A month ago, my wife and I celebrated our third wedding anniversary. As we celebrated, I thought back to the autumn of 2007 when we first met.
I was a single 20-something professional, less than a year removed from active duty in the Marine Corps and anticipating settling down and starting a family. Having tried the “bar scene” to no avail, I decided to join eHarmony. Six months later, having met my beautiful wife and extremely happy with the outcome of my time on the site, I closed my account.
As I reminisced, I glanced at the pile of magazines sitting on the coffee table. I wondered: how does a company like eHarmony stay in business when a successful outcome means its clients never need it again, as opposed to other businesses (like periodicals) where the value proposition is ongoing?
I realized that certain industries, such as long-term matchmaking and residential real estate brokers, solve one-time or at least relatively infrequent problems. Companies in these industries derive short-term revenue from their customers, but in doing so eliminate the problem that drove the customer to them in the first place. Once the problem is solved, then what?
Embrace the Churn
Any first-year business school student can tell you that high churn – the proportion of customers leaving a supplier – is a bad thing and no company can succeed without repeat business.
While that might hold true for most industries, businesses like long-term matchmaking and residential real estate deplete their customer base by the very nature of their work. The average person (hopefully) isn’t constantly looking for a new long-term partner nor looking to buy a new home every few months.
These problems – finding a mate, buying a home – are common to the human condition. Each new generation exhibits largely the same foundational desires as the previous one thereby making their satisfaction a continually viable business model. New potential customers should be continually entering the market even as satisfied customers are leaving it. Thus, churn isn’t a bad thing in these industries, it’s a fact of life.
How then does a business survive and grow in an industry where customer attrition is a constant and you can’t rely on repeat business? Moreover, how do you achieve and maintain a competitive advantage over rivals when you’re constantly starting from square one? For their part, eHarmony positions itself as the serious relationship site, focusing on marriage matchmaking. The time and expense required to underwrite the social science and technology infrastructure behind the service differentiates the product from free competitors like Tinder. eHarmony doesn’t see that as an issue, claiming that its market share has remained steady since the latter company’s launch in 2012.
The company’s founder, Dr. Neil Clark Warren, admits that eHarmony “doesn’t have much interest” in the 18-25 demographic targeted by more casual offerings and instead focuses on older, more earnest love-seekers in the 35- to 65-year range. This focus, combined with required time and expense positions the company as a serious offering for serious people. In effect, eHarmony has taken potential liabilities (time and expense) and turned them into points of differentiation that resonate with its target audience. Still, investing multiple hours and up to $60 per month is a big ask when people could simply “swipe right”. How then can a company reinforce a strong brand image and capture share from brand-conscious competitors?
Enter the Brand Evangelist
Philip Kotler, the renowned marketing professor, said “the best advertising is done by satisfied customers.” However, this concept takes on an entirely new dimension in industries where high customer churn is reality and repeat business unlikely. “One-and-done” businesses like eHarmony have a tremendous opportunity to capture value from their continuous outflow of post-transaction customers. This residual value can significantly compliment the pre-transaction marketing efforts designed to attract new customers.
According to Forbes.com, a brand evangelist “is a person who believes in your product or service so fervently that he or she aggressively promotes it to others.” One-and-done businesses should do everything possible to create and encourage such evangelists among their outgoing clientele. This post-transactional brand evangelism, combined with a strong pre-transaction marketing effort can combine for a strong one-two punch.
Looking at my own thoughts, words, and deeds, I can safely say that I am a brand evangelist for eHarmony. The strong experience and positive outcome from my transaction with the company led me to endorse them to a number of people over the last nine years. But how much are those endorsements worth to the company’s bottom line? According to Nielsen, 84% of consumers place a significant degree of trust in word-of-mouth (WOM) recommendations. As a corollary, Adweek reports that 74% of consumers describe WOM recommendations as a top influence in their buying decisions. Let’s look at some back-of-the-envelope calculations quantifying the bottom-line value of my brand evangelism for eHarmony:
1. During my transaction with the company, I subscribed for six months at approximately $50 per month. This results in total direct revenue of about $300.
2. Anecdotally, I would say that I recommend the site about twice per year to people looking for a relationship.
3. Combining Adweek’s assessment that approximately 3 of 4 people are influenced by WOM recommendations with an unscientific assumption that 1 in 10 of the people influenced actually purchase the service recommended, we arrive at 0.15 new customers per year influenced by me, the brand evangelist.
4. If we further assume that my experience is typical and that the average new customer will spend $300 on a subscription, we calculate in the table below that the 0.15 new users per year driven by my evangelism are worth approximately $45 to the company.
What our informal, anecdotal analysis shows us is that as a brand evangelist, I am potentially helping drive $45 in revenue per year to eHarmony after I’ve left their active customer base.
Operations is Marketing
Businesses that solve discrete problems for their clients must keep the pipeline full without the benefit of repeat business. This isn’t limited to matchmaking; other types of businesses, such as real estate and home services providers, also take advantage of post-transaction WOM marketing, even if it doesn’t reach the level of brand evangelism. How often have any of us been asked “do you know a good plumber?”
The constant outflow of customers from problem-solving businesses represents a tremendous opportunity for free (and very effective) WOM marketing based on the strength of their experiences.
Because the strength of customers’ experiences is directly tied to how well a company executes in fulfilling the value proposition, the operations budget in effect becomes an extension of the marketing budget. A continual outflow of post-transaction customers with favorable impressions of the company can enhance the effectiveness of a company’s marketing budget. At the very least, a company shouldn’t be shooting itself in the foot by having negative impressions propagate via WOM and undercut the paid marketing message.
I may have put $300 in revenue directly into eHarmony’s coffers when I was a member, but I’ve likely helped generate at least that much indirectly through WOM endorsements in the nine years since they helped me meet my wife.