April 05, 2007
Interview
SUMMARY:
What if you offer low-priced content on a pay-per-use basis but want customers to act more like subscribers with a long-term relationship to your site?
See how one company created its own virtual currency to also serve as a marketing tool to encourage customers to return. The system is working so well that they've had 48.5% compound annual revenue growth over the past five years and their repeat customer rate is 47%.
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Paul O’Brien, Founder Tarot.com, is a big believer in the power of intuition. His online site for divination rituals, such as iChing, Tarot and astrology is designed to help members harness their own intuition as they work their way through life.
But he also saw his intuition pay off when it came to a key component of Tarot.com’s business model: the payment mechanism. When creating the site in 2000, he had a hunch that micropayments could work for his company’s low-cost, personalized content model.
Tarot.com encourages members to use an online currency called Karma Coins to pay for services ranging from a $3.95 tarot reading to $19.95 yearly astrology forecast. Besides allowing micropayments, Karma Coins also act as a marketing tool -- they can be used as gifts for new members or rewards for activities, such as referring a friend. “We bet the farm on Karma Coins, and it worked,” says O’Brien. “Karma Coins are the glue of our membership structure.”
That glue binds together more than 5 million members and has helped generate a 48.5% compound annual revenue growth rate over the past five years. Here are five strategies O’Brien used to promote the payment and membership model and drive more traffic.
-> Strategy #1. Incentivize coin use
Although members may pay for content with a credit card, they’re encouraged to buy and use Karma Coins in a number of ways and at nearly every step of the membership lifecycle. The biggest incentives include:
- Discount pricing. Karma Coins have a basic value of 10 cents each, and a starter package of coins costs $5.00 for 50 coins, although buying in bulk offers a 10% to 50% discount based on the volume purchased.
- Coin giveaways. O’Brien and his team are liberal about giving away Karma Coins to encourage members to use the currency and buy more readings. For example, new members get 20 Karma Coins for signing up and more free coins on their birthday.
Besides encouraging people to buy, the giveaways help familiarize what he admits is an unusual payment system. “It does add an element of distraction and complexity to the sales cycle, so we work at getting customers past the distraction by giving Karma Coins away.”
- Making Karma Coins the payment method of choice. When members purchase a reading, they’ll see the Karma Coin payment option appear first on the page, along with reminder that Karma Coins are discounted.
The strategy is working. 61% of their customers pay by Karma Coins, 39% by credit cards.
-> Strategy #2. Syndicate free content to drive traffic
Tarot.com’s business model depends on driving huge volumes of traffic to the site in order to get a percentage of those visitors to become members, and a percentage to purchase a product or a reading. O’Brien says they’ve succeeded in converting about 10% of visitors into members and 2% into paying customers.
But to continually drive traffic, they syndicate free astrology and divination content to mass-market websites and email newsletters, including:
o AOL
o MySpace
o LifeScript
o MyWay
A co-branded, syndicated Daily Horoscope email is one of Tarot.com’s most successful marketing channels. In addition to the co-branding, the email newsletter contains ad space for Tarot.com to promote particular products and services.
O’Brien says Tarot.com receives 50% of its traffic from those syndication deals.
-> Strategy #3. Ping existing database with promotions
Once Tarot.com attracts new members, O’Brien’s team uses weekly email promotions to encourage members to buy new readings and other products. The team always finds a hook for a new promotion, such as:
o A holiday. New Year’s Day and Valentine’s Day are especially relevant, and a time when they sell “a ton of forecasts.”
o An astrological event, such as planetary transits. “There’s a lot going on up in the heavens.”
Thanks in part to such promotions, Tarot.com’s repeat customer rate is 47%.
-> Strategy #4. Reward customer behavior
Tarot.com’s divination content also has strong viral marketing potential, and 75% of visitors to the site return. Karma Coins play a role in helping invite new users: members receive 10 Karma Coins for referring a friend and five coins for sending an egreeting from the site.
While not offering a specific metric for the number of members who participate in such referral programs, O’Brien says the technique is highly effective, although they’re wary of overusing Karma Coins as a reward. “We don’t want to offend our members by blatantly trying to recruit them as salespeople.”
-> Strategy #5. Keep coin balance in forefront
For micropayments to work, O’Brien believes a site needs to offer users a bank account. So, they remind members on every page exactly how many Karma Coins are in their account, known as a KC Bag. This lets his team continually reinforce the message to spend the coins.
Useful links related to this article
Creative samples from Tarot.com:
http://www.marketingsherpa.com/cs/tarot/study.html
Tarot.com
http://www.tarot.com
