How to crack the growth code of products?

How to understand growth? I believe that the core of growth lies in "growth" rather than "increase". "Increase" is just an action. The "growth" of user numbers, stickiness and even value is the core and goal. There are too many false increases in the market with less growth, more growth and less growth, and fast growth and slow growth.

1. What are we talking about when we talk about growth?

Growth is a particularly large category, just like there are a thousand Hamlets in the eyes of a thousand people. When it comes to growth, we often find ourselves in a situation where we are like a blind man groping in the dark, with all sorts of concepts confusing us. In recent years, the United States has only coined one word - growth hacker, while in China, new concepts seem to emerge every day. for example:

Fission. Fission is a very important concept today when traffic costs are high. Its essence is to turn users into communicators and achieve user diffusion and growth, that is, to activate existing relationships and convert them into new traffic.

KOL/KOC matrix marketing. KOL refers to opinion leaders and super nodes on social networks. This concept has actually existed in communication studies for a long time. The popularity of live streaming in China this year has further amplified this concept. Super KOLs such as Wei Ya, Li Jiaqi, Li Ziqi, Sanda Ge, and Simba have an influence on user behavior far exceeding traditional marketing methods. KOLs are not only super nodes that can reach a large number of users, but also super hubs that can carry users' deep trust. By using KOLs as communication agents, brands and products can effectively shape product reputation, drive user growth and value realization. KOC refers to spreading product word-of-mouth through a larger number of core fans in the user network, thereby driving user growth.

Traffic pool. This is a concept proposed by Luckin's operation team, which is a container for accumulating user traffic. This container can exist in the user's mind, such as a brand; it can also be a purely private territory of the product, such as an app or a website; it can also be a private position of other public platforms, such as mini-programs, groups, various social accounts, etc. The traffic pool emphasizes the sedimentation of traffic value.

Growth hacking. This concept was proposed by the United States more than 10 years ago and has become particularly popular in China in recent years. The epitome of growth hackers in the United States at that time was Facebook, in addition to LinkedIn, Pinterest, Airbnb, Dropbox, etc. This concept was introduced to China 4 or 5 years ago. In the past 2 or 3 years, we have seen the lightning-fast expansion of Kuaishou and Pinduoduo, which has brought the growth practice centered on the AARRR Pirate Model mentioned in growth hacking to a higher dimension. These companies make full use of data, algorithms and experimental drivers to find high-value growth levers, and use automation and intelligence in multiple core links to improve growth efficiency and effectiveness, achieve lightning-fast product expansion, and improve long-term product retention while building more stable bilateral or multilateral networks.

Private domain traffic. The so-called private domain traffic operation is in line with the essence of D2C (Directly to Consumer) operation advocated by the new generation of American brands. In the second half of the Internet, the cost of traffic has risen as fast as the price of pork, and private domain traffic operations have become more important. In fact, the essence of private domain traffic is to operate private domain users, establish long-term emotional connections with users, and discover user value through continuous interaction. Private traffic has different focuses in different markets and cultural backgrounds. For example, in the United States, the focus of private traffic for new brands is on independent sites, apps, email direct marketing (EDM), and even the homepages and channels of Facebook, Instagram, YouTube, and Reddit. In India, Indonesia, and Latin America, where WhatsApp is a national application, WhatsApp groups may be the focus of private traffic operations. Private domain traffic is the basic foundation for user growth. Without operating private domain traffic well, it is impossible to achieve lean growth of products.

Live streaming selling goods. Live streaming shopping has been very popular this year. Whether it is the hundreds of billions scale of Taobao Live, or the popularity of Wei Ya, Li Jiaqi, and Simba, we can see that live streaming shopping is re-purchasing users' purchase decision-making process, making social influencers with personalities an entry point for shopping decisions.

In addition, there are many growth concepts such as group purchasing, super membership, second growth curve, automated advertising, dramatization of advertising materials , etc.

So, putting these concepts aside, how do we understand the essence of growth? Growth is not simply about brute force acquisition or lightning expansion. Growth is a combination of multiple strategies and a balanced allocation of models and resources in pursuit of growth goals.

Flow and stock. Many growth traders focus on traffic, but traffic comes and goes, so how much of the traffic can be converted into stock? Can the new traffic be of the same quality or even better than the existing traffic? How is the traffic growth rate? As the traffic dividend further shrinks, the optimization and refined operation of existing traffic, and even the generation of new existing traffic, have become more important.

Attract new customers and promote activation. Attracting new customers focuses on constantly finding new sources of traffic, while promoting activation focuses on improving user stickiness, including preventing churn, which are all basic paths to growth. Growth is the continuous optimization balance of the three basic operations of attracting new customers, promoting activation, and recovering churn.

Exposure and sales. Especially when you want to achieve transaction-oriented growth, you cannot just look at the conversion of front-end traffic, but must trace back to the conversion of the entire chain and look at the overall ROI.

Consumption and supply. Everyone always thinks that growth must be from the perspective of user and consumption, but this is actually wrong. In a multilateral network, we need to balance consumption-side growth with supply-side growth. If the two are not balanced and matched, there is a risk of systemic collapse. Usually, people think that consumption and user-side growth can only be achieved by improving the consumption side; however, growth experts can improve the supply structure, especially by bringing in high-quality and more diversified supply, which in turn forces growth on the consumption side. Simply considering user-side growth is a typical misconception.

Growth Hacker vs Growth Hack The term "growth hacker" was proposed by me. If a growth hacker fails to do his job well, he may become a "growth hacker". Common "growth black" mistakes include: 1) Growth does not take into account the ability of the back-end to accept orders. Too fast growth encounters insufficient service capabilities, leading to a decline in reputation and user loss; 2) Failure to match consumption with supply. That is, the platform fails to provide supply that matches the users brought by rapid growth, resulting in users getting what they want and then losing users; 3) Improper anti-cheating and anti-spam strategies are used, resulting in the conspiracy of fake traffic in the "dark world" of the Internet, which wastes people's time and money and causes chaos in the product ecology. We need to be extra vigilant about this.

