Why People Buy Your Product
Welcome to a fresh edition of Growth Croissant! 🚀 🥐
I’m Reid, your host on this journey. I’ve been lucky to be part of awesome teams that launched and grew Hulu, Crunchyroll, and HBO Max. A few years ago, I founded Yem to help individuals and small teams build their own media businesses. Yem was acquired by Substack, where I currently work on growth.
Growth Croissant will be an evolving home for everything our teams have learned over the past 10+ years. My goal is to deliver you a comprehensive and actionable guidebook on how to grow your business.
Hello friends,
When we work with writers, podcasters, or other types of creators on how to grow, we usually start with running an audience survey. When reading responses, I find the most value in discovering why people use or buy a product. For example, why paid subscribers choose to upgrade to paid, or what's holding free subs back from going paid. After digging in, realizing the value customers get from your product or service can be surprising.
Understanding the value you provide your customers can help you in the following ways:
Identify your core audience — those that are most likely to buy your product;
Focus on how to add new customers that are like your core audience (and better budget any efforts aimed at chasing more peripheral audiences);
Concentrate on how to deliver more value to your core audience;
Decide what extra benefits to give paid subscribers (or even higher-priced, super-fan subscription tiers).
Let’s start by exploring what we learned from Hulu, Crunchyroll, and HBO. We’ll then dive into what we’ve learned at Substack and the broader space of individuals and small teams running their own media businesses. As we go through the below, think about why people buy your product or service and how you may be able to sharpen your value proposition.
The t-shirt test
At Crunchyroll, we constantly fielded questions about how we would compete with Hulu, Netflix, and Amazon. We bid against all of them in trying to license anime, and clearly, they had much larger checkbooks. Investors and the like wondered why people would pay for an anime-only streaming service when they could get the best anime shows and a lot more from the larger streaming services.
I was part of a group of friends that had transitioned from Hulu to Crunchyroll — we all had the same concern. But as we quickly learned, Crunchyroll was much more than a streaming service.
Shortly after arriving, we ran a “My Crunchyroll Contest” marketing campaign, asking folks to send us a minute-long video answering one question: “What Does Crunchyroll Mean to You?”. A few lucky winners would get a $500 mystery box of merch, special DVDs, and figurines based on their favorite anime show.
There were hundreds of responses. Fans talked about how Crunchyroll helped them become who they are, brought them closer to their family and friends, or got them through a hard time. It was all pretty normal for the folks that had been at Crunchyroll for a while, but it floored us newcomers. I still get goosebumps watching some of the videos.1 For someone that thought we were just making it easier to watch anime, it was remarkable to see how much people cared about Crunchyroll.
That was just the start. Over the years, we accumulated a steady stream of fan art, saw friends come together at conventions, and even saw the ultimate sign of devotion: Crunchyroll tattoos.
As time went by, we realized something more meaningful was happening. Yes, there was a strong bond between Crunchyroll and its fans. But more importantly, fans were coming together through Crunchyroll — we were helping turn total strangers into friends.
To help describe what was going on and to firmly differentiate us from other streaming services, we created the “t-shirt test”.2 Putting on the (blindingly bright orange) Crunchyroll t-shirt was a form of self-expression. When you saw someone else rocking the Crunchyroll logo, there was an immediate connection.3 By focusing on deepening our relationship with fans, Crunchyroll has been able to compete against deep-pocketed competitors, growing to more than 10 million paid subscribers.
Elements of value
Along the way, we stumbled across an HBR article on the “elements of value” that attempted to define why people buy products or services. The article gave us a much-needed vocabulary and framework for what we were experiencing and aspiring to become at Crunchyroll.
The elements of value are roughly based on Maslow’s hierarchy of needs, falling into a pyramid of four kinds of needs: “functional” at the bottom, followed by “emotional,” “life-changing,” and then “social impact” at the peak. From the article:
Maslow argued that human actions arise from an innate desire to fulfill needs ranging from the very basic (security, warmth, food, rest) to the complex (self-esteem, altruism).
Similarly, the elements of value pyramid [has] the most powerful forms of value at the top. To deliver on those higher-order elements, a company must provide at least some functional elements required by a particular product category. But many combinations of elements exist in successful products and services today.
