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Tapping Your Most Valuable Asset - Your Current Customers!
by David Frey - The Small Business Marketing Bible
Not long ago I was speaking with a client in the spa and pool industry who expressed concern that his sales had grown stagnant. He mentioned that he was still actively advertising and working his lead generation process but his new customers had slowed to a trickle. I asked him, as a percentage of his marketing efforts, how much was devoted to new customer acquisition and how much was devoted to current customer sales.
He glanced at me with a look of confusion and said, ‘What do you mean current customer sales?’ He continued, ‘Once we sell a spa to a customer, that's it. They're not going to come back and buy another spa a week later. A lot of our customers come in to buy chemicals and some accessories, but that's it. All of our efforts are focused on finding people who want to buy a new spa or pool.’
There's Gold in Your Customer Base Waiting to be Mined
Unfortunately, my client didn't understand the value of his customer base. There is gold in your customer base waiting to be mined. You see, many retailers focus on the first sale (or the front end sale) and spend a disproportionate amount of time looking for new customers when the real goldmine lies in the back end sales or continuing steam of sales.
You've probably spent a lot of money acquiring your customers. Not only do you miss out on lost revenue when you ignore them, but you also flush your return on investment from acquiring your customers right down the tube.
If you have convinced a person to do business with you it means that they have already given you a vote of confidence. If you've provided good service and met (or exceeded) their expectations, it's very likely that they would be willing to give you a second vote of confidence or third or fourth. If you're good you may even get their lifetime vote of confidence.
To Get to the Pot of Gold, You Have to Know Where to Mine
You must be able to contact your customers in order to market to them. That's why one of the first pieces of advice I give to my clients is to capture your customer's contact information at the point of sale. This process is done automatically in some businesses, but in others you must ask for your customer's contact information.
If you have ever purchased an item at Radio Shack you know that the clerk always asks for your name, address, and phone number. They don't even give you a reason, they just ask for it.
They just assume you will give it to them, and you know what? 98% of Radio Shack customers do give it, without any question. The process is so automatic that you feel that giving your contact information is just part of the purchasing process.
Every small business in America should be doing the same thing as Radio Shack. But to go one step further, you should be capturing your customer's email address as well (assuming they have one).
Capturing your customer's email address is the holy grail of marketing because you can market to your customer again and again at no cost.
If your customer is reluctant to give you their email address, give them a bribe such as a coupon for their next visit or something else of value. The effort to obtain your customer's email address will be re-paid many times over.
Focus On Your Best Customers
Most businesses lose between 15 to 20 percent of their customers each year. Retailers lose even higher percentages. Depending on your business, a large majority of your customers lie dormant having only transacted business with you once or twice. Your remaining customers are those that are loyal to you from whom your profits can be significant.
The old 80/20 rule certainly applies to your customer base; 20 percent of your customers bring you 80 percent of your revenues. These 20 percent are your loyal customers that come back to do business with you time and again. Some are even hyper-responsive customers that pull out their wallet any time you make them an offer. These are the customers that you should be focusing your time and energy on.
Several benefits result from concentrating on servicing these customers:
1. Your marketing costs go down because you do not have to blast your marketing message to the world. This is called spray-and-pray and is a waste of your marketing dollars.
2. Your marketing efforts become more efficient because you are dealing with responsive customers, which increase your conversion rate (the number of shoppers that become buyers) dramatically.
3. It rewards customers because they receive your personal attention and periodic special offers that other customers may not receive.
4. Reduces your customer acquisition cost by investing your savings (from not mass advertising) on customer retention and loyalty building programs.
It's important to categorize your customer base to identify your top 20% customers. However, to do this you must first be able to uniquely identify all your customers and the amount that they have spent with you over a defined time period (last 12 months). If you don't have this data, start compiling it right now.
‘Business Goes Where Business Is Invited’ - A Case Study
It sounds simple but inviting your customers to do business with you is an effective strategy for significantly improving current sales. Take it from Max Grassfield, owner of Grassfield's an upscale men's clothing store in Denver. Max founded the store 35 years ago, and is still running the business.
Max has become so skilled at inviting his customers to do business that he developed a trademarked system called, ‘Invitational MarketingTM.’ Max issues personal invitations to his store to a carefully selected group of individuals in the Denver area. His method works. Several years ago, Max Grassfield asked himself, ‘What can we do to make Grassfield's unique (which is a question all small business owners need to ask themselves).’ The answer, which he evolved after much study, research, and effort was to develop methods to know his customers ‘better than the other stores know their customer.’
For the last ten years, Grassfield's has been collecting a database of information on its customers, who voluntarily provide it. Originally, the data included name, address, telephone numbers, sizes, birthdays, and the wife's name. (He discovered that wives are often heavily involved in their husband's clothing purchases.)
He regularly writes customers on a one-to-one basis that use the customer's first name or nickname (as the customer prefers), their sizes, wife's name, product preferences, and references to what they bought in the previous season.