Bought volume and natural volume; endogenous traffic and externally purchased traffic. After many growth links are completed, the product may bring in a lot of natural endogenous traffic, which is the so-called "natural hit" or "self-generated traffic". We need to think about how to continuously generate natural traffic in product design. Being a senior traffic buyer who purchases traffic externally and increases the quantity and quality is a very learned job. It is actually very difficult to spend money well.

Having listed so many concepts about growth, today I would like to focus on sharing the path, momentum and techniques of growth. True entrepreneurs are particularly capable of understanding the true meaning of growth and leveraging growth potential, rather than being confined to grasping specific "techniques". If you don’t have an understanding and guidance of growth at the “Tao” level, you may get lost and fall into a path of no return in your mad journey.

Many of the things I have done in the past 20 years have been related to growth, and I have experienced many pitfalls in the process. The growth system that I understand has four core modules, which can be described in Chinese philosophical terms as: understanding the way, seizing opportunities, optimizing skills, and recognizing people.

2. Mingdao: The underlying laws that drive the growth flywheel

The so-called clear path is to drive the growth flywheel, that is, to pursue the most efficient growth, it is necessary to follow the three major laws.

Law 1: Power Law

We must understand that everything in this world is not naturally evenly distributed, and the "Matthew Effect" is the truth of the world. We see this in the distribution of global wealth, successful entrepreneurs, and even the influence of internet celebrities.

When achieving growth, we must take the power law into consideration, that is, we must find the growth lever . Faced with complex growth tools and growth pressure, we often tend to fall into a situation of all-out attack and chaos. But when you are faced with 100 growth strategy options, there are naturally a few that are the most effective. To be a good growth master, you must grasp the most critical points, find the growth lever with the highest ROI, and then increase this lever to maximize the benefits of growth. Remember, not all points can become fulcrums, only a few points can become fulcrums.

Law 2: The Law of Compound Interest

There is a very inspirational mathematical formula. 1.01 to the power of 365 is equal to 37.8, and 0.99 to the power of 365 is equal to 0.03. If you are 1% better and work 1% harder than others on average every day, and focus on the right things, then after a year, you may be several steps ahead of your competitors. So keep doing the right things for growth. As time accumulates, you can use the compound interest effect of the growth lever to gain an advantage over your competitors. If you can get quick feedback, the compound interest can circulate faster, which can further amplify the growth advantage brought by compound interest.

Why can the Internet force traditional industries to accelerate their upgrades? Why do many things have to be digitized today? Because only digitalization can obtain feedback faster and more comprehensively; based on the feedback, more correct growth directions and functional improvements can be iterated; with the superposition of data-driven growth leverage and the compounding effect of rapid feedback iteration, the Internet can therefore help traditional industries evolve faster.

Law 3: System Law

All product growth is achieved through various complex systems; however, in the abstract, any complex system or structure is very simple and is just a connection of a set of elements. If we can break down these elements and identify the connections between them, we can optimize the evolutionary direction of the system. The study of how systems work is called system dynamics. Some people call system dynamics "the eye of God". System dynamics is also the earliest science to study growth constraints, dynamics and boundaries.

In a system, the connections between all things can be simply summarized into four types of connection relationships: cause and effect chain, reinforcement loop, regulation loop and hysteresis effect. The causal chain is self-evident; when the causal chain is made dynamic, it forms reinforcement loops and regulation loops. The cause enhances the effect and the effect enhances the cause, which is the "reinforcement loop"; the cause enhances the effect and the effect inhibits the cause, which is the "regulatory loop". To achieve a growth flywheel, simply put, is to find a "reinforcement loop"; in the real world, a more continuous combination of "reinforcement loops" and "regulation loops" may be needed.

It is recommended that students who have a deeper interest in growth spend some time studying system dynamics, especially the research of EF Wolstenholme. He summarized the more complex and dynamic combinations of the system's four connection relationships into four model groups and nine basic models.

The four model groups are:

1. The Underachievement model group refers to the expected reinforcement loop encountering an unexpected regulatory loop, and growth is hindered. For example, we have seen the tragedy of the commons, insufficient growth and investment, and even the ceiling on growth.

2. Out of Control model group: The expected regulation loop encounters an unexpected reinforcement loop, and the situation is out of control.

3. Relative Achievement: The expected reinforcement loop encounters an unexpected reinforcement loop, resulting in a winner-takes-all situation.

4. Locked model group (Relative Control) refers to the expected regulation loop encountering an unexpected regulation loop, triggering a zero-sum game. It usually manifests itself in vicious competition and target erosion.

I will interpret the three basic models included in the obstructed model group to see how we can understand the nature of growth based on the knowledge of system dynamics.

The first is the Tragedy of the Commons archetype, which refers to the situation where multiple parties try to profit by competing for limited public resources, and their respective benefits eventually drop to zero. It is essentially a reinforcing loop of "eat more and occupy more" encountering a regulatory loop with limited resources. For example, investing in mining machines to mine Bitcoin is a typical "tragedy of the commons." As we all know, the Bitcoin network issues a fixed amount of 12.5 bitcoins every 10 minutes to mining machines involved in bookkeeping around the world. This revenue model is a commons with rigid constraints. It is indeed profitable in the early days, but as more mining machines join in, the average rate of return will drop rapidly. When the electricity consumed by all mining machines every 10 minutes reaches the value of 12.5 bitcoins, which is equal to the mining income, everyone's income will shrink to zero, resulting in a total loss.

