Fewer Customers, But the Right Ones
Posted on Harvard Business Review: October 15, 2010 12:00 PM
In the last couple of weeks, eHarmony, a dating website that promises to help you find a long-term relationship for a relatively modest monthly subscription fee, has been offering a free trial: "10 days of free communication." This marketing campaign is designed to attract new customers and convert some of the existing ones to become paying members (currently it claims "more than 20 million registered users"). This seems like a reasonable growth strategy: more paying customers will help eHarmony grow and improve its bottom line. As with any platform business, eHarmony relies on having lots of people in its database. Having more people to choose from makes it more likely that the site will find a good match. Clearly, offering a free trial period is a good way to attract more people to the site. But in fact, for reasons my colleague Misiek Piskorski and I study (pdf), it may not be good for eHarmony's business.
eHarmony is not your usual online dating site. Unlike Match.com or OkCupid, users do not get to browse tons of profiles to see if there is someone they might like. Instead, eHarmony does the choosing for you, sending you a limited number of "compatible matches"—candidates the site's proprietary algorithm thinks will make a good match. The company also differs because it aims at people who are looking for long-term relationship or even marriage, not those who look for casual dating.
To successfully match people who are looking for a long-term relationship, eHarmony needs not just a lot of people in their database, it also needs people who are ready for a long-term relationship. This seems self-evident, but cluttering up the site with those looking for something else will increase the noise-to-signal ration and make matching harder. In its everyday business, eHarmony does an excellent job by discouraging potential customers who may not be so serious about dating. They ask potential members to complete a very long questionnaire of more than 250 questions. And if the answers suggest that you are not serious enough, they reject you. eHarmony also charges more than Match.com—up to a 25 percent premium. As a result, only people who really care about establishing a long-term relationship will end up at the site.
If the value you're offering your customers rests on exclusive membership of similarly minded relationship seekers, what happens if you make it easy for others to get in for a while? You might get a lot of people who don't care that much about a serious relationship, or who are looking for a different product, like a quick adventure. When such people roam around your site, they create a "negative externality" for your core members, who may discover that it's more difficult to find a long-term relationship—the very service they had paid a premium to get. In a nutshell, when you lower the barriers to entry, you threaten your core value proposition to your most valuable customers.
So promotion strategies that work well for Match.com or other platforms—like job-hunting sites—may be dangerous for eHarmony, as they may unintentionally undermine the site's core value proposition.
Fortunately, eHarmony didn't really get it wrong. It has instituted a number of safeguards that prevent not-so-serious people from getting on the site even during the free trial. People who want to try the site for 10 days still need to complete the long questionnaire, and may still be rejected if their answers suggest they are not serious enough. Only after jumping this major hurdle can the potential members enjoy the free trial. And if they are not serious enough to pay the membership fee after the 10th day, they will exit the pool of potential matches.
This tension between a seemingly natural marketing tactic and a company's value proposition may not be obvious, but it does affect many companies that operate platforms similar to that of eHarmony. Increasing the size of your tent isn't always in your company's best interest. It pays to ask, Who is your customer and what product do they want from you?