CSUF Short Cycle Process Worksheet

9B21A006Lillie (Yue Ting) Sun wrote this case under the supervision of Eric Janssen solely to provide material for class discussion. The authors
do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain
names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the
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Copyright © 2021, Ivey Business School Foundation
Version: 2021-05-31
On September 20, 2018, Stephanie Solty, a recently promoted marketing manager at Drop Technologies Inc.
(Drop), cut herself a piece of cake and sat back in her chair. Drop, a loyalty start-up based in Toronto, Ontario,
Canada, had just hit two million downloads of the mobile application (app) and the team was eager to celebrate.
Amid the celebratory cheers sounding throughout the office, Solty couldn’t help but feel nervous. With
technology giants such as Uber Technologies Inc. (Uber) and Snap Inc. struggling to become profitable, Solty
wondered if Drop would experience the same difficulties: a large user base that failed to lead to profitability.
As the laughter and excitement of her colleagues echoed around the office halls, Solty thought long and
hard about what she was celebrating. Having two million downloads was an impressive feat, but exactly
how many of those downloads translated into profitability for the company, and what could she do to
generate a greater number of profitable customers? As she began planning the next quarter’s marketing
strategy, she wondered if she should explore a new marketing channel: influencer marketing.
THE LOYALTY AND MOBILE REWARDS INDUSTRY
The loyalty industry was extremely competitive, with minimal barriers to entry and a large number of
competitors. American Airlines had launched its frequent flyer program, often regarded as the first fullscale loyalty program of the modern era, back in 1981.1 Since then, companies such as Starbucks
Corporation, Marriott International Inc., and Sephora USA Inc. had built their own loyalty strategies. Three
major groups of loyalty players dominated the industry: (1) independent merchants, such as Cineplex Inc.
and McDonald’s Corporation, who offered tiers and points that could be reused at the same retailer for
perks; (2) aggregated/coalition rewards, which included most credit-card systems and where points earned
for shopping at a variety of different vendors were accumulated in one platform; and (3) loyalty
management companies, such as LoyaltyOne Co. (which managed Air Miles).
1
Tim Winship, “Airline Frequent Flyer Miles, 30 Years Later,” ABC News, May 16, 2011, accessed November 13, 2019,
https://abcnews.go.com/Travel/airline-frequent-flyer-miles-30-years/story?id=13616082.
Authorized for use only by Zaid Khartabil in BUAD 301-26 at California State University – Fullerton from 1/24/2022 to 5/18/2022.
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DROP TECHNOLOGIES INC.: UNDERSTANDING THE INFLUENCER
MARKETING CHANNEL
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The global loyalty management industry was valued at around US$3.2 billion2 in 2019 and was expected
to experience a compound annual growth rate of 23 per cent over the next five years. This heightened
growth was influenced by technological advancements, especially within mobile applications. Before the
modern era of smartphones and online advertising algorithms, reward programs meant carrying a creditcard-sized punch card. With the introduction of mobile technology, loyalty and rewards systems became
more relevant and engaging, and could inspire real-time action. According to research carried out in 2016,
57 per cent of consumers preferred engaging with their loyalty programs via a mobile device.3 Former
approaches to loyalty programs that required customers to act after making a purchase, or required them to
even remember to carry a physical card, seemed unnecessarily cumbersome in this new environment.
DROP TECHNOLOGIES INC.
Founded in 2015 by Derrick Fung, Darren Fung, Cameron Dearsley, and Akhil Gupta, Drop was a Torontobased coalition customer rewards program that enabled users to earn points using their linked debit or credit
card. To join, consumers linked their spending methods of choice (e.g., debit cards, credit cards, or other
payment methods such as PayPal) to their Drop account. Drop then automatically scanned and analyzed all
purchases made with those linked payment methods and subsequently rewarded consumers with Drop
Points, which could be redeemed at hundreds of partner brands, including Uber, Lululemon, and Apple (see
Exhibit 1). The company’s mission was to provide a seamless, “all-for-one” loyalty program that rewarded
particular shopping habits for each individual customer.