Similarly, in the past 2-3 years, many overseas tool companies have taken advantage of loopholes in the advertising systems of Facebook and Google AdWords and tried to monetize in violation of regulations, violating the policy red lines of Facebook and Google platforms. This eventually led to Facebook and Google banning large-scale illegal overseas tools, and even completely stopping the originally valuable advertising form, causing the overall decline of the overseas tool industry.

The Growth Limits archetype refers to a situation where a rapidly growing growth loop encounters a regulatory loop that inhibits growth, which is what we usually call the growth ceiling and plateau. In the second half when the penetration rate of mobile Internet is approaching its peak, many C-end products have reached the plateau of growth. Often, a product grows very fast because it is small in size. When the fast-growing reinforcement loop encounters the regulation loop, it will encounter a growth ceiling. Therefore, when doing investment and product development, you should always think about TAM (Total Addressable Market). If a product's TAM is naturally small, or its TAM is already highly penetrated, then even if the growth team is excellent, it is unlikely to achieve significant growth results; unless the growth team and the product team can reconstruct the system's growth loop, or remove the original regulatory loop. The second growth curve, which has been particularly popular in the past two years, is to find new breakthrough points under the growth ceiling model.

The Growth and Underinvestment archetype refers to the situation where a fast-growing reinforcing loop encounters a regulatory loop of underdeveloped or underinvested R&D, production, service, and even management capabilities, leading to a decline in service reputation and experience. In the past few years, Tesla encountered problems such as production capacity trap and lack of service capabilities. Despite a surge in users, it was on the verge of bankruptcy. It was not until the opening of the Chinese Super Factory and the expansion of its service capabilities in the past two years that Tesla returned to the track of rapid growth. Why do some people say that sometimes slow growth is fast? It is because we need to constantly examine the R&D, sales and service acceptance at the back end of growth, and even whether the audit and quality control capabilities match; timely adjust the growth rhythm and ensure that the back end capabilities are in place, in order to achieve sustained and healthy growth.

Those truly successful companies are the ones that did the right thing at the right time. They were able to follow the system laws of the obstruction model, avoid the tragedy of the commons, navigate through growth cycles, and make up for their shortcomings while taking off. Only then could they defeat the curse of obstruction and achieve exponential growth.

In short, understanding the laws of the system can help entrepreneurs use the "eyes of God" to understand the underlying logic, boundaries and constraints of the growth system and establish a more flexible growth system.

"Tao" sounds abstract, but it is related to life and death and is very important. I hope that all entrepreneurs can become “adept” at growth.

3. Taking advantage of the trend: Growth experts are all trend masters

This year, I sometimes hear entrepreneurs complain about why they were born at the wrong time. As soon as they started their business, they entered the "second half of the Internet" and encountered challenges such as lack of traffic and funds. But if you look at it from the perspective of growth, there are opportunities for entrepreneurship at any time and there is room for growth.

An anti-common sense rule is that sometimes it is easier to achieve 10x growth than 10% growth. Why do you say that? A 10% growth usually only requires optimization according to the original logic; but to achieve 10 times growth will force you to change your logic and thinking and think about the truly important driving engine. Entrepreneurs tend to get caught up in the daily operations of every detail in the early stages; but they don’t think enough about asking themselves whether there are bigger trends and growth levers that can be utilized.

Andy Grove once said that every strategic turning point shows a 10x change, and every 10x change leads to a strategic turning point. How to understand it? As an entrepreneur, you should always pay attention to the surrounding ecology, which key elements are undergoing qualitative changes at 10 times the speed, and then seize them. The qualitative changes of these key factors can affect a single element of the product ecosystem to undergo five to ten times of change in the next six months to a year.

Next, I summarized the eight major momentum dividends, including big trends and small trends. In fact, the phenomenal Internet companies in China and even the world have basically reaped these dividends, and perhaps more than one dividend.

1. Internet infrastructure is changing at an exponential rate

All of the Internet phenomenon-level companies that have emerged in this wave have seized the dividends brought by the migration of Internet infrastructure from PC to mobile Internet and from 3G to 4G, which has achieved double-speed coverage of the population. It can be said that all super unicorns are unicorns of the times. Behind their extraordinary growth is the super potential of seizing the exponential changes in infrastructure.

For example, the popularization of 4G in China began at the end of 2013, and from then until 2018, it has been increasing at a rate of 200 million new users per year. The explosive growth of domestic short video applications fits this exponential growth curve. It can be said that short videos and live broadcasts are one of the biggest beneficiaries of 4G.

2. The emergence of new traffic platforms with double speed

Seizing the new traffic platform with double speed is crucial for entrepreneurship. For many new brands, whether selling goods or services, if you have not started to use WeChat + Mini Programs in the past two or three years, if you have not taken advantage of the new traffic opportunities of Kuaishou, Douyin, Xiaohongshu, and Bilibili this year, and have not tried live streaming on short videos and e-commerce platforms, it will be difficult to break through the siege and stand out.

Although today's Internet industry has reached a plateau as a whole, there are still many opportunities when you look at it with a growth mindset. The flowers are the same every year, but the people are different every year, and new traffic platforms appear every year. In addition to the various video and community platforms mentioned above that are still growing wildly, perhaps the soon-to-be-released WeChat for Enterprise 3.0 will be one of the new traffic platforms that can be expected in 2020.

2020 is the first year of 5G. Perhaps the second half of the year or even 2021 will usher in a large wave of phone replacement. Every wave of phone replacement is a new opportunity to reshuffle the apps. The user growth potential brought by 5G may not be as great as the massive user coverage brought by 3G to 4G, but if we look at the growth of certain categories from the perspective of device coverage, it may be an infrastructure-level rather than a simple traffic dividend from a new traffic platform.

