Commercial services rely on converting users to paying customers
The business logic of many commercial digital services revolves around the concept of a conversion funnel – or, increasingly, a repeating cycle of conversion to advocation to new conversion. Getting retail shoppers to buy your products via recipes and offers, turning media consumers to paying subscribers with compelling content or selling your physical product by being there at the moment of inspiration are all ways of converting users to paying customers.
The practice of mapping the steps of your customers' journey and considering how to engage them at various points throughout is standard practice in the industry. Modelling is used to make assumptions about client volumes and conversions, business cases are built on these assumptions and projects funded on the returns promised by the business cases.
What happens much less frequently is de-risking the investment by validating your volume and conversion assumptions in real life scenarios before committing to the project investment. Early validation equals early iteration, helping you not only validate business case feasibility, but also optimize your conversions from day 1. We recently did just this with one of our clients, a large global manufacturing and services company.
The funnel in our service
Typically, it all started with a great idea. Our client had identified an opportunity to tap into volumes of potential clients in the physical world and be there at the moment of inspiration by providing a new digital sales channel in the form of a valuable service.
The service in question is targeted at environments where all passers-by are known to be consumers of the product our client is manufacturing. The service itself provides a mobile accessible report, giving information on the condition of your individual product (the service has this information) and comparisons to new one with practical and understandable terms. Call-to-actions to renew your product are provided on the report page.
In our case, the funnel had four basic steps:
- Unique users – the overall volume of passers-by. For this we had a sensible starting estimate based on the average volumes of people in the target environments.
- Potential clients – a subset of unique users with a need for the product. This can be accurately calculated based on product lifetime and the fact that people in the target environment are all consumers of the product.
- Engaged clients – a subset of potential clients who pay attention to and engage with the new service (a click-through-rate, really). For this, we had no sensible estimates as the service in question was new, with no good reference points.
- Paying customers – a subset of engaged clients who actually end up purchasing the product. For this, we started with our client’s market share.
After mapping the funnel, it was clear that, first and foremost, the question was the percentage of potential clients who actually pay attention to and engage with the service and the channel. And of course, how people would react to the service itself given its novel nature.
Testing and validating our assumptions
To test and validate this, we created a fake service that closely resembled the real one. The fake service had a sample report, as well as a form with a few simple questions. 40 branded flyers with the key value proposition and call to action were created to advertise the service and 40 SMS messages sent to people whose contact details were obtained from our client’s CRM system. Google analytics was used to help us track consumer behavior.
SMS messages were sent in two batches of 20 and flyers were distributed in two target environments during the day and during the evening. The target service itself would be free for the consumers. The cost for consumer is taking the time and effort to enter the service URL to your mobile browser or follow the SMS link.
Out of the 80 trial consumers, 46% engaged with the new service. This was largely independent of the advertisement medium (SMS or flyer) or the target environment. Of these, 41% also took the time to respond to our survey. With the survey respondents, the initial reaction to service messaging (that is, the SMS or the flyer) was 83% positive and reaction to the service itself was 93% positive! There were zero escalations and one person even contacted us enthusiastically later on, with ideas related to developing the service.
As a result of this simple trial, we have a far better figure for the engagement percentage (we used 40% in our calculations vs. the measured 46%) and the overall funnel as well as business case. Given the very positive consumer reactions, we also knew we’re on the right track.
This trial was conducted to understand the biggest unknowns at the time: engagement percentages and consumer reaction. With this information, there’s enough backing to proceed. The goal of the next step is to validate whether we can achieve sustainable small-scale business success with the service. For this, we need to validate the technical reliability of the service, get even more accurate figures for all funnel percentages and, most importantly, test the actual conversion of service users to paying customers. This phase of development will cost around 10-15% of the final project investment (or ~2% of overall cost in case of maximal scaling scenario).
Of course this trial was not a single, isolated event, but rather a step in a continuous flow of lean service creation activity. It is vital to understand that in a digital service, everything influences everything else – strategy, business modelling, marketing, service design and development need to go hand in hand and iterate continuously between the abstract and the concrete.
Build, measure, learn, repeat.