Before developing Drop, Fung had been a trader at CIBC World Markets Inc. and had co-founded a music
company, Tunezy, which was acquired in 2013 by SFX Entertainment. Known for his bold moves and
successful track record, as well as for building a collaborative culture, Fung encouraged employees at Drop
to be creative (“think outside the box”) and bring their own ideas to the table.
Target Market
Across businesses in the late 2010s, conversations about customer loyalty circled back to millennials; and
it made sense. In 2018, there were over 10 million millennials living in Canada, which represented 27.5 per
cent of the total population and made them the largest population group.4 Luckily for most merchants, over
80 per cent of millennials already participated in loyalty and rewards programs and tended to participate in
programs that were aligned with their lifestyle. In order to acquire these users, Drop focused its customer
acquisition efforts on creating trendy and unique experiences, such as a pop-up avocado toast food truck
and concert ticket giveaways (see Exhibit 2).
Recently, a new demographic had emerged as another attractive target market for Drop. This group was
largely made up of women aged 2534 who had children and loved collecting points through everyday
purchases such as groceries and gas, and who were eager to save money whenever and wherever they could.
Canadian mothers spent an average of CA$63,000 per year on their individual households as the prime
decision-maker for most everyday purchases, making them a crucial demographic for loyalty companies to
2
All currency amounts are in U.S. dollars unless otherwise specified.
Brand Loyalty, Executive Summary: The 2016 Bond Loyalty Report, January 2016, accessed November 13, 2019,
https://info.bondbrandloyalty.com/hubfs/Resources/2016_Bond_Loyalty_Report_Executive_Summary_US_Launch_Edition.
pdf?t=1488220126670.
4
The Nielsen Company LLC, Millennials on Millennials: Why We Matter, May 2018, accessed November 13, 2019,
www.nielsen.com/wp-content/uploads/sites/3/2019/04/millennials-on-millennials-in-canada-2018.pdf.
3
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9B21A006
Marketing and User Acquisition
The top priorities for most high-growth direct-to-consumer (D2C) start-ups were securing funding and
building a large user base. Unfortunately, one was difficult to achieve without the other. Luckily for Drop,
Fung’s previous entrepreneurial success had helped boost investor confidence, and Drop was able to raise
enough pre-seed financing to launch operations. This allowed the team to focus exclusively on acquiring users.
Most merchants defined a user as someone who purchased the product. However, Drop’s user acquisition
process was less simple and consisted of four main steps. First, users visited an app store and installed Drop
on their mobile device. Second, they opened the app and registered themselves with a username and
password, and then verified their email. Third, after registration was complete, users linked an active
payment method, such as a credit card or debit card. Finally, users completed an offer via the app to become
“fully integrated users” and start earning points (see Exhibit 3).
There were many instances of users falling out of the process before completing all four steps; some were
apprehensive about linking their credit card and others simply downloaded the app and stopped interacting
with it. This had led Solty and the marketing team at Drop to approach users with a different tactic. The team
targeted users at each phase and encouraged them to complete the entire user acquisition funnel. This was an
important task, especially because investors were carefully looking at revenue and profitability metrics.
A revenue-generating6 user at Drop was defined as someone who completed all four steps in the onboarding
process. Once a user completed a purchase through the app, Drop received a percentage cut from the merchant.
Paid Social Advertising
Drop’s initial user growth had come from press coverage, including articles on TechCrunch and BetaKit,
and within a year and a half, over 70,000 Canadians were using the app. In order to scale up, the marketing
team allocated 6070 per cent of its budget toward paid social advertising on Facebook and Google. One
of the main benefits of this approach was the quick and efficient speed of this channel. Within only a couple
of weeks, Drop had funnelled countless advertisements to individuals based on Facebook’s algorithms and
was targeting millennials and women with children all over the country.
Solty preferred this channel because of its efficiency. Within minutes she was able to monitor the number
of downloads, gather statistics on who was downloading the app, and update her bids for the upcoming
week’s advertising. However, she was not confident that all users from this channel were actually
completing the whole onboarding process. The graphics on Facebook showed Drop as a platform where
users could earn free rewards for their favourite retailers (see Exhibit 4). Often, this was enough to warrant
a download, but users were not sure what to do next. These advertisements did not mention having to link
5
“Survey of Household Spending, 2017,” Statistics Canada, December 12, 2012, accessed November 13, 2019,
www150.statcan.gc.ca/n1/daily-quotidien/181212/dq181212a-eng.htm.
