Amplitude recently hosted an expert discussion on product-led growth (PLG) and how it can fit into your business. The speakers were Elena Verna, head of growth at Amplitude and a partner with Reforge, and guest Brandon Purcell, VP and principal analyst at Forrester.
Elena and Brandon discussed:
- How PLG has become increasingly important in the B2B world
- How to overlay PLG over your existing growth motions
- Why customer data is critical to this process
- The importance of driving insights from customer data
- How to maximize customer lifetime value (CLV)
Watch the full discussion.
We mistake growth for a linear process
Regardless of what industry you’re in, you likely have some product that you’re building and hoping to achieve success with. But success depends on much more than having a product. Elena argued that “there are a lot of incredible products out there that never see the light of day because they didn’t have a distribution system attached to them.” Growth comes down to having effective distribution for your product.
You also need to find product market fit (PMF)—identify a market problem that you can solve with your product. Once you’ve found PMF, we’re often taught that to grow our business, we need to:
- Build a product
- Market it
- Sell it
This process is often presented in the form of a sales funnel. The process starts by acquiring a customer, activating them, retaining them, generating revenue from them, and eventually obtaining referrals from them. But one of the major issues with only looking at growth through this process is that it creates a number of departmental silos.
To build your product, you rely on product management, engineering, and design teams. To market your product, you turn to your marketing team, and to sell, you rely on your sales team. These siloes can be an issue because success in one department doesn’t automatically mean success in another.
For example, you might have a successful marketing campaign and acquire numerous prospects, but you fail to convert them into paying, loyal customers. This could be because your product might not be a good fit for the audience you’re targeting with your campaign, so the funnel fails at the sales stage.
Another major flaw with the funnel approach to growth is that it’s a linear growth mechanism. This means that you have a start and an end. To maintain this model, you need to pump more people, tactics, channels, and money into the top in order to get something out at the bottom.
A new way to look at growth using loops
To tackle the issues that come with a linear growth model, Elena argues that we need to rethink the funnel and come up with a model that is:
- Resilient against competition
- Gives us compounding growth
To achieve continuous growth over time, we need to move away from funnels and view growth in a more circular motion.
At the core of this model, you have acquisition, retention and engagement, and monetization. You build your growth from this core. To do this, you need to apply user psychology and constant testing through experimentation. This system removes siloed responsibility and requires involvement from every department at each stage.
Elena introduces the concept of a growth model menu—a matrix that provides businesses with a number of options to link acquisition, monetization, and retention to product-led, marketing-led, and sales-led growth motions.
By adopting a product-led growth motion:
- Acquisition is pushed onto the users. Your current users become marketers and help you find new customers through word of mouth and other viral loops.
- Monetization is self-served. You purchase the product without going through a sales team.
- Retention comes from usage triggers. A usage trigger could be receiving a notification when another user interacts with your post on a social media platform. This encourages the user to come back and continue to use the product.
Any business should aim to hit all nine squares to some extent or another. PLG isn’t about removing marketing and sales-led growth motions. Instead, you need to overlay PLG into your current practices to help increase your competitive defensibility.
Why PLG has gained momentum with B2B companies
Product-led growth has always been popular with B2C companies. Consumers tend to be more price sensitive, which means that B2C companies have no choice but to be product-led. In the last five to 10 years, PLG started to gain popularity with B2B companies as the focus shifted away from the enterprise buyer and more onto individual employee needs.
Another reason for this shift toward PLG is that marketing-led and product-led channels have become fiercely competitive. Companies have seen an opportunity to dominate through PLG as the product has become the focal point for customer acquisition, retention, and monetization.
Getting started with PLG in 3 steps
There are three basic rules to getting started with product-led growth: observe organic pull, unlock usage, and create monetizable usage.
1. Observe organic pull
Organic pull can come from three sources—competition, user traffic, or proof of concept (POC) requests.
- Competition. You notice that your competition has started to adopt PLG tactics and is seeing success with them. This is your cue to begin investing in PLG to remain competitive.
- User traffic to the homepage or key landing pages. If you have large drop-offs on these pages, it might be a sign that you need to find a way to show people the value of your product or service sooner.
- Proof of concept (POC) requests. This is a sales-led tactic. Once the enterprise buyer starts asking for a POC or signs up for a trial, the purchasing decision is probably shifting toward the end user.
2. Unlock usage
This step is about understanding how to convert product usage into monetizable moments. After acquiring a customer, you go through two steps—activation and engagement. At the activation phase, you monetize with something like a feature wall; if the customer wants to use a feature, they need to pay for it.
But the core of PLG goes beyond the activation phase. It seeks to increase the customer’s perceived value of the product through usage triggers further down the line in their journey. This leads to greater monetization in the long term.
