Avoid these three common marketing traps that stall growth for businesses of every size.
This content first appeared in the No Best Practices newsletter on 07.16.2023.
“All happy families are alike; each unhappy family is unhappy in its own way.”
In business, the opposite is true. Successful companies maintain their growth trajectory through a unique combination of product, positioning and distribution. And companies that struggle to grow often fall into the same set of traps.
Last month I shared 5 common reasons that $1M/yr businesses struggle to reach $5M/yr. But a few of these issues apply to businesses of any size. I’m going to zoom in on three anti-growth traps that I see brands fall into regardless of scale. These are specific to marketing–read up so you can avoid them.
#1 Fewer New Customers = Less Growth
You grew sales 20% last year. You want to grow sales 20% again this year. To do that, you need to maintain last year’s rate of new customer growth. Unless your business lends itself to subscriptions (ex. dog food or baby formula) only 25-35 of every 100 new customers you acquire will make a second purchase. Ever. The average one-brand eCom business is a leaky bucket.
Over time you will build up a larger base of repeat customers. But that base is always eroding. Only 5-9 of every 100 customers you acquire will make a 4th purchase, and only 1-2 will hang on for a 7th or 8th purchase.
The erosion of a customer cohort tends to stabilize three to four years after the customers were acquired. A 20 year old brand can say that some percentage of their repeat buyers are “stable”. A five year old brand? Not so much.
You have to put in decades of work before you can ease off acquisition. But maintaining your rate of growth gets harder over time. Why? Because you’re building off a larger base each year, so you need more customers to hit the same YoY growth rate.
This is why brands will be tempted to invest in retention to take some pressure off of acquisition. “The math doesn’t math” with this approach. You’re trying to address 4x and 5x buyers, where most of the churn has already happened. And those customers are usually buying from you every 1-2 months–it’s hard to increase their frequency even more.
A young brand’s highest leverage retention activity is getting more 1x buyers to convert to a second purchase. But you need to maintain acquisition momentum if you want that to pay off. There is no way out. You MUST confront your acquisition challenges head on, or accept a lower rate of growth.
#2 Acquisition Tentpoled Into Promo Periods
A “tentpole” is a big event within your business that makes the sales line go up on the annual sales chart (like a tentpole…get it?). Your sales volume is a product of multiple factors:
- Seasonal demand for whatever you’re selling (ex. you’ll sell more skis in the winter)
- How badly people want your product vs similar alternatives
- Brand awareness and hype factor
- How well your marketing strategy leverages all of the above
To hit your ever-growing sales targets, you’re constantly optimizing these growth factors. Some of them require long timelines and “cross-functional teamwork”. It isn’t easy.
Of course, there is a hack. Simply discount your product! That will unlock peripheral demand from folks who were aware of you but on the fence, or unable to afford your goods at full price. It also makes your ads more efficient by boosting clickthrough and conversion rates.
Only one problem with this–the customers you acquire via a promotion are less likely to buy at full price.
A large gap between your full price AUR (average unit retail) and your AUR on promotion makes the customer less likely to buy at full price because the MSRP is completely outside their “willingness to pay” zone.
A simple example: someone who would never spend $500 on a pair of pants might be willing to buy those same pants at $100 (80% off). In terms of dollar investment in a single item of clothing, those are two different universes. The $100 customer is not going to buy at full price.
Brands turn promos and sales into tentpoles because they are the low hanging fruit of growth. Then those same teams plan even more of next year’s growth into the promo because it feels like something they can control.
If this goes on for a few years the brand often loses the ability–both in terms of internal marketing capabilities and consumer perception–to grow at full price. The promo tentpole becomes so much larger than the rest of the business that it requires months of operational planning and ramp-up to execute. It sucks all the oxygen out of the room.
Unless you’re running an outlet business, escalating promotions is an end of life strategy for a brand. If that’s not the course you want to be on, don’t turn promos into your only tentpoles.
#3 Becoming Tactically Rigid
I interned at a large mall brand retailer during my MBA program. Growth initiatives were often shut down in the brainstorming phase because “we don’t have the capabilities to do that”.
To translate that from business jargon to English: we don’t have enough people who know how to do that, and building out a team from scratch would be too expensive and time consuming.
The only problem: sometimes you need new capabilities to go from decline to growth. And sometimes your core competencies are dragging you down.
A tangible, marketing-specific example:
A direct response-y brand scaled to $25M in sales with a simple Meta ads strategy: shoot UGC-style testimonials in-house and pair with wacky hooks (also shot in house). Think: pratfalls, slime, breaking glass.
As time goes on, it becomes harder and harder for the brand to create new winning ads. Performance from the existing winners starts to fade out. It isn’t a full blown emergency, but CAC starts to creep up.
This team might have the capabilities to shoot and edit ads, but only within the framework of a very specific formula. What they probably need to do is test new formats that speak to different audiences. But that requires knowledge of higher level marketing strategy.
In fact, without that knowledge, the team probably won’t realize what they need to do. They’ll keep doing what they’ve always done, harder.Marketers often build out their teams and resources around the most effective channel. The “head of growth” starts out as the head of media buying. But that doesn’t help you when you need to move beyond Meta to scale.
I’ve seen this happen to brands of every size. At larger brands, the digital marketing channel teams get so far into the tactical weeds that they barely communicate with “brand marketing”. At fashion brands, channel strategy is driven by merchandisers who were trained in the TOGU era. A few things you can do to avoid this:
- Develop a brand positioning and messaging framework and iterate on it based on customer feedback.
- Train all your team members on this framework, even the technical ones.
- When something isn’t working, try to understand the problem from a customer perspective. Yes, Clickthrough Rate is down, but why?
- Make one moonshot per year. This should be a bet with small downside and large upside that requires you to move out of your operational comfort zone.