In other words, providing some “functional” value is table stakes, but getting to higher-order value can unlock superb retention, a higher willingness to pay, and revenue growth.
For Crunchyroll, we always lagged behind larger streaming services on the functional stuff: discovery and personalization were inferior, the site and apps were a bit dated, and key parts of the product (e.g., video player, subscribe flows and payments, search and navigation) were passable at best. But we did quite well on some of the higher-order elements of value (e.g., badge value, nostalgia, affiliation/belonging, self-actualization).
Rather than hopelessly competing on functional aspects, we instead focused on strengthening our bond with fans through various efforts:
Hosting live events like Crunchyroll Expo, Anime Awards, and theatrical screenings.
Building the Crunchyroll Store, allowing fans to buy figurines, merch, DVD specials, and manga for their favorite shows.
Creating Crunchyroll Games, a game publisher of anime-based mobile games.
Producing in-house podcasts and shows, including quirky holiday specials that we ran on late-night television.
By focusing on deepening our bond with fans (vs. competing on functional aspects), we were able to grow Crunchyroll far beyond anything we imagined.
Climbing the pyramid
One of the things I find fascinating about Substack (and the broader, surrounding corner of the internet) is that each writer or publication is responsible for setting their price and determining their value proposition, including the extra value they give to paid subs. In the streaming world, we invested a lot of human hours into pricing and sharpening our value proposition for paid subscribers, constantly revisiting whether we had the right approach over time. On Substack, I’ve spoken to some writers who thought about pricing and paywalling for less than a minute, and they seem to be doing great! I’ve also seen some labor over this decision for years.
The one thing that seems definitively true is that there’s no right or obvious answer. Focusing on the top publications by subscription revenue, we see a wide range of prices ($5 per month to hundreds of dollars per month) and approaches to free vs. paid (e.g., some publications paywall everything, others don’t paywall anything). My wicked sharp colleague Katie @ Substack has a detailed post outlining the different approaches folks take toward choosing what to offer free vs. paid subscribers.
It’s also inspiring to see publications naturally climbing the pyramid. Many publications still start by providing functional value (e.g., informs, makes money, saves time), a key ingredient to getting initial traction. But over time, we’re seeing publications shift their focus toward community or membership features, striving toward higher-order values like belonging, motivation, and self-actualization. Here are just a few examples:
Lenny's Newsletter in-person meetups throughout the world.4
Platformer and several other publications offering paid subscribers access to a private discord called Sidechannel.
Rayne Fisher-Quann (internet princess) and Hunter Harris (Hung Up) engaging with their subscribers during the Oscars and other events. Several other writers use Chat or discussion threads on an ongoing basis to connect with their subscribers (e.g., The Isolation Journals with Suleika Jaouad, Recovering, and The Half Marathoner). In both cases, one special aspect is that subscribers also get to interact with each other.
The Charlotte Ledger's 40 over 40 awards, which spotlights people helping make Charlotte a better place.
Acquired and The Generalist have angled their value prop more toward memberships and being part of a community, helping unlock new connections and getting access to experts.
I think this is part of the reason we see some publications able to build large subscription businesses without paywalling a lot of content (or any at all). I also think this is partially why we see some publications able to charge a lot more money and have far better retention rates compared to larger consumer subscription services, yielding a much higher customer lifetime value.
I hope this framework sparks a few ideas on how to deliver more value to your audience. At Crunchyroll, knowing we would never outcompete our larger-pocketed peers on the functional elements, we allowed ourselves to focus more on driving higher-order value.
I’d love to hear your thoughts — why do people pay for your products or services today? What's holding back your free subscribers or casual audience from paying? For any segment of your audience, how could you deliver more value to them?
As always, thanks for reading,
Reid
Sadly, they are now paywalled, but if you’re a Crunchyroll paid subscriber, you can view them here.
I doubt we actually came up with the “t-shirt test”.
When was the last time you saw an Amazon Prime or Netflix shirt, or tattoo?!
These appear to be increasingly self-organized or at least prompted by members of Lenny’s Newsletter.
Love the elements of value diagram!
The elements pyramid is fascinating, Reid!