This process is possible by understanding the customer journey.
An example of this is Amplitude’s 10 million events per month limit for users on a starter plan. This allows free users to see Amplitude’s value and encourages them to upgrade should they need to.
3. Create monetizable usage
The customer’s perceived value of your product must be greater than the perceived price and the friction they encounter while using it. Increasing the perceived value should be the main goal of your PLG initiatives. Doing this allows you to sell your product at a better price.
Brandon and the folks over at Forrester have done great research on the topic of monetization by utilizing customer insights.
Monetization in the age of the customer
In the webinar, Brandon explains that “once you’ve implemented product-led growth, that creates a whole tsunami of data,” which can be used for customer analytics. You’ll obtain insights to provide your customers with what is known as “the next best experience.”
The evolution of how businesses function has led us to this point. In the early 20th century, successful companies were those that were considered to be industrial powerhouses. In the mid-20th century, the power shifted to companies with global connections in the age of distribution. This was also when companies started to collect mass data—financial, sales, and product.
In the 1990s, we entered the age of information, where companies started obtaining first-party and third-party customer data. Today, we have “an explosion in various structured and unstructured data sources on our customers.” Enter the age of the customer.
To successfully implement PLG, you need to use the digital data you generate when customers use your products to obtain insights and produce better, more competitive products. Customer analytics helps you win, serve, and retain your customers.
According to Forrester’s research, insights-driven companies are eight times more likely to report growing by 20% or more than the rest of their competitors. All companies have abundant amounts of data, but unless you know how to analyze it and turn it into insights, it’s useless.
The center of customer analytics and PLG is not the customer but the events—the interactions between customers and your product. This gives you contextual data that helps you better understand the customer and their journey.
The pinwheel of customer analytics techniques
There are a number of ways you can take the copious amount of data you collect from your customers and events and turn it into valuable insights that are core to your PLG. Brandon illustrates this using the pinwheel of customer analytics techniques.
In the diagram, the outer green circle shows the typical application of each technique and the blue boxes within them represent the techniques.
These are techniques that help you understand your customers’ context.
- Sentiment analysis involves new technologies like AI that can complete natural language processing to help you understand customer sentiment in bulk.
- Customer location analysis helps companies understand where their customers are geographically located.
- Customer device usage analysis shows how customers interact with your company through their devices. This helps you understand when and how you can change your customer journey.
Acquisition and retention
One of the main goals of any company is to acquire and retain customers.
- Behavioral customer segmentation allows you to segment your customers based on behavioral, transactional, and other types of data.
- Customer lifetime value analysis helps you predict which customers will be more profitable over time. Customer lifetime value (CLV) can be used as a beacon metric to give you insights into creating the stickiest user experiences.
- Customer look-alike targeting allows you to identify prospects who are most similar to your current high-value customers.
Retention and loyalty
As you move further clockwise, we see techniques that help us with customer retention but also with harnessing customer loyalty.
- Customer churn and attrition analysis helps identify customers who are at the most risk of churning.
- Social network analysis looks for connections between users. If one person churns and they’re connected to a network of customers, how likely is it that other people within that network will follow suit?
- Customer propensity analysis is a way to understand how likely a customer is to perform any type of action. How likely is it that they’ll upgrade to a higher level of service, for example?
- Customer propensity analysis helps with cross-sell and upsell analysis and product and recommendation analysis. These allow you to surface offers and opportunities to customers when they are most likely to buy.
- Finally, next-best-action analysis makes it possible to understand which potential tweak to a customer experience is more likely to award you a higher CLV.
Understanding the customer experience means you understand where you’re meeting customer expectations and where you can improve.
- Customer satisfaction analysis gives you insight based on different satisfaction-related metrics.
- Customer engagement analysis shows where your customers are most engaged, and customer journey or path analysis shows where customers are dropping off. You can take time-stamped event data and see which journeys yield the best outcomes.
The next best experience
Customers don’t only interact with your marketing campaigns, which means you need to use insights to create better campaigns and better customer experiences. Insights should inform your sales, product, and customer experience teams.
The question is no longer about what you can get from the customer. Instead, the focus shifts from inside out to outside in. What does the customer want to achieve? How can you reduce friction? This emphasizes long-term impact by striving for higher customer lifetime value.
In practice, this happens when you are trying to choose between different techniques to implement. Take a look at your historical insights and choose the technique that is more likely to increase CLV. This is what is known as choosing the next best experience.
To learn more about how product-led growth can work for your business, watch the full expert discussion. If you’re ready to start mapping your PLG strategy, use our product-led growth worksheet.