Hi Mike / Mustafa,
interesting case.
On a general note: In any kind of subscription business (like Madflix) an interesting analysis to conduct is a cohort analysis. So how do KPIs (revenue, churn, ...) for customers that became customers at different points in time behave over time. So you compare customers that became customers in Q1 to those that became customers in Q2 and so on. This is instructive to see whether your measures are improving things. It is also instructive because it helps you to separate growth effects (such as Subscriber Acquisition Costs) from the "steady state".
To give you an example: Imagine you sell 2-year mobile phone plans with a gross margin of 20€ a month. Acquiring a subscriber costs you 250€. You add 100 subscribers in Year 1 - you run a loss in this cohort of 100 x (12 x 20 - 250) = -1000. In year 2 you add another 100. Another loss for that cohort. But the first cohort is now hugely profitable. And so on...
Whether such an analysis is relevant to your particular case is hard to tell - from the description it's not evident that this is a subscription business. Some of what you say has me believing that the business is transactional (like eCommerce): "users will be very fixated on offers and will be waiting for the next offer to buy."
Here's what I can see from your description (and my experience as a startup founder):
- the key problem seems to be user engagement and therefore product. If you only can trigger people to use your product by deeply discounting it, your product is not good enough at the given price. So fix user engagement, which in turn will fix everything else.
- the discounting / promo strategy seems to be flawed. Any offer should ultimately increase Customer Lifetime Value - if CLV is positive, it doesn't matter if you run a loss during user acquisition, because over time you will recoup that loss. This is where a cohort analysis is very instructive.
- That being said, I find it odd that in your description the company becomes profitable as soon as it is growing and becomes unprofitable as soon as growth is flatlining. I would expect the reverse effect - growth investments create losses, which are recovered in the steady state.
I would probably focus my efforts on the product - are all products equal or are some products performing better than others? Can we kill unprofitable products? can we upsell users to more valuable offerings? How can we improve the price (by cutting non-essential features for example)? Are there tactics to improve engagement without discounting (i.e. gamification, "hook strategy" (look it up, book by Nir Eyal), ...)?
Next, I would look at the discount strategy: Are discounts/ offers improving user engagement or not? I not, they just improve things in the short term and should be killed. Hw can we design discounts in a way that they ultimately improve engagement and CLV?
I am aware that I am not looking at the full picture here but immediately focus on two topics. This is intentional. In my experience, clients are rarely looking for an end to end analysis of every part of their business. Especially if you come in for the fitst time and if the house is on fire. They need quick results, especially if they are living quarter to quarter. Once you've proven that you can really improve things, you can say:
"Okay, here's what we should do next..."
So, this might not be the most instructive answer for success in an interview, but maybe for success in consulting ;-)
Cheers
Elias