6
Drop defined profitable users as those for which the cost of acquisition was less than the revenue Drop earned from their
spending. For example, if it cost Drop $11 to acquire the user and the user brought in $15 for the company, the user was
considered profitable.
Authorized for use only by Zaid Khartabil in BUAD 301-26 at California State University – Fullerton from 1/24/2022 to 5/18/2022.
Use outside these parameters is a copyright violation.
target.5 This demographic also displayed a strong sense of community. Through everything from in-person
playgroups to online forums, these women constantly interacted with others in their social circles. Decisions
were carefully thought-out and verified by others as they shared their own brand experiences, making wordof-mouth strategies much more impactful than direct marketing.
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9B21A006
a credit card, and many individuals stopped the onboarding process due to security concerns. In addition,
this channel was quickly becoming oversaturated by a number of different brands. Every page on the
Internet contained advertisements vying for attention and none of them seemed personalized.
In an effort to establish a more personal relationship with users, Drop tested referral marketing. Referral
marketing encouraged passionate customers to recommend that their network try a business’s product or
service. In return, the customers were offered a reward or an incentive, usually in the form of points or cash.
Drop allocated 1020 per cent of its marketing budget to this channel. Each user on the app had a referral
code and was given a $5 gift card if the user referred someone else. The benefit of this channel for Drop
was that both users (the one who did the referring and the one who was referred) received the $5 gift card
only after their payment cards were linked and they had completed an offer. This ensured that consumers
completed the onboarding process before being rewarded.
A common example of referral marketing was word-of-mouth between family members, such as siblings
or spouses. One family member would encourage the other to sign up and would walk them through the
entire process, answering any questions that arose organically. This led to a very high conversion rate.
Unfortunately, this channel did not provide for as much scalability as paid social advertising did. Each user
on average referred two to three users in total.
Solty wondered if there was a middle ground—a way to reach an audience at scale but still maintain the
level of personal connection that came with word-of-mouth marketing. Her research pointed her to a new
channel that held a great deal of potential: influencer marketing.
THE NEW WORLD OF INFLUENCER MARKETING
At a fundamental level, influencer marketing was a type of social media marketing that used product
mentions from influencers—individuals who had a dedicated social following and were viewed as experts
within their niche.7 Influencers fell into many different categories, some of the popular ones being gaming,
fashion, technology, and fitness. Influencer marketing was successful because of the high amount of trust
influencers established with their followers. Recommendations from influencers served as a form of social
proof for the brand’s potential customers. 8
In its infancy, influencer marketing had referred to the select group of celebrities and supermodels who
chose to endorse exclusive brands. But the definition of influencer was changing. Currently, young men
and women across the globe were self-proclaimed full-time “fashion bloggers” or “social media
influencers” with large online audiences and high levels of engagement through social channels such as
Facebook, Instagram, and TikTok.
7
Gerardo A. Dada, “What Is Influencer Marketing and How Can Marketers Use It Effectively?” Forbes, November 14, 2017,
accessed November 13, 2019, www.forbes.com/sites/forbescommunicationscouncil/2017/11/14/what-is-influencermarketing-and-how-can-marketers-use-it-effectively/#34dd6b2123d1.
8
Ibid.
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Referrals
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This industry was set to reach $10 billion in 2020 with influencers leveraging networks like Snapchat,
YouTube, and TikTok, each with their own audience demographics.9 Not only was this a growing industry,
but the industry had also been wildly successful for brands. Brands typically earned $2 for every dollar
spent on Google Ads compared to the $11.69 in earned media value10 per dollar spent on influencer
marketing.11 One of influencer marketing’s main benefits was that it enabled brands to target both broad
and niche audiences. By working with individuals who specialized in a specific category of content, brands
could make more meaningful decisions regarding who they wanted to target, and subsequently allow them
to gain access an already trusting base of consumers.12
For example, Whitney Simmons (@whitneysimmons) was a certified fitness coach who regularly posted
workouts and healthy recipes on her Instagram account, which had three million followers. As a social
media influencer, she had worked with Gymshark, a fitness clothing and accessories brand, in the past to
share different workout outfits on her Instagram account that featured the brand’s clothing and accessories.
