An introduction to growth strategies

Possibly the most challenging part of business success is driving sales growth. How you achieve this depends on the type of business that you run (e.g. B2B, B2C, SaaS) and the competitive landscape that you operate in.

Most MBAs will introduce a range of different growth strategies taught by leading Universities (see below), with the most well-established model known as sales-led growth.

Example growth strategies:

1. Sales-led growth (focus on transaction)
   1. Suits a small range of complex, expensive products and services
   2. Focused on maximising conversion and transaction value
2. Category-led growth (focus on range)
   1. Suits a broad range of simple products and services
   2. Focused on maximising market share and transaction value
3. Product-led growth (focus on renewals)
   1. Suits a small range of complex, expensive products and services
   2. Focused on maximising recurring revenue and customer-lifetime value

All 3 of the strategies introduced so far share a characteristic: they are focused on ‘the thing being sold’. Whilst this doesn’t prevent brands from having deep customer insight and wanting to deliver value to their customers, it can cause growth to bottleneck or plateau when the product or category can no longer expand.

The solution to this challenge is a fourth growth strategy: Customer-led growth (CLG). CLG differs from other growth strategies in that it focuses on the customer rather than the product. In a sense, the actual products don’t matter in a CLG strategy. This unlocks new ways of thinking and new tactics that can prevent stagnation, and drive sustainable, profitable growth.

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Customer-led growth (CLG)

Customer-led growth is a sales strategy that relies on treating your customer base as your primary revenue-generating asset. One of the best examples of customer-led growth businesses is Amazon: what you buy from Amazon is not the most important element of their business model, instead the entire company has been set up with a set of capabilities that allows it to extract value from its customer base in a variety of ways. And customers generally love it.

Unlike product-led companies where the whole goal is to maximise transaction size and renewals for specific products, customer-led companies focus on transaction frequency and total customer spend across a range of offerings. Customer-led growth

• Suits a broad range of simple products and services; and
• Focuses on wallet share and customer-lifetime value.

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CLG objectives

Customer-led growth aims to develop customer performance (i.e. the asset) in four directions:

1. More engaged customers
   • Share of attention
   • Volume of customers, frequency of engagement, and value of engagement)
   • Part of the
2. More customers
   • Share of market / segment
   • Scale / volume
3. More spend per customer
   • Share of wallet, loyalty
   • Frequency and value of spend
4. More profit per spend
   • Cost-to-serve
   • Unit economics (transaction and customer as two compatible units)

Achieving momentum in these four objectives provides a platform for sustainable growth, and the prioritisation of the objectives will depend on current customer performance and the opportunities and challenged faced by the business at the time.

Ultimately the 4 objectives listed above will all contribute to Customer Equity (the sum total of all Customers’ Lifetime Value), which represents the full value of the customer base asset.  This metric can be used as a company valuation approach.

The first objective (more engaged customers) is a lot more than simply a leading indicator of the other three…it is an absolute objective, and a measure of asset performance (where the customer base is the asset).

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CLG actions / movements

CLG strategies employ a range of tactics and actions to drive customer performance. Brands will choose the growth movements that best support their priority objective / direction. Examples include:

• Opening new channels (drives more customers).
• Launching in new markets (drives more customers).
• Launching new propositions (drives more spend per customer, and potentially more customers).
• Improving cross-merchandising (drives more spend per customer and more profit per spend).
• Lowering cost-to-serve (drives more profit per spend).
• Increasing digital interactions (drives more engaged customers).
• Ensuring customer satisfaction (drives more engaged customers).

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When is a CLG strategy useful?

Each of the 4 growth strategies described has a set of valid objectives and tactics, and organisations can be successful regardless of their chosen strategy, and could even blend aspects of different strategies.

However, CLG is ideally suited to brands in a :

• Brands that want to differentiate on customer experience;
• Brands that have built a strong customer base with an initial core proposition (and who want to grow further); and/or
• Brands that have reached a plateau in growth.

And how new (startup) brands will employ CLG will be very different to how more established businesses (i.e. those with an existing customer base that they can develop) will.  

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Arrange an initial discussion with us to figure out how you can unlock the potential of Customer-led Growth.