Successful marketing strategies of Snapchat

Snapchat started in the year 2011 by Evan Spiegel and Bobby Murphy, is an application developed for picture messaging. It gained popularity because it added a differentiating feature that would delete the images after its been viewed for a few seconds. It grew exponentially with 1000 plus user base, (with mostly teenagers) within a very short period of time and continues till date.The valuation of Snapchat increased when Lightspeed invested in it in the year 2012. Companies like Facebook were ready to buy Snapchat, as its users especially the teenagers were leaving Facebook. Its tremendous growth and popularity amongst the teenagers is giving tough competition to companies like Facebook and Twitter  (Malhotra, 2015).

Successful marketing strategies of Snapchat:

• Vanishing Photos- It allowed image communication with a distinguishing feature, where the images were automatically deleted after being viewed for a few seconds.
• Stories- It came up with a new feature where one could amalgamate images and videos and also weave a story. These stories could be viewed for multiple times within a time frame of 24 hours.
• Snapcash- Partnering with Square, it started Snapcash where users were allowed to transfer money to the bank account of any contact.
• Discover- It also came up with “Discover” as a product, where display of ads was within the curated channels.
• Advertisements- Since, Snapchat was very popular and an active Snapchat user would receive around 150 snaps each day, it tried to position its ads between every 20-30 snaps (Malhotra, 2015).

Snapchat is making the best use of the technology and has approximately 100 million daily active users. Until 2015, it was worth around $16 billion. There has been continuous efforts for trying new methods of monetization but, there has still not been any substantial revenue generation. Snapchat has shown tremendous growth and has become very popular amongst the youth generation in the age group of 13-34 years (Gotter, 2017). The continuous increase in the user base and high valuation has made Snapchat a big sensation and on March 2017, it offered its initial public offering (IPO). But, despite of all this, it could not be very successful with its IPO. When in its third quarter, Snapchat could not meet its targeted revenue, the stocks plummeted by 20% which was a great loss for the company. Since then, the company could not trade above the IPO price. Since then, there has been disappointing results from the company (Wade, 2017).

Reasons for the failure of Snapchat:

• Limited and One-Dimensional experience- The nature of the content that can be shared on Snapchat is not something of very great value but, it is just a small conversation or engagement. It is still popular amongst the youth crowd but then, it does not mean anything for the future. In Snapchat, the experience is limited and one-dimensional, as there are typical stories that are shared. This will not be very alluring in the future(Singh, 2017).
• Confusing interface- Snapchat’s interface is popular amongst young generation but the fact is that it is very confusing. For adults especially, it is very complex and difficult to understand the app which makes its competitors more popular(Constine, 2017).
• Expensive Advertisements- Making advertisements are not easy and it costs extra money for the same, as the advertisers need to hire agencies that are involved specifically in ad making. Moreover, the content on Snapchat cannot be posted or shared on other platforms, which limits the users and makes it a tedious effort(Castillo, 2017).
• Not the right metrics for advertisers- Snapchat does not provide the right metrics for advertisers. And above all, it is difficult to get the snapchat ad account and is a costly affair as well. It has already been late in the advertisement market and despite that there is no right trackable metrics (Singh, 2017).
• Stronger Competitors- Since 2013, when Snapchat rejected Facebook’s acquisition proposal, Facebook has been trying to imitate it. Facebook has added all features like Stories, image and video filters, mobile web sharing and live video to Instagram. It has also come up with WhatsApp Status, Messenger Day and Facebook stories which are features that Snapchat came up with. Facebook is a strong competitor of Snapchat and is easily able to convert their users which is a great threat for Snapchat(Singh, 2017).
• Failed the influencer game- Snapchat has not been able to play the influencer game well. Companies like YouTube and Instagram are able to make good relation with the influencers and also get them on-board with their new features and tools. There are around 50% of the marketing community that are increasing its influencer budget, but they primarily consider Facebook and Instagram than Snapchat(Singh, 2017).
• No proper direction or revenue generating models- Snapchat keeps on adding new features that helps in monetization, but still, it has no specific revenue generating models which does not create trust amongst the investors(Singh, 2017).
• Better service on high-end devices like iPhone- it is basically concentrated in the developed markets and run better on iPhone than any other Android phones. This way the market is concentrated and limited to the youth crowd of developed countries and have not reached the developing countries (Oreskovic, 2017).

Thus, we see that Snapchat’s major issues include lack of a revenue generating model, strong competition that could imitate fast and do it in a much better way and also concentration on only the youth. These are some of the problems that could be identified for Snapchat and which needs immediate correction if, the company wants to stay in the market. Looking at the scenario it seems that Snapchat’s decision of not letting Facebook acquire it, was not the right decision for Snapchat.