She tagged Gymshark in her posts so that her followers could learn more about the brand, check out its
website, and shop for specific products they had seen on her page. Because Simmons was a fitness
influencer, a majority of her audience was made up of consumers interested in health and fitness and who
were likely to purchase Gymshark products. When Gymshark launched a clothing line in collaboration with
Simmons, every product was sold out within three days.
Drop’s Use of Influencer Marketing
Drop began testing this channel in early 2018 by allocating 10 per cent of its total marketing budget, while
the rest was spent on paid social advertisements and referral marketing. Lacking much clarity on how to
navigate this new type of marketing, the team at Drop tried various strategies, using influencers ranging
from previous contestants on the television show The Bachelor to fashion bloggers. Also unclear was
whether this channel was actually translating into profitable users for the company.
The process of influencer marketing was more extensive than other marketing methods. As Drop’s marketing
manager, Solty spent time working with an outside agency that helped manage influencer relationships. At
the start of a campaign, the agency would match influencers with Drop based on audience, timing, and reach.
Once influencers expressed their interest, both sides worked on negotiating payment terms. Typically,
influencers were paid two cents per view on a post or video. They then received the creative brief detailed by
Drop’s marketing team, which contained key talking points, the call-to-action, and any images or logos to
include. Influencers submitted their post or video for approval by the agency before it went live on their
respective channels. Solty monitored target metrics throughout the campaign and evaluated the final
performance to determine whether this was someone Drop should partner with on a longer-term basis.
Currently, Solty focused on two main groups of influencers: popular personalities and lifestyle bloggers.
Popular personalities included YouTube stars such as Morgan Adams (see Exhibit 5) and lifestyle bloggers
such as Sophia Chang and Jessica Skube (JesssFam). Solty wondered what other influencers would make
sense to approach for Drop’s platform.
9
Giordano Contestabile, “Influencer Marketing in 2018: Becoming an Efficient Marketplace,” AdWeek, January 15, 2018,
accessed November 13, 2019, www.adweek.com/digital/giordano-contestabile-activate-by-bloglovin-guest-post-influencermarketing-in-2018/.
10
Earned media value referred to any type of social media exposure gained through word-of-mouth, recommendations, or
conversations about the brand.
11
“Influencer Marketing Effectiveness: Key Survey Finds, Facts & Figures [Infographic],” Mediakix, accessed November 13,
2019, https://mediakix.com/blog/influencer-marketing-effectiveness/#gs.8tczun.
12
Maddie Raedts, “Five Ways to Create Effective Conversion-Driven Influencer Campaigns,” Forbes, July 12, 2019, accessed
November 13, 2019, www.forbes.com/sites/forbesagencycouncil/2019/07/12/five-ways-to-create-effective-conversion-driveninfluencer-campaigns/#60e8219345e9.
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9B21A006
As a marketing manager, Solty’s goal was to help Drop scale as quickly as possible. It was important for
the company to show rapid growth in its user base to both investors and other users as a sign of credibility.
Having scaled to two million users, Solty started to wonder if her goals still made sense. The user base at
Drop was now large enough for consumers to trust the platform, and the company had been featured in
many articles in Forbes and on CNBC, so negotiating with investors was no longer such a daunting task.
She knew it was time for the company to rally around profitable growth, rather than focus purely on an
increase in number of users.
Earlier in the year, Snapchat had surpassed 200 million daily active users, and yet over eight years after its
founding, the company was still not profitable.13 It represented just one of many technology companies
with billion-dollar valuations that had never turned a profit. Instead, these start-ups simply poured all of
their capital into “growth” and continued to take a loss year over year. While venture-backed companies
believed in fast growth above all else, many were beginning to rethink that mantra and invoke “positive
unit economics” and a path to profitability as their new priorities.
