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21 Jun

When product-led growth beats sales or marketing

Product-led growth is a growth strategy where the business, instead of putting money in sales or marketing, invests money in the product itself; it uses the product experience to drive both customer acquisition and retention.

Conventional growth strategies focus on either running ads and doing performance marketing to lead consumers to the product. Or they invest in huge sales teams to approach consumers and acquire them once they've dropped their lead.

In both cases, the consumer has to be first convinced about the value proposition of the product via communication till they convert.

In contrast, product-led growth, as the name suggests, leads with the product. For example, letting the consumer try out the freemium version of the product, or letting them use the full product for a trial period is one example of product-led growth. But this is not all there is.

In products that benefit from network effects, i.e., the value of the product increases with every new customer, early adopters will themselves be a major early source of acquiring new customers and getting them onto the platform. Besides this, creating delight in the product incentivizes word-of-mouth and is another example of using the product to instigate growth. Let us now look at some unintuitive examples of product-led growth and using the product to drive acquisition and retention.\

Take the example of Uber.

The company often noted that it was much faster and efficient to get their existing drivers to spend 10% more time on the platform than to invest in marketing efforts to acquire 10% more drivers. The latter would require a big marketing push and the new drivers it would acquire would then need significant time to warm up to the platform.

This is a classic example of a company trading off marketing for Product-Led Growth: instead of investing in marketing costs, the company chose to invest in product development costs.

And the long-term advantage of product-led growth is that it not only benefits new users, it benefits existing users as well. You can invest once and get benefits over a long period of time, and amortize costs across a large segment of users, whereas the money spent in marketing only brings in new users while the campaign is running, without any developments on how to retain them once they're onboard. Product-led growth solves for both.

If you can help your drivers use your product more, you not only help them earn more and create stickiness, but you also incentivize them to promote the platform to their fellow drivers who are currently not signed up with Uber.

Another example is that of Go-Jek, and its digital wallet GoPay.

When the digital wallet launched initially, it didn't get a tonne of adoption at first. So, the company decided to do something ingenious: they decided to activate one of their most powerful levers, the drivers themselves.

"This is how it works. Whenever you pay for a ride or service in cash, the Go-Jek driver will ask you if you want to store the change in the form of Go-Pay for future use. If you agree, the driver gets a bonus and you get discounts on your upcoming rides.

We call this little thing ‘cash top-up on driver.’ We have hundreds of thousands of drivers who become our points of sale. Once you’ve done it, you never wanna go back to cash.”

— Nadiem Makarim (CEO and Co-founder of Go-Jek Indonesia)

Once Gojek had incentivized its drivers, the drivers got creative and took it a step further by running their own promotional strategies for each new customer. This led to a large spike in driver-led activation rates to GoPay. All because Go-Jek was able to use its existing supply-base to fuel new demand.

And this is not all. The company is a great example of using its drivers to fuel growth in its new business verticals.

“The drivers who work with us and stay with us, do so because they make a good living.”

— Sidu Ponnappa (Head of Engineering, Go-Jek India)

The same driver working with Go-Jek wears multiple hats: during the lunch hour, they will deliver food. Outside of lunch hours, they will deliver parcels and act like hyperlocal logistics delivery persons. Every driver also works as a deposit machine and a mobile ATM for GoPay. Users can add money to their wallet simply by giving cash to their Go-Jek drivers. And they can get cash from the same drivers by adding money to their GoPay wallet.

So, the company has tried to leverage its existing drivers to market and work for its new products, while at the same time creating more earnings for them and increasing driver-retention on the platform.

The takeaway

Sometimes, marketing isn't the best way to go about growth. Sometimes, by improving a few features in the product itself, you can use your existing user base to drive new growth, or use the product itself to acquire and retain customers.

Sales and marketing-led approaches can sometimes focus too much on acquisition over retention. A marketing team is successful if it generates leads. A sales team is successful if it converts those leads. But this can often create a culture of trying to bring in as many customers as possible while ignoring customer churn and retaining existing ones.

Product-led growth is truly customer-centric: it makes sure that it is your product that does the talking than the talkers doing the talking.

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