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Growth: User Acquisition vs. User Engagement

In the first three posts in this series, we looked at the different layers of the marketing tech stack, followed by detailed looks at user acquisition and engagement and the layers of the stack that make acquisition/engagement easier or more effective.

In the third post, we also set the stage for a conversation about growth and how it relates to the marketing stack. As mentioned there, the key steps of growth marketing are:

  1. Identify what “growth” means in your business and at your stage of development.
  2. Isolate the individual levers that can drive this growth.
  3. Systematically measure, test and optimize each lever, with the growth metric(s) as the optimization goal.

This is pretty general advice, so in this post, we’ll start layering on a few things to develop a richer framework around how to think about growth in the context of the marketing stack.

In terms of step 1, identifying what growth means, the first thing to mention is that while growth can come from both user acquisition and user engagement, their relative importance is not always clear and depends on company priorities at any given time.

As an aside, we’ve seen articles that suggest growth and engagement are entirely different and separate things. In our opinion, this is a narrow, and dangerous, point of view. User engagement can contribute just as much as user acquisition to a company’s growth goals over time.

Defining growth as only user acquisition runs the risk of seriously unbalancing a company’s economics. As an example, many e-commerce companies have found themselves in trouble after acquiring expensive new users and finding that they haven’t put enough effort into encouraging existing users to become repeat customers.

In the rest of this post, we’ll look at how to strike the right balance in more detail.

We can think of the factors that drive an emphasis on acquisition vs. engagement in three ways:

1) First, there is market penetration. At the extremes, it’s easy to see how acquisition vs. engagement shakes out:

  • A brand new startup has to first acquire users before it can do anything about engagement
  • A dominant company that has almost full penetration (e.g., Facebook in the U.S.), will be almost entirely focused on engagement

Most companies are somewhere in the middle, having to both acquire and engage users in order to get the best results for their business. But their area of emphasis will often change as they grow.

2) A second lens is a company’s business model (i.e., how they make money). A company that monetizes through advertising will need users to come back to their site/app again and again, and may, therefore, emphasize engagement. In contrast, an e-commerce company may emphasize acquisition (and an initial purchase). Of course, as above, the emphasis may change over time — after all, most e-commerce companies will eventually want to drive follow-up purchases, which will require more engagement.

You can argue that a subscription company will be solidly in the middle — they will constantly want to attract new customers while engaging customers in order to reduce churn and increase lifetime value.

3) Finally, product characteristics may also influence acquisition vs. engagement. For example, a product that is highly viral may reduce the need for other acquisition efforts, letting the company focus more on engagement. On the other hand, a product that benefits from network effects (i.e., it becomes more useful as more users join) may have the luxury of not having to worry about engagement and may instead focus on acquisition.

An especially interesting scenario is that of a marketplace (or two-sided platform): to get the right dynamics in place, a marketplace may want to focus on acquiring users on one side of the platform (e.g., the paying side, often the “sell side”), while doing as much as possible to engage the other side (e.g., the free side or “buy side”).

It’s important to note that we aren’t saying that either user acquisition or user engagement is more important than the other. Nor is there always a specific right answer for which one to focus on. We are saying that, since most companies have limited resources, they will often have to choose what aspects of growth they focus on for periods of time, and the above criteria may help in figuring out the right mix.

Iterable

Iterable is the growth marketing platform that enables brands to create, execute and optimize campaigns to power world-class customer engagement across email, push, SMS, in-app and more with unparalleled data flexibility. An integrated, cross-channel solution—built for marketers, trusted by engineers, designed with intelligence.

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