Each marketing channel had pros and cons, and Solty put together some data to highlight the conversion
ratios and customer acquisition costs for paid social advertisements, referrals, and influencer marketing (see
Exhibit 6). The goal for the upcoming year was to show Drop’s investors that profitability was indeed topof-mind. Typically, investors and venture capitalists wanted to see unit economics that were a 3:1 ratio of
customer lifetime value to customer acquisition costs, and a 12-month payback period. What would the
customer lifetime value have to be for each channel to make sense?
THE DECISION
Solty now faced an important decision that would change what “marketing” meant for Drop. On one hand,
growing quickly was still a key criterion for Drop’s investors, and the expectation was to hit five million
downloads in the next year—yet Solty had to ensure a good portion of those downloads translated into
profit for the company. Solty had to decide: should she continue with traditional paid social advertising and
referrals, or double-down on influencer marketing?
Was Solty’s current allocation of the marketing budget appropriate for this stage of Drop’s growth? Should she
allocate more of the budget to this new channel of influencer marketing? Or was that channel too risky and just
a fad that would eventually fade away? Pushing her slice of cake to the side, Solty began to weigh her options.
13
Aaron Holmes, “From Snap to Uber, Here Are 9 Billion-Dollar Tech Companies that Still Aren’t Profitable,” Business Insider,
November 27, 2019, accessed November 13th, 2019, www.businessinsider.com/tech-companies-worth-billions-unprofitabletesla-uber-snap-2019-11.
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THE PROFITABILITY PROBLEM
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1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Sephora USA Inc.
Instacart
Indigo
Old Navy
lululemon athletica
eBay Inc.
Expedia Group
TurboTax
American Eagle Outfitters Inc.
Glossier
Source: Company files.
EXHIBIT 2: AVOCADO TOAST POP-UP FOOD TRUCK IN DOWNTOWN TORONTO
Source: Company files.
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EXHIBIT 1: TOP EARNING RETAILERS IN CANADA
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EXHIBIT 3: DROPTECHNOLOGIES INC. USER ACQUISITION FUNNEL
Register an account on the Drop app.
Link a payment method to the Drop app.
Complete the offer at a participating retailer.
Note: app = mobile application.
Source: Company files.
EXHIBIT 4: FACEBOOK ADVERTISEMENT
Source: Company files.
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Download Drop to a mobile device.
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9B21A006
EXHIBIT 5: INFLUENCER MORGAN ADAMS SHOWCASING DROP TECHNOLOGIES INC.
“INSTAGRAM FOLLOWERS CONTROL MY VACATION!” YouTube video, 13:21, posted by “Morgan
Adams,” November 12, 2018, accessed November 13, 2019, www.youtube.com/watch?v=nL15iCkS6w.
Note: Start playing the video at 6:15 minutes.
Source: Company files.
EXHIBIT 6: DROPTECHNOLOGIES INC. MARKETING CONVERSION METRICS (IN CA$)
Conversion:
Register to Linked
CAC-Registered
User
CAC-Linked User
Influencers
67%
$2.28
$3.40
Paid Social Ads
35%
$4.70
$13.43
Referral
75%

$10.00
Note: CAC = customer acquisition cost.
Source: Company files.
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Use outside these parameters is a copyright violation.
Example content from Influencer Partners in Late 2018: Morgan Adams
Case “Shred” Short Cycle
Case Preparation Chart
Short Cycle Process
Student Name:
Case Title:
Name
Position
Who?
Issues
What?
Why?
When?
Analytical1
Case Difficulty Cube
Conceptual2
Presentation3
How?
Case Difficulty Cube description:
1. Analytical: What is the reader’s task based on the information given in the case? Is it clearly
identified? Are there multiple potential tasks? How complicated are those tasks?
2. Conceptual: What theories, concepts, or techniques will help the reader understand or resolve
the case? What ideas does the reader bring to the case?
3. Presentation: How complicated is the case? What information is relevant? What information is
missing?
Adapted from Mauffette-Leenders, L.A., Erskine, J.A., Leenders, M.R. (2007). Learning with cases, 4th edition. London, Ontario:
Ivey Publishing.

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