How to Pay Your Customers to Bring in More Business
By Caitlin Elsaesser
When 25-year-old Greg Selkoe started his online clothing company, he faced a significant challenge: He had gathered what money he could from friends and family to launch, but there was nothing leftover for advertising. With few other options, Selkoe decided to get creative. Here's how he came up with two shoestring marketing strategies that continue to propel his company -- which now brings in $72 million in annual sales -- to this day.
Creative solutions
Selkoe started Karmaloop in 2000, and he felt confident about the business idea. He knew that there was an interest in trendy streetwear brands among people in far-flung locations who could not find these brands in brick-and-mortar stores.
The problem was, how to get the word out with very little money. "I was very intimidated by our lack of funds," he says. "It caused me a lot of stress because I knew if I didn't figure out how to advertise our product, the business idea would fail."
Undeterred, Selkoe realized he had to come up with clever ways to drive sales that were low-cost and effective. He turned to friends to brainstorm strategies. During one such meeting with a friend in marketing, the two had an epiphany: Why not compensate customers who brought more business to Karmaloop?
Customers as representatives
Selkoe decided he would pay customers who successfully referred other customers -- and designate them as "representatives" for the company. Each time a customer made a purchase, Karmaloop sent an email asking if the customer was interested in becoming a representative. The company also advertised the program with a banner at the top of the website.
Upon signing up, customers received a "rep code." If he or she got someone else to make a purchase using that rep code, the representative received five percent of the sale, a number Selkoe determined as the highest amount he could afford to sacrifice while still making a profit. The program only cost the company when it worked, making it cost-efficient.
Within a few months, representatives were driving about 20 percent of the website's sales.
Today, Selkoe has made it even easier for his customers to join the representative program. He created a section of the website just for representatives, where they can find recruitment tips such as including their rep code in email signatures, on message boards, and on social networking sites.
He also started a blog that featured success stories from top representatives. He launched contests; representatives who sold the most in a particular month would receive prizes like T-shirts or gift certificates. Eventually, he hired a full-time employee to manage the program. Today, the program has 65,000 participants and drives 25 percent of all sales.
Following his customers
Selkoe built off the success of the rep program by turning his attention next to the website. He decided to make Karmaloop.com not just a place to buy clothing, but also a destination for all things related to his customers' lifestyle.
"We knew from the beginning that the type of clothing that we sold represented a lifestyle," he says. Karmaloop aligns itself with the first generation to have grown up on the Internet: a fast-expanding, multiracial group that communicates digitally to build a culture based on their shared love of film, fashion, music, design, and dance. "We put a lot of material on the site to make it exciting, something people would talk about. We wanted to develop buzz around our site."
Since the site's launch, Selkoe has maintained a regular blog. He interviews clothing designers and celebrities, and writes articles about clothing styles and trends. He held a T-shirt design contest, and sold the shirt with the winning design on the site. Though Selkoe admits that it is hard to quantify exactly how much this strategy has increased purchases, he says that his analytics consistently show that the blogging and videos help drive traffic, which in turn, drives brand awareness.
Understanding the interests of his customers was critical to this strategy. "We had to know where our customers hang out," says Selkoe. He tracked his customers on message board sites like superfuture.com, Hypebeast.com, and Highsnobiety.com, where he knew they frequently posted. Keeping up with these sites both helped Selkoe stay current with his customers' interests and see when his website made an impact. When a lot of people talked about his company on these sites, he knew he was doing something right.
As Karmaloop.com has gained more resources, Selkoe has built on his content-rich approach. He now has an entire team in charge of posting content to the site. He created an online video channel, karmalooptv.com, that features video interviews with celebrities and features style trends.
What began as a few low-cost promotion strategies have now become core to Karmaloop's marketing. Last year, the company had $72 million in revenue. Selkoe attributes this growth in part to his philosophy of knowing the customer. "Our success came from harnessing the talent of customers and getting them involved," he says.
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