3. Generational change and the squeeze out of large platforms

The new generation pushes the old generation forward. The rise of Snapchat is the result of generational changes and the crowding-out opportunities provided by the Facebook platform . Today, there are still many young entrepreneurs trying to launch a new generation of social platforms. Although there are many difficulties, there are definitely opportunities. The essence is to use new experiences and innovations to please the new generation of young people.

4. Category Change

Entrepreneurs and investors in the consumer industry are thinking almost every day about whether they can reap the benefits of category change. When a category encounters an opportunity for structural change, either demands based on new scenarios begin to flourish, or category innovation brings new and unique features and experiences that begin to grow wildly, these may indicate that category transformation is beginning to occur. Category changes can often directly hit the minds of users and bring extraordinary growth.

For example, Luckin Coffee and Heytea, the former enjoys the category bonus of China's low coffee penetration rate, while the latter enjoys the new category bonus of boutique instant tea drinks with social currency attributes; Perfect Diary, a cosmetics brand targeting young consumers, enters the young people's cosmetics category based on its high-quality supply chain and outstanding product capabilities, and uses new traffic platforms such as WeChat, Xiaohongshu, and short videos to achieve explosive growth.

5. Technological innovation or supply chain revolution

As opportunities for to C platforms become fewer, technological changes or supply chain innovations from the B-side have become particularly important. If new technologies or supply chain reconstruction can bring about a cost reduction or efficiency improvement of 5 to 10 times or more, it will also eliminate the regulatory loop caused by the original technology and supply chain efficiency ceiling and realize a new enhancement loop; applying our previous obstructed model, the growth ceiling will be broken and the product will return to the growth track.

Also based on the winner-takes-all model in the system law, when Google and Apple were competing with Microsoft, they were faced with the Windows ecosystem that Microsoft had established and there was no possibility of breaking through, so they chose to start a new growth loop, namely the Android ecosystem and iOS ecosystem of mobile Internet. Therefore, truly great entrepreneurs do not need to fight on the old battlefield, but should seize the opportunity of technological change and decisively start a new growth curve.

6. Sudden changes in population structure

Population is one of the most important variables affecting growth in economics. Changes in the global population structure create many growth opportunities. For example, the rise of single people in China. There are more than 200 million single adults and more than 80 million adults living alone, and the number is still increasing. This has led to mini appliances becoming a standard in the lives of singles. On Double 11, single rice cookers, single washing machines and single refrigerators became hot-selling products. In the next two years, the number of elderly people in the world will exceed half of the population. Entrepreneurship focusing on the silver-haired group may have great growth potential.

7. Subculture becomes mainstream culture

We see that the more a subculture represents young people, the more likely it is to break out of the circle and become mainstream culture. The evolution of Bilibili is an example. Similarly, trendy toys are likely to evolve from a niche hobby among young people into an interest and hobby for a larger circle in the next few years. When subculture breaks through the barriers of circles and is understood and accepted by more people, it will have the opportunity to spread faster.

8. Major regulatory policy changes

Major regulatory changes can also be a catalyst for growth opportunities. For example, the rise of China's electric vehicle industry, where one out of every two new energy vehicle owners in the world is from China, is highly related to the country's strong support for electric vehicles and new energy vehicles.

The above eight potential dividends are the main scenarios and important levers that we have seen that influence the quality changes of key elements. Entrepreneurs should always think about how to leverage momentum for growth.

Trends are so important, so how do we seize the opportunity? Why are some entrepreneurs naturally more perceptive and better able to understand and grasp trends?

To summarize using concepts from economics: To determine whether traffic can become a trend, we need to detect both the leading indicator of dust rising, the coincident indicator of dust taking off, and the lagging indicator of dust flying.

For example, when investing in the secondary market, one needs to understand the economic conditions at the macro level. The GDP growth rate should be an effective indicator, but usually each country's GDP data is released quarterly. It is obviously too inefficient to wait until the GDP data is released before making investment decisions. If we can find leading indicators and seize more sensitive signals to make judgments, we will be able to grasp the pulse of the economy more promptly. For example, the Purchasing Managers' Index (PMI) is a very important monitoring indicator system among economic leading indicators, which can reflect economic changes at the beginning of each month.

If entrepreneurs learn to compile their own indicator system and track and observe changes in the industry in a timely manner, they may be able to gain knowledge that surpasses others. Some alternative leading indicators may not be accurate, but being vaguely correct is better than being accurately wrong. The growth team of a mature Internet company must compile a three-type indicator system to monitor competitors, channels, and its own products. For example, various search indexes, download volumes of competing products, changes in orders of competing products upstream of the supply chain or certain categories may all be leading indicators worthy of attention; the activation volume of App products, changes in the coexistence ratio of competing apps and one's own apps, and the number of comments and shipments on product social media may be synchronous indicators; and the traffic consumption of each app on the operator platform and the number of packages shipped by the logistics platform may be lagging indicators. Dynamic monitoring and analysis of three sets of indicators can provide insight into the evolving trends.

Next I will talk about how to optimize, that is, the practical methodology for growth.

4. Optimization Technique 1: Optimize five factors to make it easier to absorb flow

The first thing to be clear is that good growth starts with constructing products with traffic niches. Creating a good product that naturally brings its own traffic is the most important thing.

Ecological niche refers to the fact that in an ecosystem, each species has its own role and status, occupies a specific space, and performs a specific function. No two species' ecological niches are exactly the same. Those species that are able to reproduce often occupy relatively advantageous ecological niches, are more likely to obtain survival and living resources, and are more likely to avoid and defend against attacks by predators.

The Internet ecosystem also follows similar rules. Some products naturally grow in the fertile soil of traffic and can be better nourished by traffic. I define this characteristic of Internet products as "traffic niche" , which means that products and services have the physique and potential to absorb, carry and diffuse traffic, making it easier to accumulate traffic potential and create natural hits.

