Lawrence Merritt is MD of Online digital photo service Photobox. 

I’ve been asking Lawrence about the print on demand marketplace, iPhone apps, and his customer retention strategies… 

Can you tell me a little about PhotoBox? 

We are the pioneers in personal publishing and the clear market leader in the UK: top line sales growth was over 30% in 2010, category share of around 40%, traffic growth of over 20% and we are profitable.   

However we remain paranoid about success and believe it’s more difficult to sustain leadership than achieve it. We’ll stay at number one by fulfilling our mission which is to place a ‘Photo Book’ on every coffee table and in every home; to effectively make prints obsolete.

Given our ongoing market development ‘Photo Books’ has now tipped and we expect over 50% sales growth in 2011; this particular sku is now a 21st century FMCG and it is the rocket fuel that propels our business.   

How many are in the team and what does it look like? 

In the UK business we have around 175 employees. Our teams are organised by function from PR to SEM, CRM & Product to CS & Production. We are a vertically integrated business which means we oversee and obsess over every aspect of our offering.

You have to develop and cultivate your own intellectual capital if you want to lead; convergent or category thinking can get you killed on the web.     

You released an iPhone app recently, how has this worked out so far?

Our audience is typically ‘Amy the wired mum’ who isn’t known for her geekiness or desire to be an early adopter of new technology. So we took our time with the v1 app and its blown us away with over 150k downloads so far.  

The aim of the v1 app is ‘PhotoBox-2-Go’ which means a place for customers to access their photos, share them and upload new ones. The v2 will be go beyond this and be much sexier as we go beyond engagement to transactional as well.  

How do you measure customer satisfaction? How do the various channels measure up?

We love our data-crack. Objective customer data always trumps opinion and keeps us grounded. For Customer Satisfaction the two high level metrics I look at are: repeat customer sales and the volume of new customers acquired for ‘free’ (largely through WOM for example).

At the next level we survey new and old customers, post transaction, to determine our NPS score. And we survey customers (new and old) that have dealt with our CS team specifically to determine the impact of this on our NPS score.

On a more day-to-day basis I also obsess over our Customer Services contact-ratio and onsite CR. Our NPS is high 60s in the UK which thrills us but as we scale my expectation is to actually improve this.  

How big a challenge is retention? What are the challenges that are specific to this sector?

Our category customers are typical in that there are high value customers and low value customers. By understanding LTV by channel, by promotion, by season we’ve learnt that Acquisition is effectively Retention.

These functions aren’t mutually exclusive; there is clear causation between who you recruit and the retention you see which means it’s crucial to attract the right customers and avoid the wrong ones.

Beyond this, I would say Retention is the sum of on-site experience + timeliness of delivery + quality of our physical product divided by price/ promotion. Yes we can play with RFM based segmentation and targeting on-site and through CRM and even the Social Graph but ultimately PRODUCT IS KING. If the product quality isn’t right, you are effectively putting lipstick on a pig.

What are your retention rates like?

Almost three quarters of our total monthly sales are from repeat customers. We segment our customers and are able to de-average retention by segment.

Understanding segments by profitability for example allows us to tailor our promos accordingly and ensure we are always rewarding the behaviours we seek. The key when analysing retention is to de-average. Not all customers are the same and not all segments are the same. Understand which customers define your top-line, bottom line and develop programs on this basis.    

How much does an easy returns policy affect this?

We have a freepost returns policy. Remember we have no standard skus, each product we print and ship is unique to the customer which means there is no re-sale value for unwanted items.   

How has the print on demand marketplace changed over the last couple of years?

There has been a complete transformation in the nature of our business away from standard prints to personalised products like photo books and canvas prints. This shift occurred in the last year or so.

The personalised products category is a €1bn market in the EU and growing like a weed. The photo book genre accounts for almost 45% of this (by value) and in the UK last year over 1M photo books were bought.

In addition we are also seeing stellar growth for Canvas prints (also led by PhotoBox) and the greeting cards category remains robust, popularised by companies like Moonpig. And all of the growth is online Vs off-line or on the high street.

How do you expect the marketplace to develop in the near future?

As an overall ecommerce genre our prompted and unprompted awareness levels are below other genres like travel or groceries for example but the gap is narrowing fast; in Q4 last year we saw record levels of site traffic and we broke the 2M UUs per month figure for the first time.

So the primary challenge for us in terms of marketplace development is to continue to execute and to work with the right partners. The German personalized products market is over five times that of the UK by size and the big difference is the merchandising and availability of these products on the high street. (So if you are an ecommerce director working in Retail then I would love to hear from you).

This aside we also see Facebook which is the world’s largest photo repository as a huge opportunity. The ‘social graph’ is probably the most innovative media invention of the decade and we plan to be very active in this space.

But overall, I would say self expression is the new entertainment and we are in the self expression business; this marketplace will prove to be robust, durable and high growth.   

PhotoBox seems to be very active on social media sites (and the profiles are promoted prominently on the site) – how has this worked for you, and which SM sites / channels are most effective for you?

We see ourselves as an ‘open source’ brand and ultimately people powered. We define open, personal and inclusive as key values that define our culture.

This means we see social as a part of our collective DNA and not the latest in-vogue marketing program. Facebook in particular is a key social outpost for us. We actually see it as a platform ala iOS and not just another socnet.

We were the first in our space to create a fan page. Since then we’ve entertained, bantered and solved issues in equal measure growing our base day on day to where we are today; 60k fans with over 13K daily active users and post views reaching over 3m a week.

Consequently we’ve seen huge growth in traffic directly from Facebook, huge uptake of our Facebook apps and a tonne of positive WOM directly on our page which adds to the vibe around our brand and ensures we remain a differentiated experience for personal publishing and self expression.