Though Snapchat had enormous growth as soon as it started, but an overall study helps to understand that it was not a profit-making company. The high valuation of the company was due to the increased user base but, with time, there has been a decline in the company’s user base and also performance. There was lack of diversification in terms of users and market, which did not allow the company to prosper in a very effective way. If the financial data of the company is studied, it is clear that in the last few years it has not been able to become financially sound. The profitability and net operating cash flow of the company has been negative. (Investing.com, 2018)

Issue

Profitability as on June 2018 (Investing.com, 2018)

The profitability of Snapchat is negative, which shows that the company’s financial position is not good. The return on assets, equity and investment is also negative thus, impacting the financial strength of the company.

Liquidity Ratio as on June 2018 (Investing.com, 2018)

Liquidity ratio is a method of calculating a company’s capability to pay off its current debts without raising external capital. Current Ratio (Current Assets/ Current Liabilities) is positive which means that the company is capable of paying out its current liabilities with its current assets. Quick Ratio (Current Assets- Cash/ Current Liabilities) is also positive which signifies that the company can pay out its current liabilities even if it does not have liquid cash or cash equivalents. Cash Ratio (Cash and Cash Equivalents/ Current Liabilities) is also on the positive side thus, signifying that the company is capable of paying off its current debts with the cash it has in hand.

Capital Structure as on June 2018 (Investing.com, 2018)

The capital structure of the company shows that it uses more of equity capital to finance its assets. It has low leverage ratio and has a conservative capital structure. It also signifies that low leverage ratio means lower growth rates. Thus, Snapchat should decide upon the optimal mix of debt and equity. There is need for the company to find an optimal capital structure.

The overall study of the company’s financial statements helps in analysing that the company’s financial position and capital structure is not strong enough. The company is not generating profits and its dependence is mainly on its investors. There is need for diversification of the user base and market so that it can increase its users. It has to look for profit making features and also, use all the Snapchat features properly. It should attract more advertisements and make sure that it is easy to use the app and also transit the ads to other platforms. The little changes can help in improving the overall performance of the company and also help it survive its competitors. Facebook subsidiary, Instagram imitated the features of Snapchat but is more popular and profitable as it focused on a diversified user base and has provided easy interface which is very comfortable for its users (Hartmans, 2017). 

Conclusion and Recommendation

A thorough study about Snapchat makes it clear that it is not able to perform as s expected. There has been a decline in the quarterly reports which has affected the stock price. The investors are obviously not happy with the stock performance and it can have a great negative impact on the company (Tully, 2017). It is also facing fierce competition from Instagram, which is imitating all its features and capturing a large chunk of the market (Nield, 2018).

Reasons for the failure of Snapchat

There are certain recommendations for the company that might help the company to acquire the market again.

• Evolve or Improve the ad product- Snapchat’s ad product needs to be evolved and improved at a faster rate. It is as of now, not improving as it was expected. It is a costly affair when it comes to advertising and can also not be shared or posted on other platforms. This feature should be removed and changes should be made so that it is convenient for the advertisers (Deagon, 2017).
• Focus on the Creator Community- There is a need to create opportunities for the creators, which would help in distribution and monetization. It needs to work on its transition process that would make the life of its creators easy (Weiss, 2018).
• Focus on Android users/ developing countries- As of now, Snapchat is focussing more on developed countries and iPhone users. When compared to iPhone, the user base of Android is far more, so it is advisable for the company to focus on developing countries and Android users, so that it can increase its user base drastically (Khoury, 2017).
• Focus on adults as well- Snapchat is more focussed on the youth base and it has still not understood the need for diverting its focus to adults as well. It has a lot of potential users which are ignored just because they were trying to make a cool app for the younger generation. Its time they understand and start targeting  the users above the age group of 35 (Taylor, 2018).
• Simplify the interface- It needs to simplify the interface so that it is easy for all age people to understand and use it. Simplifying the interface would attract more people thereby, increasing the user base and making it popular amongst all the potential users (Wagner, 2017).
• Content Sorting- Snapchat needs to sort it contents well so that the most popular and engaging stuff is shown first. This will bring all the undiscovered content in the forefront and make the best use of machine learning (Constine, 2017).

These recommendations are provided on the basis of the problems identified. A little change in the strategies and improvement in the product can lead to better performance of the company and increase in the user base.These recommendations will help in facing the tough competition from Instagram, YouTube and others.