Good products usually have the following characteristics or factors. If you do it right, your product will usually naturally attract more traffic than other products.

1. S factor/search factor

In essence, Internet traffic can be divided into two categories: search traffic and social traffic. Of course, part of today's search traffic has evolved into recommended traffic; in addition, today's searches are increasingly integrated with communities and scenarios. For example, there are a large number of searches on YouTube, Instagram, and Amazon.

It is inconvenient for mobile users to input data manually in many scenarios. Coupled with the prevalence of recommendation engines, search is often easily overlooked. However, search is still an important source of traffic today. For example, a large proportion of Zhihu's traffic comes from search; one of LinkedIn's core growth strategies is to optimize personal profiles for search engines, which is conducive to crawler crawling and search engine inclusion. In turn, search engines naturally divert traffic to drive LinkedIn's growth.

If a startup company can optimize some features for search engines, create a sufficient number of words, be crawled by crawlers, and perform targeted optimization for different search engines, accurate traffic from active searches will naturally emerge.

In addition to general search optimization (SEO) for Google and Baidu, today's search is being integrated into more and more scenarios.

For example, store search optimization (ASO) is increasingly important today. To some extent, App stores are reducing the weight of traffic brought by rankings and increasing the weight of searches and recommendations. ASO does not mean to add keywords, but to modify the features of the product in a way that makes it easier for search engines to index it. For example, optimizing the collection of high-frequency words and store search rankings, expanding the collection of massive long-tail words, active and real-time comments, etc.

Social search optimization (SSO) is also worth paying attention to. Today, the search function in WeChat has become an important traffic entrance. The search results are direct. When searching for a public account, brand, or mini program, you can hit the keywords to directly display the relevant results within the public account and mini program, and quickly complete the transaction loop. The targeted optimization of WeChat’s search function by mini programs in 2020 may bring unexpected growth dividends. Similar social platforms also have search dividends that can be explored.

Finally, there is e-commerce search optimization (ESO). JD.com and Alibaba are essentially search companies. Search is the core distribution logic of goods, and targeted optimization will naturally bring good returns.

2. I factor/interaction factor

A good product should learn to use gamification design, interactive design and IP attributes to create flow for users.

First of all, the appearance of the product is very important . 80% of the receptors in the human brain are related to vision, which requires good product design.

Secondly, if the product has good gamification design, users can easily enter a flow state . The term "flow" was proposed by psychologist Mihaly Csikszentmihalyi. It refers to a psychological state that people experience when they are concentrating on a certain behavior - entering a state of selflessness and forgetting the existence of time.

Good flow design should give people clear goals and timely positive and negative feedback. Why do people feel great about buying things on Pinduoduo? Because Pinduoduo’s product design contains a lot of gaming participation and reward mechanisms, which make people produce dopamine, become excited, and don’t feel pain when spending money.

It is also very important to design good authoring tools into the product. Many traffic-based products can provide users with good creative tools and encourage users to share and produce content. According to the endowment effect in behavioral economics, once an individual owns an item, his evaluation of the value of the item will be greatly increased compared to before he owned it. Therefore, the platform will encourage users to create. For example, LinkedIn encourages users to create resumes. Once you pay the time cost and participate in creation, the probability of you staying on the platform will increase.

3. H factor/hook factor

There are two types of "routines" for Hook Factor. The first type is value-forward , using popular and lead-generating products to accelerate user entry into usage. For example, if you are selling high-priced products with long decision cycles, you can design drainage products to attract users to complete their first order and then guide users to convert. Taobao's early rise was based on the "9.9 yuan free shipping" strategy; Tmall has a similar strategy every year on Double Eleven, where users pay a deposit first and then get a double refund on Double Eleven, so the probability of users breaking their promises is extremely low.

The second category is value reservation , which extends user retention. When designing a product, users should be left with some regrets or thoughts every time, leaving a "hook" to attract users to come back again. For example, half-price for the second cup, coupons for discounts on purchases over a certain amount, etc., are actually all value reservations.

When investing in consumer products, I also prefer products that are natural and have a memorable taste. Why do Moutai and Coke always sell so well? Why are the stock prices of Fuling Zhacai and Haitian Soy Sauce performing so well? In addition to brand recognition, they actually have taste memories and weak addictiveness, and come with their own hook factors.

4. K factor/fission factor

When it comes to growth, we often talk about how many users return when N users forward your product or content. Sometimes KOLs forward content and spread it through fans, which can lead to a huge return flow, and the K factor becomes very large instantly; sometimes, because the product has vitality, the K factor is very stable, but it can continue to win user reputation.

In product design, we can design viral creation tools, optimize forwarding scenarios, mobilize social KOL/KOC participation, and accelerate product diffusion and fission.

5. W factor/reputation factor

Word-of-mouth factor is also very important. Good reputation brings its own growth momentum. During the product design and growth process, you can stimulate user participation and build a core fan base for the product by providing a more friendly word-of-mouth collection and feedback mechanism.

In growth hacking, there are also some indicators to judge word-of-mouth factors. For example, a user disappointment survey asks users how they would feel if they could no longer use the product. If more than 40% of users answer "extremely disappointed", it means that the product has good room for growth.

Net Promoter Score (NPS) is also a frequently measured indicator. Tesla, Peloton, Apple, etc. have relatively high NPS indexes, which will provide invisible support for the brand and drive growth.

5. Technique 2: Digitalization drives optimization of growth and revenue

After talking about how to optimize the five factors and make the product easier to attract traffic, let’s look at how to optimize growth revenue based on digital drive.

1. Rich user portrait dimensions are the foundation of growth hacking

First of all, it needs to be made clear that rich user portrait dimensions are the foundation of growth hacking and the core basis for product optimization, retention improvement and transaction conversion. Mature Internet companies are constantly capturing user portraits. In addition to natural attributes, today's user portrait dimensions will also examine scene attributes and social attributes.

