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AARRR Growth Funnel

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Growth Hacking is neither “scoring some quick wins to kick-start growth” nor “breaking into something one should not.”  It is an important element of Marketing aimed at organizational growth.

The term Growth Hacking was first coined by Sean Ellis—a startup advisor, angel investor, and entrepreneur—in 2010 to think beyond traditional Marketing and add a methodical, scientific approach to it.  It was Andrew Chen who gave the term widespread exposure through his blog titled, “Growth Hacker is the new VP Marketing.”

Growth Hacking involves reevaluating the way a product is developed and marketed. It necessitates:

Growth Hacking has been greatly misunderstood by entrepreneurs and executives alike, owing predominantly to its eccentric name.  Some of the common myths associated with the term include:

  • It implies a secret sauce for delivering exponential growth overnight.
  • The name hints at having a cheat sheet for growth without devoting to a long-term growth process.
  • It suggests a magic strategy or tactic that works for every organization.
  • It is a new thing and is meant for startups only.
  • It can turn a startup in a billion-dollar enterprise in no time.
  • Marketing and Growth Hacking are synonymous.
  • Growth hackers have to be excellent coders.
  • An individual is more than sufficient to carry out Growth Hacking.

In order for Growth Hacking to be successful, marketers need to first evaluate whether the product or service that they are developing or offering is something customers are willing to spend money on or not.  This is what Product-Market Fit is all about.  In other words, a product should be able to solve a burning issue for the customers, and they should be willing to pay for it.

Dave McClure, a Silicon Valley investor, came up with the AARRR Growth Funnel model to effectively acquire and retain customers and generate profits.  AARRR Growth Funnel is a great visualization tool that investigates how customers behave throughout the Customer Journey.  It refers to the following 5 key phases of business growth:

  1. Acquisition
  2. Activation
  3. Retention
  4. Referral
  5. Revenue

Let’s delve deeper into some of these phases.

Phase 1: Acquisition 

The initial phase of the AARRR Growth Funnel involves discovering people attracted to a product.  In order for a product—that has a great market fit—to be acquired by the maximum number of customers profitably, organizations need to invest in customer acquisition channels.

Customer acquisition demands driving select traffic to a business’ website.  This typically involves using Search Engine Optimization (SEO), Pay-per-click advertising (PPC), Social Media Marketing, Content Marketing, Influencer Marketing, Email Marketing, or other methods.  Depending on the product, some acquisition channels work better than others.  Marketing leadership should run pilot tests to identify the most appropriate channels.

Phase 2: Activation

The next phase of the AARRR Growth Funnel encompasses activating customers through an extraordinary first impression and experience of your product.  Customers should experience and appreciate the product value to become routine users.  The first time it happens is an “aha” moment that activates the customer.

Examples of “aha” moments include kick-starting your first Mailchimp email campaign, ordering your first food delivery through FoodPanda, or completing the first level of your Clash of Clan game. A key objective of Growth Hacking is to enable customers to achieve this “aha” moment as soon as possible.

Phase 3: Retention

Retention entails investing in customers who are happy with your product and give it a high rating score. A product should be of such high value for the customers that they keep using it out of compulsion.  In order to foster Customer Loyalty and retention, it is important for organizations to stop relying on short-term special offers and bargain deals and instead develop attractive reward programs.

Interested in learning more about the phases of AARRR Growth Funnel model? You can download an editable PowerPoint presentation on AARRR Growth Funnel here on the Flevy documents marketplace.

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About Mark Bridges

Mark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of Business at the University of Chicago. You can connect with Mark on LinkedIn here.

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