How to Choose And Keep Customers
- Do you know who your customers are?
It may sound automatic, but many businesses simply don't keep track of who actually buys their products. And, those that do, rarely analyze buying behavior. A customer database is essential. If you don't have one, create one. Start by capturing the basics: customer contact information, product preference and purchase frequency.
- Have you ranked your customers?
Not all customers are created equal, yet most businesses treat them exactly the same. That's why you need a customer ranking system. Look at those variables that are most relevant to your business -- purchase frequency, revenue, selling costs, referral potential, and so on and score your customers accordingly. Marketing research firm CRI, for example, ranked their 157 customers using a simple quadrant that bucketed customers according to the kind of business they generated each year, i.e. High Volume/Low Margin and Low Volume/High Margin.
- Do you know which customers are your most valuable?
The ranking exercise may help explain puzzling disparities in company performance. The 'Why aren't we growing/more profitable/gaining market share when we have more customers than we ever have?' dilemma can be crystal clear when you really look at how each customer is contributing or subtracting from the bottom line. CRI found that only 10 of its customers fell into the preferred category-High/High.
- Do you have too many customers?
In CRI's case, they concluded they were 'spending much too much time and valuable employee resources on too many unprofitable customers' -- in fact, 101 of them essentially contributed nothing to the bottom line. Smart CEOs understand precisely who their target customers are. And, they know how to go after only the right customers. Is there room in your business to be more customer-selective?
- Which of your customers may be worth firing?
Less can definitely be more when it comes to unprofitable customers. Like CRI, who cut its customer base in half, getting rid of some customers may be your company's secret growth strategy. Also think about the costs you would NOT incur if certain customers went away. Are some draining the business? The process of raising your customer standards and paring automatically opens space to attract the flow of new, more profitable business.
- When is the last time you checked customer satisfaction?
If you're not regularly taking the pulse of your customers, they may be sacrificing, rather than being satisfied. 'Customer sacrifice = What the customer wants EXACTLY minus what the customer settles for' say B. Joseph Pine II and James H. Gilmore, authors of The Experience Economy. Check to see if you can shore up the areas of your product or service that may be cracking or settling.
- Are you spending too much on finding new customers?
Determine all of the costs (people, time and dollars) you incur to grab new customers. Are more company resources focused on customer acquisition vs. customer retention? Consider putting more attention on holding on to the ones you already have. It can have a profound impact on the bottom line -- current customers are 5-10 times LESS expensive to sell to than new customers. And, you can avoid nasty customer defections due to neglect.
- Are you actively converting first-time buyers to long-term customers?
In some businesses, such as car or life insurance and credit cards, companies actually lose money on first-year customers. Check to make sure you don't have a 'leaky bucket' --- losing mature customers and replacing them with new ones. It takes many new customers to compensate for the loss of just one veteran, according to Frederick Reichheld, author of The Loyalty Effect. And, the bigger the leak, the harder you have to work to keep it full.
- Are you fortifying relationships with your best customers?
There are 4 strategies to keep great customers, say Don Peppers and Martha Rogers, authors of The One-to-One Future: #1) Recognize your Most Valuable Customers (MVCs) with special treatment (perks, MVC Club, unique services), #2) Reward loyal buyers, i.e. frequent buyer programs, #3) Deliver Consistent Product Quality and Satisfaction, and #4) Customize Product/Service For Individual Customers -- the ultimate way to keep customers loyal longer is to spend more time catering more to their individual tastes. What can you do to better personalize each customer's experience with you?
- Are you earning customer loyalty?
Strategic CEOs treat customers like assets and do everything they can to invest and safe keep them. Customer loyalty standouts, such as Lexus, State Farm and MBNA, engineer their entire company (not just the customer service dept.) around customer loyalty -- manufacturing, pricing, sales incentives, and all operations inside and out are built for lifetime customers.
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
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