If we look at growth from the user's perspective, there are three core things, which are often referred to as the "three axes of growth" - attracting new users, activating users, and preventing churn.

The core of attracting new users is to constantly look for changes in traffic sources and value depressions, and to increase the potential of retained traffic; activation focuses on improving user stickiness, increasing user frequency, and maximizing the conversion of traffic momentum; and preventing churn focuses on optimizing uncomfortable user experiences, rebuilding user trust, actively awakening low-frequency users, and fully tapping into user dividends.

To analyze user portraits, you first need to examine the natural attributes of the population, such as region, age, gender, etc. A mature growth team will also conduct cross-research on these attributes;

Then, through behavioral characteristics, we continue to look for high-value user behaviors and focus on optimizing these characteristics, because these characteristics are important growth levers. Behavioral characteristics can include browsing content, social network/node distribution, purchasing behavior/consumption interests, etc.

In addition, the environmental attributes need to be analyzed based on the user's scenario. For example, takeaway products need to consider weather attributes, live broadcast products need to consider the user's network environment, and so on. Facebook's growth team will target users in regions with relatively poor network infrastructure such as Africa, Latin America, and India, and work with operators to create a lightweight product, Facebook Lite, which does not require data traffic, to achieve rapid growth.

2. Conversion Funnel: From AARRR Pirate Growth Model to RARRA Lean Growth Model

The traditional AARRR funnel model is also called the "Pirate Model". It is a five-level funnel, including Acquisition (user acquisition), Activation (user activation), Retention (user retention), Revenue (revenue), and Referral (user recommendation).

The AARRR funnel model is a typical traffic dividend thinking, which is to maximize the traffic opening and reduce the loss at each layer.

The improved RARRA growth model focuses on improving user value and efficiency dividends, maximizing traffic collection, improving user stickiness and fission efficiency, and pursuing the most efficient growth. RARRA is in line with the concept of lean entrepreneurship, and I call it the "lean growth model."

The RARRA model emphasizes that Retention (user retention) is the first priority and the core of all growth optimization. It cannot retain users' products. No matter how powerful the functions are or how innovative the design is, it is worthless. Different types of products have their best practices for different retention indicators. For example, Facebook’s classic “40-20-10” rule is a reference retention indicator that evaluates whether a content or community social product is basically passed.

After the Retention (user retention), optimize Activation (user activation) and let the user find the moment as early as possible; then optimize Referral (user recommendation), improve fission factors, expand sharing scenarios, and drive sharing reflow; on this basis, calculate the Revenue model (earning profits), the accounting unit economic model (UE), and after having positive gross profit or achieving the ROI target, finally consider Acquistion (user acquisition), and in the user acquisition process, the same as based on retention and UE model, optimize channels, materials and new user experience. This cycle repeats itself, and iterates and optimizes based on data and experiments until it reaches the optimal equilibrium point of new incremental orders, retention and UE.

The RARRA lean growth model, which reflects efficiency-first, provides an implementation tool for advocating the construction of minimizing products (MVP) and realizing PMF (product market matching) in lean entrepreneurship. Because retention is the first indicator to test product value assumptions, only when retention meets the standards can it be determined whether the MVP is successfully built. After entrepreneurs raise retention to a certain indicator, they can calculate which part of other links is the best, that is, find the best growth leverage and first optimize it in a targeted manner, and then consider other links. When RARRA reaches a certain combination value, it can be inferred whether it has reached PMF by benchmarking with the industry's best products, combined with user research and NPS. Only in the state of PMF can we truly consider large-scale buying growth.

RARRA is not only suitable for pure Internet apps. For entrepreneurs with enterprise services, hardware + software services, online and offline new retail, or DTC brand entrepreneurs, they can also use the lean growth model to optimize product and operational efficiency. For example, many entrepreneurs in the fresh food track only focus on new customers, orders and GMV, but do not spend enough time to optimize user retention, repurchase and frequency. On this basis, adjust the supply chain and optimize UE. The final result is also seen by many companies in a mess. On the most difficult track, we must respect and abide by the laws and disciplines of lean growth. If the growth of a startup company is not based on retention, but simply attracting new products and cannot find optimization leverage, the outcome will definitely not be too good.

3. Behavior slice

The so-called behavioral slicing means constantly grouping and subdividing user data, also known as "Cohort Analysis" (group analysis or concurrent group analysis). And through slice analysis and sufficient dataization, a correlation model between user behavior and RARRA is established to find the most important point to be optimized. Based on the slice analysis of the massive multi-dimensional behavioral data of users, many deep insights and counterintuitive relationships in the product can be found. The most commonly used scenarios for slice analysis are to group channels and materials, corresponding to retention or revenue, and optimize the purchasing efficiency. However, various behaviors of new users, various interaction strategies and algorithm strategies during use, can correspond to the four goals of RARR separately for combination analysis. In this process, you can get many magical numbers to help you find the best optimization points.

For example, it can be analyzed which user behaviors will lead to high retention. For example, Facebook users follow 7 friends within 10 days and Baidu's first search satisfaction rate is more than 50%, and users will have good retention. They can optimize the product targeted for such slice analysis.

Many entrepreneurial teams analyze growth channels, user volume or sales data, but do not pay enough attention to recording and understanding user behavior, and fail to deeply establish the relationship between user behavior and retention, activation, recommendation reflow and transaction conversion. Slice analysis ability is one of the most important tools to help an entrepreneurial team establish cognitive poorness, and it deserves special attention from entrepreneurial teams.

