and job postings, Amazon.com (when it was competing solely with bookstores), Southwest Airlines or Salesforce.com for sales force automation.
The rarer, more difficult - and potentially more lucrative - scenario is when a company creates demand for a product or service that didn’t previously exist, such as iTunes, eBay, Bazaarvoice, Google AdWords or Facebook. When these launched, there were few, if any, alternatives. It’s an entrepreneurial dream – owning a market completely.
Customers, in these cases, create a new mental category for spending. And while they do need to reallocate spending in one sense, they’re not taking that money from something similar.
Instead, something else less useful goes away. Because there isn’t an explicit trade off to try these products or services, uptake can be much faster. The advantage is the product pulls business away from the least useful expenditure in the mix, which is a really, really easy win.
Early position, fast uptake and minimal competition usually mean superior margins and early adopters, both of which allow faster iteration and improvement. Play your cards right and you can end up with vocal supporters who both act as advocates and provide you with valuable feedback.
Uptake is sometimes slower than normal, due to higher prices or barriers to adoption, but you still have a time and learning curve advantage over new entrants. Free trials are particularly effective here, since there isn’t allocated budget just yet for your product, and you may need to stick around for a while and wait for money to be freed up elsewhere.
It’s important to be sensitive to where your customer’s money will come from. Never lose sight of the fact that every buyer has a finite budget. Align your strategy with the source of funds and revenue growth will follow.