Most communications are programmed to include messages designed only for the particular customer addressed: ‘I've been keeping my eyes on the 44 long suits’ Every letter is personally signed by the customer's salesman who he met while visiting the store.
Recently, he sent a wave of three different oversized postcards in one month intervals, to 4,100 regular customers. Each card greeted the customer by name, and was signed by his salesman. There were 117 respondents (a 2.85% response rate) with an average sale of $451. It was an outstanding success. The final cost per piece mailed was just 48 cents including postage. For a $1,968 investment, he brought in $52,767 in sales. (Compare that with the cost of full page ads!)
A couple of months later, Max selected eight suit sizes that were overstocked. Using the database, he drafted a special note to each customer whose size fit one of these eight groups.
The incentive was $100 off any suit in that inventory, and $200 off the high-end Hickey Freeman suites. He mailed 1,164 invitations at a cost of $558 and sold 56 suits in 39 transactions. The average sale was $1,110 with a total volume of $43,307!
This case study is a great example of the power of marketing to your current customer base. Max knows who his good customers are and he takes advantage of that by personally inviting them to do business with him, again and again. It also demonstrates the power and importance of collecting information about your customer and how it can be used to make you a lot of money.
The Prodigal Customer - The Lost 20%
The average number of customers that stop doing business with you is about 20 percent annually. To achieve just a 10 percent increase in sales you have to add 30 percent more customers!
These statistics are startling considering the average business spends six times more to attract new customers than it does to keep old ones. What is your customer attrition costing your business?
*Factoid*: A survey on ‘Why customers quit’ found that of the 20% that stop doing business with you
three percent move away; five percent develop other friendships; nine percent leave for competitive reasons; 14 percent are dissatisfied with the product or service; 68 percent quit because of an attitude of indifference toward the customer by the owner, manager, or some employee.
The Silent But Deadly Unhappy Customer
This means that 82 percent of your customers that stop doing business with you are unhappy. Unfortunately, unhappy customers don't usually complain about their feelings. A study from the Research Institute of America says that the average business will hear nothing from 96 percent of unhappy clients who experience rude or discourteous treatment.
Not only is having unhappy customers not doing business with you driving up the cost of customer acquisition, but it is costing you potential lost sales. The same study found that unhappy customers will tell their experience to at least nine other people, thus, jeopardizing further potential sales.
So, what do you do to get all these people buying from your business again? You assume the statistics are right and that you did something to offend them in one of your business transactions. What do you to make your spouse start talking to you again after you have offended them? That's right, you humble yourself and apologize and ask for forgiveness.
Telling the Truth Has Magical Results
Tell them the truth - that they haven't been buying products or services from your firm for quite a while and you sense something is wrong. Make sure that you communicate this in a way that absolutely conveys your genuine concern for their well-being.
After you caringly express concern for the lack of contact and business that your company has had with them ask the question, ‘Is anything wrong?’ Follow that up before your customer responds by adding, ‘Have we done something wrong or did we offend you? If we did, it certainly wasn't intentional. Is everything all right with your business, job, family, health etc.?’
Believe it or not, this simple approach has a magical affect on your inactive customers (just like it does on your spouse).
Don't underestimate this strategy. Even big companies use it. When Continental Airlines was about to go under in 1994, Greg Brenneman, a former consultant suggested to Gordon Bethune, CEO of Continental, that they win back their customers by calling them and personally asking for forgiveness and for a second chance.
Greg Brenneman, who later became Continental's Chief Operating Officer, and Gordon Bethune both got on the phones with their executive staff and started to call their best, inactive customers one-by-one. It worked like gangbusters. Inactive customers who were dissatisfied with Continental were impressed by the personal phone call and came back in droves. Since then its stock has risen 1,700%.
Be a Full-Service Provider Without All the Hassle
Let's go back to my client in the spa and pool industry who mentioned that he didn't know what more to sell his customer because they had just purchased a spa, a one-time item purchase. He did have a valid point. He personally couldn't sell his customer much more than chemicals and accessories, BUT, he could be a full-service provider by offering complimentary products and services in which his customer might be interested.
How? I advised my client to meet with the owners of other businesses that provide complimentary products and services that his customer might be interested in and strike up a commission or referral deal. This way he could still benefit economically from his relationships with his customers and continue to provide his customers other products and services.
To maximize this strategy you might consider asking your customers what they are lacking and then find out how to solve it. As the sayings go ‘Find a need and fill it. Find a hurt and heal it. Find an itch and scratch it.’
Virtually every successful small businessperson you ask will tell you that finding and meeting unmet wants is the name of the game when it comes to winning customers. The better you do this, the more customers' you'll win.
Conclusion
Don't make one of the biggest mistakes in the book by ignoring your customers. You paid a lot to get them. You'll pay a lot if you offend them. Why not make a lot by delighting them.
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