4. Retention analysis, Polaris indicators and aha moment

As mentioned earlier, retention is the starting point of growth optimization. When conducting specific retention analysis, we should also observe it in multiple dimensions, including the retention status of new users and old users; retention from short-term to medium-term and long-term. The essence of retention is to enhance the user's sense of value and increase the user's switching costs. In creating long-term user value, we should add more "hooks" to the product and increase the "sinking costs" of users. This is also why short video platforms need to do shopping, from entertainment entrances to life decision-making entrances; and users interact with anchors for a long time in the live broadcast room, gradually transforming from weak relationships to strong relationship platforms with companionship attributes, thereby driving the formation of long-term relationship chains and generating long-term value.

As a product manager and entrepreneur, you must think about the long-term value of the product and where the long-term barriers are, otherwise your moat will be very narrow.

The so-called "Polaris indicator" is also called "OMTM", which refers to the only important indicator of a product that can predict the long-term value of a product. The North Star indicator is not necessarily directly linked to monetization, but it is highly related to future commercialization. Different industries and products will define different Polaris indicators, but a few points to pay attention to:

Some vanity measures must not be defined as the North Star indicator. For example, simply looking at the number of registrations without considering user retention and activity.

The Polaris indicator should be guided and can be broken down into a series of executable indicators through appropriate framework analysis, namely the "star indicator". For example, LinkedIn's Polaris indicator is Quality Sign-ups with 5 social relationships, including improving personal information, listing at least one job information, establishing at least 5 connections, opening social permissions, and being able to be searched by other LinkedIn users.

A good Polaris indicator is long-term and directed, but is not a vain indicator, and is related to monetization and long-term value. There are usually three categories of Polaris indicators: attention as the core, trading volume as the core, and creativity as the core.

For example, Facebook's Polaris metric is "effective browsing time for information flow advertisements", Netflix's Polaris metric is "number of subscribers who watch content more than X hours per month"; Amazon's Polaris metric is "purchased per Prime member", Walmart is "purchased per user"; Salesforce's Polaris metric is "the amount of customer data recorded in each account", and Adobe's "the number of subscriptions for cloud users".

Source: Amplitude

The so-called ah ha moment refers to the moment when users’ eyes lit up or become heart-wrenching by using products. At that moment, users discover the core value of the product: why it exists, why it needs it, and what it has already obtained. Ah, if it can be continuous at all times, it will form flow. The product we said is "toxic" and this is how it feels. Ahha, you can extract the behavior combination corresponding to the user at that moment through slice analysis. By understanding the internal logic of this combination of behavior, you can guide users to enter the Aha Moment as soon as possible on the product, and you can also guide the buying team to find users who are easy to enter the Aha Moment as much as possible.

5. Establish a test system

When it comes to testing systems, the most familiar thing for A/B testing is A/B testing, that is, two plans formulated for the same optimization goal (such as optimizing purchase conversion rate), allowing some users to use Plan A, and the other users to use Plan B, and through statistical comparison and analysis, the plan is selected to improve operational efficiency. Usually, our product strategy or growth strategy often makes decisions in advance, make decisions based on reasoning, and do A/B tests, and then choose the best strategy that has been verified afterwards.

A/B testing is very suitable for online products with a certain user scale, but for early start-ups, products with small data samples or offline are also important links to experience, the availability of A/B testing is greatly reduced. At this time, simple grayscale tests and A/A comparison tests are often more meaningful and can help verify product value and growth assumptions.

Even for products that are particularly effective in A/B testing, growth teams should be particularly alert to the limitations of decision-making based on A/B testing data. Because people tend to select data that supports their own views, there are also data usage fallacies such as survivor bias, coupled with the limitations of modeling and incompleteness of data, blindly believing in the results of A/B tests and failing to sort out the logic behind the data may often go against expectations.

6. Traffic pool operation

Today we will think about traffic again, and we need to change from the thinking of obtaining pure traffic to the thinking of traffic pool operation. Today, traffic can be divided into three categories. The first is "natural traffic", that is, the traffic brought by the product power of the extremely popular products mentioned above + the ecological niche with its own potential energy; the second is "paid traffic", that is, the traffic purchased, including the continuous operation optimization of information flow, search, application stores, and e-commerce platforms. You should understand the platform rules and strive to achieve the ultimate; the third is "operation traffic", and more effective methods include KOL link empowerment, continuous wave-making ability, and subculture and community operations. In fact, this is also an important means to build brands and build users' minds in the new traffic era.

Private domain traffic has been very popular in the past one or two years. From the perspective of traffic pool operation, we must sublimate from private domain traffic operations to the operation of private domain users and KOL networks. The core is to accumulate trust capital of specific groups and promote the exponential expansion of products or services.

6. Know people: Obtain growth leverage through cognitive management of the mind

To grow, you must finally learn to "know people". Most decisions in daily operations of growth teams are made based on data. Over time, the team may fall into the "indicator hallucination" and ignore the people behind the data. We are used to abstracting users into a group, but there are no two users in the world who are the same. Each user has different preferences and cognitions. Users will make different decisions and behaviors in different scenarios. User preferences and cognitions can also be shaped and changed. Users always pursue the maximization of their total personal utility. Although users pursue rationality, their ability is limited and their attention is limited. Users can only achieve limited rationality.

Understanding the limited rationality and decision-making process of users as humans can help growth teams design solutions that minimize user cognitive friction in every link of RARRA, and can also help us how to effectively help users create long-term value and achieve continuous product growth.

Regarding the principles of identifying people, economists, psychologists and sociologists have summarized many particularly important theories in the past few years, which are very helpful for understanding users' decision logic. I will briefly introduce a few more valuable practical things.

1. Dual System Theory

The first theory is the dual system theory, which is detailed in "Thinking, Fast and Slow" by Nobel Prize winner Daniel Kahneman. He believes that there are two modes of human brain activity, System 1 and System 2. System 1 is quick thinking, or intuitive thinking, which represents instinct and habits, can make quick decisions and consume less energy. This is also formed in human evolution. 95% of human decisions are made by System 1. System 2 is slow thinking, or rational thinking, which represents human logic and rationality. Its activation is passive, slow, energy-consuming, and there is consciousness control. Only 5% of human decisions are made by System 2.

