What is your gateway drug?23Jun11
Is it possible that drug dealers are smarter marketers than many multinationals?
Consider the two. Multinational pharmaceutical companies sell drugs. They spend a fortune on expensive media to convince us we need their drugs. Their cost per acquisition is high.
Illegal drug dealers also sell drugs. They often start with a free sample of their “goods” to a few key locals in their community. This gets the potential buyers “hooked”, creates a sense of loyalty and obligation and leads to strong word-of-mouth for their product. Their cost per acquisition is low and conversion rate is almost 100%.
Now, while I don’t suggest you move into distribution of illegal goods, I do recommend you emulate drug dealers with your marketing. Make a good product or service, make it addictive and give away a small amount for free in order to generate ongoing sales and word of mouth. Anyone who has ever watched The Wire has seen the sophisticated marketing and distribution of street level drug dealers.
This is a model we are seeing increasingly in the online and mobile world. How many smartphone apps have you downloaded for free in the last few years and then upgraded to the paid version after you are “hooked” or realise you “can’t live without it”? There are hundreds of examples of this in your App Store.
Smart international software companies are also getting us hooked with their free trials, or basic free versions to reduce friction between wallet and sale. The guys at 37 Signals have a series of free products you can use indefinitely to get you used to their brand of thinking and then lure you with free trials of their flagship products Basecamp and Highrise. And it works extremely well for them.
On the other hand Apple launched the perfect gateway drug when they put “1000 songs in your pocket” with the iPod. The device was shiny, sexy and new but what they really got us hooked on was iTunes where Apple take a cut of every little transaction. Since then Apple have continued to roll-out devices that not only are profitable on the initial sale but create a ridiculously long tail of micro sales of music, books, movies, TV shows, apps and more.
Many music artists have caught onto the concept by giving away some or even all of their new music in order to get audiences “hooked”. The pay day comes with concert ticket sales, merchandise and limited release recording or packages.
This is the sort of approach that also comes from thinking like a tech start-up. New start-ups rarely opt for expensive ad campaigns to acquire customers these days. Instead they offer free versions of their product, they tap into communities, they generate online buzz and they try to launch something that is strangely addictive. Twitter, Foursquare, Facebook and more have a zero cost of entry and a way of getting users hooked. Their revenue comes from other sources but relies on the volume of users.
LinkedIn and Yammer also cost nothing to use at the entry level, but they receive revenue from the small percentage of users who decide to step up to the commercial version. The key is to make sure we sample the goods first, and free is a pretty low barrier to entry and a very effective customer acquisition strategy.
So what’s your gateway drug? What can your business do to hook customers?
- A free low cost product to introduce your brand like 37 Signals?
- A free trial before a monthly residual?
- A great device that then encourages you to make more transactions like the iPod, iPhone and iPad?
- A sample that leads to the bigger sales, like many bands now offer?
- Free information or basic advice to build trust and relationship for longer term sales?
- A free service with massive and addictive widespread appeal that build an audience that others will pay you to reach, like Facebook and Twitter?
- A highly scalable service where the bulk of users pay nothing but a small number are happy to pay monthly, like LinkedIn and Yammer?
A lot of these concepts could apply to traditional offline business too. It just requires you to think more like a tech start-up and find your gateway drug.
Can you suggest any other examples of successful tactics to hook customers in the business world? Let me know.