For marketers, Google Adwords, Facebook ads and other mass outreach methods are de rigueur. But what about businesses that are deeply rooted in community? Shouldn’t your marketing strategy reflect your company’s values and ethos? Jonny Price, senior director of Kiva U.S., a pioneering social enterprise that crowdfunds interest-free loans for small businesses, wondered the same thing. We talked to him recently about Kiva U.S.’s experience with “classic” marketing—and why he shifted back to community-based marketing and growth.
Describe the marketing dilemma that Kiva U.S. faced, and what you see as some of the shortcomings of mass marketing.
Jonny Price: Last year we got an advertising budget for the first time, and were encouraged by advisors and other online lenders to spend it on “classic” mass marketing approaches—Facebook ads, Google Adwords, direct mail campaigns, etc. A direct mail campaign works for an online lender that might have a Customer LifeTime Value (CLTV) of $10,000, but the loans we make bring in much less revenue for Kiva—typically only a few hundred dollars. So we struggled to make the economics of these marketing approaches work for us. And with such high CLTVs, other online lenders could outbid us every time on the most searched Google keywords, like “small business loan.”
The quality of leads is also extremely important. We found that the leads coming in from these mass marketing channels tend to be very low quality.
On the other hand, referrals from the Kiva community are much more effective…
We source referrals from two principal places: from community-based partners that we call “Trustees“—mostly non-profits providing services to entrepreneurs—and from borrowers themselves. We find that when loan applicants come in from either of these community-based referral sources, they have a much higher likelihood of actually going ahead with a loan. They trust Kiva, because they trust the Trustee or the Kiva borrower that referred them to us. They have a clearer understanding of how our crowdlending process works. And often they are supported through the process by the referrer—some of our best Trustees sit down with the entrepreneurs they’re referring and help them fill out their loan applications.
So what are the pillars of your new community-based strategy?
We’re still only six months into rolling out our community-based marketing strategy, but we’ve identified a number of key components:
Refocusing on Trustee partnerships. In 2011, when we launched Kiva Zip, every loan had to be “endorsed” by a Trustee. In 2014, we launched a “No Trustee” model to help accelerate our growth. We’re not abandoning it, but we’ve shifted our emphasis and resources this year to focus again on the Trustee model. Kiva’s Trustees are wonderful organizations like Defy Ventures, which works with ex-offenders on starting businesses, La Cocina, an incubator for immigrant women-owned food businesses, and WWBIC, a Community Development Financial Institution in Milwaukee.
Doubling down on key markets. We’re about to fund a loan in our 50th state (Mississippi), but there are a smaller number of markets where we’ve launched a “Kiva City” over the last few years, and where we have a local “City Lead” on the ground. We’re concentrating more of our team’s resources on these markets, compared to other cities where we don’t have a dedicated person on the ground.
Unlocking user-to-user virality. Our borrowers tell us that they love Kiva. Our Net Promoter Score is above 60, which is astronomically high for a financial services company, and we’re determined to keep it that way. We want to do more to incent and help our existing borrowers to refer other small business owners they know to us.
Building relationships with existing customers. In 2017, we’ve spent more time building relationships with and strengthening the social capital of our existing borrowers. Perhaps we can make a valuable connection list them in a Kiva Marketplace, or promote their business via Kiva’s social media channels. If our borrowers are overjoyed with all the doors that Kiva has opened for them, they’re much more likely to refer a friend.
Repeat loans. As part of that increased focus on existing customers, we’d like more of our loans to come from repeat borrowers. Repeat loans are very high quality—their repayment rate is very high, and the borrowers are already familiar with (and excited about) Kiva.
How’s it working out so far?
We just celebrated our biggest ever month for loans disbursed—147 loans in May—and we may exceed that again in June. Our risk performance is significantly better in 2017 than it was in 2016. And our public expiration rate—the percent of loans that do not reach their goal on the Kiva website—is relatively low so far this year, at 7%.
In the second half of last year, only 30% of loans were endorsed by Trustees. So far this year that figure is 44%. And repeat loan applications almost tripled in the March to May period compared with the preceding three months.
Perhaps most impressively of all, we’re seeing significant new interest in our Leads markets. In the first five months of 2016, we had 362 loan applications started in our eight Leads markets, up 128% from the same period last year.
We’re encouraged by these early, positive results.
Does Kiva’s experience have broader lessons for other businesses, or just certain kinds of businesses?
I think it has a wide application. Even for companies for whom mass marketing works, there are lessons that can be drawn from deeply considering the “quality” of customers, as well as the quantity of leads coming in, which is what a community-based approach to growth will unlock.
We’re talking about marketing, but it’s really a reflection of your underwriting strategy, which centers on social relationships to establish trust and validation.
Yes, this is perhaps the most compelling reason of all for why it makes sense for our Kiva U.S. team to re-orientate our growth strategy to one focused on community—because it closely aligns with the overall mission and brand as well as our “social underwriting” strategy, which considers a small business owner’s character and standing in their community.
At Kiva U.S., we imagine a financial system based on people. On human relationships over financial transactions. On generosity and empathy, rather than greed and privilege. And everything about our team and model should reflect that.
So while the product we offer to small business owners is an interest-free loan, we want it to be about much more than that. We want it to be about empowering those small business owners by connecting them to hundreds of individual lenders, who can go on to become their business advisors, brand ambassadors and customers. We want our underwriting approach to incorporate more than a loan applicant’s cashflows, credit score and collateral. And we want to talk to every small business owner that we fund on the phone—or, even better, in person—so that we can build a relationship with them.
And yes, in our marketing strategy, we want to focus less on “cold,” “mass” outreach, and more on people that are already connected to Kiva through their own community.
Kiva represents a finance system based on people. And our U.S. growth strategy similarly represents an approach to marketing that’s based on people. When I think about it in that way, it increases my confidence that we are on the right track here.