Image by Franck Blais via Flickr.

Image by Franck Blais via Flickr.

In May of this year, Pinterest raised another U.S. $200 million, putting the value of the social network at U.S. $5 billion.

Smarter minds than mine have arrived at these numbers but it got me thinking about Pinterest’s efforts in customer engagement, retention and loyalty.

It is one thing to create hype and acquire users, but it’s an entirely different challenge to keep those people coming back.

The shopping catalogue of social networks

Pinterest investors are attracted to, among other things, the network’s e-commerce and m-commerce potential.  At this point, the platform’s key metrics are all trending in the right direction:

  • 70 million: users
  • 750 million: user boards (where people ‘Pin’ their stuff)
  • 30 billion: individual Pins (pieces of content)
  • 14.2 minutes: average Pinterest visit time
  • 98 minutes: average Pinterest user time per month
  • 23%: percentage of users who frequent the site at least once per day
  • 18%: percentage of users with income over U.S. $75,000

And then there’s the sharp demographic slant towards women: 94 percent of activity comes from women and 80 percent of all users are women.

Normally, such a strong demographic skew would be problematic, since the more diverse the demographic often the more attractive, but in this case the site’s user base is a marketer’s dream.

Business writer Kevin Roose clarifies the benefits, writing in New York Magazine:

Imagine for a second that you’re a Fortune 500 marketing executive trying to dream up the perfect social network for selling stuff to people. Ideally, you’d want that social network to be filled with women between the ages of 19-39 (since women make an estimated 85 percent of all consumer purchases, and since 19-39 year olds comprise the fastest-growing consumer segment in America).

Pinterest, he goes on to explain, has struck a chord with the right people. People whose interests include some of the largest advertising categories: food and drink, fashion, home décor, and accessories. The result is that advertisers and brands are lining up to leverage the social site.

Brands are now paying relatively high rates for Promoted Pins, ads that are already less intrusive than what people are used to.

Roose nails the concept’s essence when he says, “Pinterest is more like a consumerist search engine — a ready-made way for people to aspire to certain lifestyles, and to find the products that will bring them closer to those ideals — than a social network.” As he says, Pinterest is quickly moving from scrapbook to shopping catalogue.

Promoted Pins are native advertisements. Image via Pinterest's blog.

Promoted Pins, like the one above for Kraft, are minimally intrusive. Image via Pinterest’s blog.

Lessons from the past

Lurking beneath this rosy outlook, though, is the persistent question of how Pinterest will keep people engaged and loyal.

Currently, loyalty among women is high: 84 percent of women who sign up remain active users. That figure drops to 50 percent for men, but given that it’s a female-dominated network, that number isn’t much cause for concern.

But of its 70 million users, only around 40 million are active, which suggests that fewer women who first signed up are maintaining their initial level of activity.

Going forward investors and advertisers will need to evaluate user retention, individual activity and purchase rates, and ultimately loyalty to measure Pinterest’s health.

Perhaps, then, Pinterest executives should pay attention to a compelling argument, introduced more than two decades ago.

W. Earl Sasser (left) and Frederick Riescheld.

W. Earl Sasser (left) and Frederick Riescheld.

That’s when Frederick Rieschheld, former director of consulting firm Bain & Co.’s customer retention program, and W. Earl Sasser, professor at Harvard Business School, discovered that businesses commonly lose 15 to 20 percent [PDF] of their customers each year.

Further, they proved that if this defection rate could be cut in half, the average growth rate more than doubles. Reischheld and Sasser demonstrated that a five percent change in the rate of retention – keeping more customers – can increase profits by 25 to one hundred percent.

Why loyalty matters

Pinterest’s challenge then, is twofold. First, it should diagnose what drives defection. Service design company Livework found that 96 percent of unhappy customers won’t even bother to complain about a dissatisfying service – they simply leave.

Critical for Pinterest is that dissatisfaction mainly emerges right after people sign up to a service. Conversely, Livework found that, “when providing a satisfying experience, customers interacting with you on social media sites are likely to spend between 20 and 40 percent more than those who don’t.”

Most fascinating is the research showing more than 65 percent of customers defect because they think a service provider is indifferent to them, versus 15 percent that leave because they are dissatisfied with the service.

Indifference means there has been erosion in relevance and engagement. This leads to the second challenge for Pinterest, which is to continually find new ways to delight its active users and entice them to keep coming back.

To this end, Pinterest has recently introduced a tool called “Guided Search,” which features related terms to help users discover content from other users.

I am confident the network will also introduce visual search, which will move the social network further into search engine territory, and most importantly, keep users coming back.

The power of delight

Whether you call it brand loyalty, customer retention or defection management, the name of the game is not one-time acquisition but the constant delighting of customers.

Need proof? Look to Zappos, the customer service-oriented online retail company. “In March of 2003, we made a decision to be about customer service,” says Zappos CEO Tony Hsieh. “We view any expense that enhances the customer experience as a marketing cost because it generates more repeat customers through word of mouth.”

The result? 75 percent of purchases come from returning customers. These repeat customers order more than twice every 12 months and have higher than average order sizes.

The bottom line is that loyalty is the aggregate of one’s experience with a brand. It needs to be top-of-mind always and in all ways.