A proper revenue generating model has to be prepared to show the investors that it is a profitable company. A company without a stable income generation cannot prosper for long. There is a need to increase and diversify the user base and make advertisement easy for the small and medium- sized business as well. Currently, Snapchat is able to build brand awareness of the companies but, it is not able to make direct sales. The CEO of the company should focus more on data available and less on instincts to make sure that it is adapting to change in the environment.He should focus on continuously increasing the user base as that is the only USP of a technical company. The high valuation that it received in the start was only due to the user base it had and thus, there should be continuous effort on increasing the user base. Diversification of user base is also very necessary to increase the customer base for the companies that are aiming at advertisements through Snapchat. It also needs to communicate with the world about its future planning, so that there is trust factor amongst the users and investors which could help in increasing the share price of the company.

Thus, the best action plan that can be recommended for Snapchat is:

Simpler interface  User diversification Market diversification Reasonable and right metrics for advertisements Openness and Willingness to trust data Communicate with the world

It is time for Snapchat to build the trust and confidence amongst the users and the investors that it is a revenue generating company, focussing on all its potential users and re-designing the application keeping in mind the users of all age group. It has to prove that it is not an immature company without any specific direction or goal.

References

Castillo, M. (2017, January 11). Here are challenges Snapchat faces as it gets closer to its IPO. Retrieved from https://www.cnbc.com/2017/01/11/here-are-challenges-snapchat-faces-as-it-gets-closer-to-its-ipo.html

Constine, J. (2017). Snapchat’s epic strategy flip-flop. Retrieved from https://techcrunch.com/2017/11/13/time-to-snap-into-action/

Deagon, B. (2017, November 7). Here Are The 4 Challenges That Snap Is Failing To Overcome. Retrieved from https://www.investors.com/news/technology/here-are-the-4-challenges-that-snap-is-failing-to-overcome/

Gotter, A. (2017, March 29). The Ultimate Guide to Snapchat Marketing. Retrieved from https://adespresso.com/blog/ultimate-guide-marketing-snapchat/

Hartmans, A. (2017, July 22). We compared Snapchat and Instagram to find out which app is better – here’s the winner. Retrieved from https://www.businessinsider.in/We-compared-Snapchat-and-Instagram-to-find-out-which-app-is-better-heres-the-winner/articleshow/59715821.cms

Investing.com. (2018). Snap Inc (SNAP). Retrieved from https://www.investing.com/equities/snap-inc-balance-sheet

Khoury, R. E. (2017, February 3). Snap recognizes it should focus on Snapchat Android app development to keep its users and growth. Retrieved from https://www.androidpolice.com/2017/02/03/snapchat-recognizes-focus-android-app-development-keep-users-growth/

Malhotra, S. (2015). Snapchat: Fad Or Future? Amity Research Centers.

Nield, D. (2018, March 22). 5 Reasons to Ditch Snapchat for Instagram, If You Haven’t Already. Retrieved from https://gizmodo.com/5-reasons-to-ditch-snapchat-for-instagram-if-you-haven-1823769483

Oreskovic, A. (2017, March 8). Snapchat is facing 2 big growth barriers and the stock is sinking because of it. Retrieved from https://www.businessinsider.in/Snapchat-is-facing-2-big-growth-barriers-and-the-stock-is-sinking-because-of-it/articleshow/57527348.cms

Singh, A. R. (2017, December 14). The Problem With Snapchat. Retrieved from https://thinkgrowth.org/the-problem-with-snapchat-b24aefc542b4

Taylor, J. (2018, February 28). What To Expect When You Start Advertising On Snapchat. Retrieved from https://www.forbes.com/sites/forbescommunicationscouncil/2018/02/28/what-to-expect-when-you-start-advertising-on-snapchat/#312b83b965e3

Tully, S. (2017, March 21). How Snapchat’s IPO Became One of Wall Street’s Biggest Flops. Retrieved from https://fortune.com/2017/03/21/snapchat-snap-ipo-wall-street/

WADE, M. (2017, May 11). This Is Snapchat’s Biggest Problem. Retrieved from https://fortune.com/2017/05/11/snapchat-earnings-biggest-problem-instagram-facebook/

Wagner, K. (2017, November 7). Snap CEO Evan Spiegel is redesigning Snapchat because it’s too hard to use. Retrieved from https://www.recode.net/2017/11/7/16620812/snapchat-evan-spiegel-redesign-users-q3-earnings

Weiss, G. (2018, June 21). Snapchat To Place Renewed Emphasis On Creator Community, Unveils Second Series With Patrick Starrr. Retrieved from https://www.tubefilter.com/2018/06/21/snapchat-renewed-emphasis-creators-patrick-starrr/