There are three key customer-related tasks for any consumer company: customer acquisition, customer engagement, and customer retention. Subscription businesses, be they telecom companies, Netflix, Apple Music, or SaaS companies, are all faced with the problem of customer turnover, known as “churn.” In fact churn can be so high that many telecom and cable companies report churn on a monthly basis, trying vainly to disguise how high their rate is on a yearly basis – typically in double digits.
Previously I blogged about building virality into your product, an issue I’ve written several posts about. I read a lot of business/tech news, but I’ve yet to find anyone sharper and more helpful to founders than Gabor Cselle, who posts on Medium. I have to admit to not considering how founders build retention into their products, but Mr. Cselle obviously has given it a lot of thought, resulting in his article 11 Ways to Build Retention Into Your Product. Interestingly Mr. Cselle breaks startup growth into just two components, customer acquisition and retention, baking engagement into retention. But I beg to differ, as getting a lot of users registered for your product or downloading your app does very little for your business unless they are engaged. In fact studies show that the vast majority of smartphone apps downloaded by users sit unused on their phones.
As before with Mr. Cselle’s brilliant post on building virality into your product, I’m not going to attempt to annotate all his eleven ways to build retention in your product, but will highlight a few and refer you to his original article for a deep dive into the subject.
Perhaps the most powerful tool is variable rewards, and here’s why:
Highly retentive products often draw in the user with variable rewards. Research shows that levels of dopamine in the brain surge when you’re expecting a reward. Introducing variability into the reward multiplies the effect. Variability creates a hunting state, activating the parts in the brain associated with desire. I recommend reading Hooked if you want to learn more about this.
Classically, slot machines and lotteries have benefitted from this effect, but variable rewards are prevalent in popular tech products as well. Building variable rewards into a product is incredibly powerful — please use them for good, not evil.
eBay did a brilliant job of building an entire business on the hunting state, with a focus on buyers winning auctions. The entire auction model, which fires off competitive urges that can cause buyers to pay far more than an item’s actual worth just to win the auction, has been successful for generations.
1. Human interaction
Facebook and Twitter discovered early on that human interaction was necessary, but not sufficient for retention. Baking in notifications seals the deal. Users are curious as to what that notification is about, thus driving clicks and engagement. Of course, developers are going to kill the golden goose as users are getting notification burnout from the flood of notifications from different apps interrupting their lives.
The solution to this is personalized notifications, which is number 7 on the hit parade of 11 ways to retain your users.
2. Turn-based Structure
This is a game based modality in which one person is expected to act first – make the first move in chess – which then creates the very powerful expectation and motivation in the second user to act reciprocally. The more turns, the better. Turn-based structures can create expectations of responses in users, basically guilt-tripping them into responding to requests, such as the feeling of obligation in LinkedIn’s contact feature: Ignore or Accept.
4. Status or Badges
Status and badges are part of the attempt to gamify applications. However, there’s been a backlash against this recently as some apps are now hiding status numbers that they were once highlighting. In general, I would warn founders to be careful of the whole gamification strategy unless you are addressing sports or fitness, which by their nature are very competitive, with winners receiving actual medals, as in the Olympics.
8. Share Improvements
Continually improving your product – known as upgrading – has been a software retention strategy for decades. But with the rise of social media and messaging it’s far easier to notify users of improvements that may incentivize them into staying with your product. But as Mr. Cselle points out, this is by far the most expensive way to retain users because it demands expensive engineering resources. But given how competitive tech markets are today, sitting pat and not upgrading your product is a formula for slow-motion suicide. You must continually improve your product, so make sure you publicize these improvements, especially to your installed base.
9. Drip Marketing
Drip marketing is a fancy way of describing sending email to your users. Given how much email most users get and how often they will unsubscribe from emails from vendors, I suggest you tread very carefully on this one. However, if you have a deep product with a lot of features users may welcome tutorial emails that help them get more return on their investment in your product by learning about how specific features help them get their jobs done faster, better and/or easier.
Mr Cselle divides retention techniques into those that are built in and those that can be added to any product.
I would recommend the following strategy:
Always include human interaction in your product, as it drives engagement and retention and should be core to any product that can be used more than once. Then decide if any of the other five “Core to the Product” techniques align with your strategy and build that one in. There are really only three “Can be Added to Any Product” as you can eliminate Spam, and should include Share Improvements. Try A/B testing to determine if any of the three will increase your retention rate.