The dual-system theory’s implication for growth teams is that people have cognitive biases. According to research in behavioral economics and psychology, people have about 200 cognitive biases; cognition of these types of bias can reduce the cost of users’ selection, increase the conversion rate of users’ usage, and increase growth momentum. Typical cognitive biases are:

1) Attribution fallacy. Since a sufficiently simplified theory can be used by system 1, people tend to simplify attribution when encountering things. It is better to attribute success to yourself and failure to the environment or outsiders.

2) The anchoring effect refers to the fact that when evaluating things for unfamiliar things, they will regard familiar similar things or unrelated values ​​that they have only been exposed to recently as "anchor". There are many concrete manifestations of the anchoring effect, such as the peak and ending law proposed by Kahneman, which refers to the deepest experience of the user's product experience. Experienced growth operations can design a range of peak experiences that improve NPS and product conversions. There is also a concept that we often operate - psychological accounts. People have corresponding psychological accounts in their brains for different scenarios and consumptions. Each psychological account has its own budget and a separate reference system. Usually, you don’t have much pain in spending what you don’t have much effort, including unexpected income, unplanned bonuses, etc. In addition, you are more willing to invest in expenses involving physical health, family affection maintenance, good luck and arousing positive psychological hints. These can be used in marketing and pricing. Other concepts such as framework effect and endowment effect that everyone can pay attention to.

3) Discrimination and stereotypes, such as various regional discrimination and occupational discrimination; there are also halo effect and the primacy effect (first impression). Understanding these is very important for us to establish a positive product personality and leave a good experience for new users. There are many other cognitive biases, such as loss aversion, self-centered bias, digit proportional illusion, etc. I will not go into details today.

2. Cognitive dissonance theory

The second theory is the theory of cognitive dissonance. This was proposed by social psychologist Leon Festinger in 1957 and is one of the most core theories in communication science, especially in the field of persuasion. Simply put, human cognition is composed of many cognitive elements (referring to any cognitive, opinions and beliefs about the environment, individuals and personal behavior); there is a coordinated relationship, an inconsistent relationship and an unrelated relationship between these cognitive elements. When an individual finds that he holds two or more contradictory cognitive elements, an incongruent state occurs. Festinger listed four types of dissonance: A) logical inconsistency; B) cultural customs inconsistency; C) cognitive relationships inconsistency; D) past experiences inconsistency.

When cognitive dissonance occurs, the individual will feel unhappy or nervous and anxious psychologically, and will have the motivation to relieve the dissonance and the attitude will change accordingly. In addition to trying to remove inconsistencies, one can also actively avoid scenarios and information factors that may increase these inconsistencies.

There are usually three ways to reduce or eliminate cognitive dissonance: 1) Change behavior, such as hearing that milk tea makes people fat, choose not to drink or drink less; 2) Change cognition, such as admitting that you are a foodie, or hearing that milk tea can relieve anxiety, so you don’t feel guilty when drinking it; 3) Introduce new cognitive elements, such as investigations have proven that milk tea is not high in calories compared to lattes and cola, or these ingredients are easier to metabolize, so drinking milk tea will not gain weight, so you can continue to drink it.

Brands are essentially cognitive management, and the underlying logic of cognitive management tools is to design communication and communication models based on cognitive dissonance/coordination theory. So if a new brand finds its positioning and how to effectively build a mind, it can get a lot of inspiration from the theories of cognitive dissonance and coordination.

3. Flow experience

The third theory: flow experience. Flow is a concept created by Mihaly Csikszentmihalyi, the father of positive psychology, and is a theory about creating the optimal psychological experience and finding happiness. Flow refers to the person who is fully committed to feeling it in a certain action. The generation of flow will create the illusion of time perception, and for a long time I have not felt that time has passed or even forgotten the existence of the self. This state is very similar to the state where people are engaged in playing games. Therefore, flow is widely used in game design, and this advanced concept has begun to be used by some growth experts in community and social products, e-commerce products (Pinduoduo is a classic case, as well as Alipay’s gamified design), and community operations of new brands.

The general conditions required for flow generation are: 1) Have a clear goal, which is to stimulate the purpose and source of happiness of flow; 2) Timely feedback to tell us whether we are close to the goal, and approaching the goal is to generate positive feedback of the enhancement circuit; 3) Continuous optimization challenges, which create challenges that match the user's capabilities, usually exceeding 5%-10% of the ability to become interested. According to the flow channel diagram, when the user's ability is higher than the challenge, leaving the flow channel area is boring; when the challenge exceeds the ability, leaving the flow channel area is anxious. Only when users constantly match challenges and abilities dynamically, users can stay in the flow channel.

There are other theories, such as the theory of transaction costs and utility of microeconomics, and the design of peak experience based on Kahneman's final law, which is also worthy of careful appreciation of growth and product managers and applied in the actual growth battle. In short, to advance to becoming a growth expert, not only must you have strong data analysis capabilities and a lot of trading experience, but you must also draw nutrients from psychology, economics, system dynamics, statistics, and sociology, and have a deep understanding of human decision-making and the underlying logic of complex systems, so as to gain the cognitive advantage of understanding the laws of growth.

Today, when growth has become an eternal pursuit of entrepreneurs, I hope that the growth combination of "understanding the way, taking advantage of the momentum, improving skills, and knowing people" can help entrepreneurs gain knowledge, common sense and intelligence for growth, and form the rules, mind and fighting methods of growth. Thanks!

Author: Liu Xinhua

Source: Gaorong Capital (ID: banyancapital)