Growth Hacking: Back to Marketing Basics

growth options

growth options

Narrowly defined, growth hacking is the kind of rapid growth expected from startups — that characteristic J shaped growth curve we’ve come to expect from companies like Uber, Lyft, and AirBnB. But, there’s no reason why larger firms can’t use tactics of growth hacking to return high rewards to investors and employees.

Maybe larger, more established firms suffer for their own success; becoming increasingly risk-averse and happy with their tiny year over year growth.

A firm that isn’t growing (and doesn’t have a cogent plan for growth) is dying — it just may not know it yet. Standing still is NOT an option because competition will just blow you out of the water.

But, should firms satisfice with tiny profits or take the risks that can return huge profits in their growth hacking.

Expanding on its growth focus, BCG Consulting crafted a post based on research they’ve done into growth hacking at larger firms including the infographic that follows this post.

Basically, firms have 4 options for growth — penetration, market development, product development, and diversification (as shown in the graphic above). Growth hacking involves employing these options along with internal and external resources to achieve high growth.

Penetration growth hacking

Penetration refers to increasing market share with your existing product and existing market. While considered less risky (in the short-run), penetration over the long-term spells a slow death. Look at Coke and Pepsi who fought each other over market share in the soft drink market to the tune of $3.3 billion in 2013 for Coke alone. Despite these vast expenditures, profitability for both firms (in soft drinks) declined precipitously as consumers switched to waters, teas, and other drinks perceived as healthy.

Of course, both Coke and Pepsi branched out into other products to avoid the devastating effects they would have experienced without these growth moves.

Not all companies are so fortunate or show such foresight.

Look at companies like Atari, Commodore, and other tech leaders who failed.

Penetration marketing is also a game for companies with deep pockets; companies who can afford massive promotional expenditures to gain market.

Product development growth hacking

Product development is more risky than penetration growth hacking, but offers more security in the long-run. There’s a limit to how much you can afford to spend to buy market share and there’s also the risk you take that consumer tastes will change; wiping out your company.

We generally talk about product development as growth hacking aimed at existing markets. The advantage here is that you have expertise in your existing market and have built a reputation with consumers in that market.

Apple used this strategy successfully — after getting rid of John Scully (coincidentally, from Pepsi) who wanted to continue penetration growth strategies by making continuous improvements to the successful Lisa computer. Freed from Scully’s low risk strategy, Apple branched out into complementary products such as the iPod, iPhone, and iPad; building on their technical skills and deep understanding (and reputation) of their market.

While riskier, product development results in successful growth hacking, especially when the executive committee is able to think outside the box.

Market development growth hacking

Market development growth hacking builds new markets for your existing product — be they new geographical territories (such as internationalization through export or joint venture), different cultural groups or genders (such as Rogaine marketed to women for thinning hair), or age groups (such as Amazon Fire tablets marketed for children).

Market penetration is a little more risky; mainly because you lack expertise with the new market and can’t predict their behavior as accurately.

Diversification growth hacking

Growth hacking through diversification is the most risky form of growth hacking since you lack both product and market expertise. Commonly, firms manage diversification growth hacking through mergers and acquisitions in hopes of acquiring both competencies.

Sometimes M&A (mergers and acquisitions) work; sometimes they don’t. Cultural clashes between the 2 corporations might negate any planned competency with products or markets as the 2 firms struggle to operate as one. Other issues, like collaboration and strategic direction, can tear the 2 firms apart.

Growth hacking

Much of the earlier discussion on growth hacking strategies is built into the infographic from BCG, using slightly different terminology.

In their study of 1600 companies, BCG found only 310 were able to turn an initial stagnation into growth that exceeded their peers by 2X over 5 years. Delving deeper into these companies, BCG discovered that starting position matters in terms of successful growth hacking. They segmented company’s starting position into 3 categories: Fortress, Fading, and Fluid.

Fortress firms

Fortress firms are often household names and command a significant market position in stable industries. Proctor and Gamble (P&G) is a good example of a fortress firm.

Fortress firms experience successful growth hacking by concentrating on penetration and development into closely related products using innovation, geographic market expansion, and M&A as levers for growth. For P&G, this meant divesting unrelated brands and “sticking to their knitting” by innovating new products such as Swiffer and acquiring firms in related industries, like Gillette.

Fading firms

Fading firms face serious challenges as their markets dwindle, such as in the cola industry. History is replete with firms who failed to accept their coming obsolescence by developing innovations in industries a little farther afield and, instead, wasting precious resources digging in to fight for whatever market was left.

Others, like the record industry, seek legal solutions to keep the dam from breaking rather than seek a different business model to market their products.

BCG points to print news outlets moving to online publications as the market for their physical products dwindled. However, many news outlets haven’t gone far enough and still rely on an advertising revenue model that’s untenable rather than moving to an online subscription model, like the New York Times. Ad blockers will soon show these fading firms the error of their ways.

Fluid firms

Fluid firms live in a constantly changing environment requiring swift action to adapt to constantly changing dynamics. Agility, highly innovative cultures, and strong leadership characterize these firms. Hotels and taxi companies, who’s industries were fairly stable for decades, face increasingly turbulent times competing with Uber and AirBnB who’ve turned the industries on their heads.

Innovative cultures

Many firms, regardless of starting position, lack a culture that supports change and even have bureaucracies that discourage discourse or questions the status quo. In their report, BCG Consulting states:

To best leverage their advantage, companies must stretch their thinking. New perspectives can upend longstanding beliefs about “stagnant cores” or “distant adjacencies.” Often, faint signals lost in the noise of today’s core suggest opportunities [that are ignored].

Anyone who recalls the M&A activity of the ’80’s or scientific management that came decades earlier, knows the heavy toll they placed on innovation. M&A activity strangled innovation by denying it resources (capital, including human capital) and scientific management destroyed the will to innovate under the weight of bureaucracy.

Here’s support from the BCG findings:

the operational effectiveness that earns a company the right to grow can often restrain growth. Strong operators fight waste, avoid uncertainty, concentrate on the near term, and replicate past success. But breakthrough growth frequently requires a tolerance for experimentation and a departure from past playbooks. Shifting to a growth mind-set requires doing some things differently, without degrading the core and its foundational advantages. This balancing act, whether achieved by luck or design, explains the success of most of our breakout growers.

Need more support. Only 9% of firms innovated between 2006 and 2008 and many innovations are categorized as continuous improvements rather than disruptive innovations.

Innovation is one of the strongest drivers of growth hacking and disruptive innovations promise the highest rate of return (as well as the highest risk).

Questions

I know this is a deep topic and we only scratched the surface today, but, if you have questions, please post them in the comments.

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Image courtesy of BCG Consulting