BUSINESS T0 BUSINESS

For every dollar spent retaining an account, it takes six dollars to close a new one,” Reeves notes. “No wonder it’s more profitable to retain customers. If you resolve problems to their satisfaction, they’ll continue to buy from you 75 percent of the time. If you resolve the problem immediately, that figure rises to 96 percent.” How to Keep Customers for Life By TEC Associate Rob Engelman The more value a business offers its customers, the stronger the relationship and bond customers have with that business. Along with strong relationships comes customer loyalty (as well as dramatic shifts in sales and profitability). So how do you cultivate loyalty with your many different customers? Using a results-driven strategy Customers are not all alike Stages of customer behavior Sales and marketing strategies Target customers based on data and information Using a results-driven strategy I use a strategic approach called Customer Lifecycle Management (CLM) that identifies and segments customers based on their behaviors, attitudes and experiences with a company. When implemented successfully, this results-driven strategy also helps companies reduce wasted marketing expense and uncover “hidden” revenue. Identifying and managing the needs of each customer segment is critical in determining the amount and types of communications spent for each group. For example, new customers typically need to be welcomed and educated about the range of products and services an organization has to offer, whereas current customers (who have bought products and/or services in the past) benefit more from cross-sell messages. Similarly, a portion of customers who are at risk of switching allegiances to a competitor might be well served with some sort of retention intervention, while others who remain devoted to an organization, regardless of competitive forces, should be rewarded with a loyalty message. Customers are not all alike. Treating all customers in the same manner, without regard to the customer lifecycle, is a sure-fire way to limit potential revenue and profitability. As an example, look at two customers at a health club: Customer A is very active at the club. She typically uses the facilities five times a week, often buys supplies and apparel in the pro shop, and has referred four people to the club in the past six months. Customer B, on the other hand, has not been seen since the day he joined the club nine months ago. Membership renewal fees for both Customer A and B are due in three months. If the club uses the same marketing strategy to encourage Customers A and B to renew their memberships, it will probably spend more money than is necessary for Customer A, while not communicating enough benefit to Customer B, eventually losing this customer anyway. Either way, utilizing the same marketing approach will cause a decrease in potential sales and profitability. Thus, a more segmented and targeted approach to sales and marketing is needed. Stages of Customer Behavior The first step is identifying and defining the five stages within the customer lifecycle: Prospects are non-customers who fit the profile of a target customer. They range in their level of interest and involvement from “never been contacted” to “about ready to buy.” First-time buyers have purchased something from your company before. Still, they’re in a trial stage, and need to have a good experience in order to maintain a steady relationship with your organization. Limited buyers have made repeated purchases, but they don’t always buy from your company. This reluctance can be traced to issues of trust, being unaware of the full line of products/services offered, and/or not internalizing their own needs as regular customers. Full buyers are customers who buy only from you. They might spend $100 or $1 milion, yet their buying patterns are consistent and predictable. Full buyers look to you for advice and guidance, and most importantly, they speak highly of your company to their friends and associates. At risk customers have become dissatisfied with or lost faith in the products or services you offer. As such, they have the potential of defecting, and moving their business elsewhere. Some at risk customers show themselves in an open manner (by a large decrease in spending) while others are more passive and covert in their approach. Then, all of a sudden, they’re gone. Understanding these five customer stages is essential to developing effective marketing and communication strategies to better manage your customer relationships. Sales and marketing strategies Each of these five customer segments has its own unique set of experiences, expectations, needs and desires from an organization. In order to fully maximize the revenue and profit potential each segment holds, different sales and marketing strategies should be applied to each of the five customer types. Acquisition strategies encompass sales and marketing ideas designed to acquire new customers. The goal behind acquisition efforts is encouraging prospects to try a product/service and become first-time buyers. Activation strategies move first-time buyers to limited buyers. The core objectives include welcoming new customers, educating them to what you have to offer, and persuading them to purchase as many times as possible in order to create a consistent buying pattern. Up-sell/cross-sell strategies move customers from limited buyers to full buyers. At this point, you can encourage customers to try new product lines and/or provide incentives to reach higher spending levels. The more hooks there are into a given customer, the stronger his or her relationship becomes with your organization. Loyalty strategies recognize, reward, and say thank you to your most valuable (not necessarily “highest-spending”) customers. Customers with marquee names and those who refer business to you can also be most valuable, even if they don’t spend the most money. Retention strategies cover sales and marketing efforts that reinforce the customer value proposition when it has been lost. Key warning indicators — declining sales volume, customer complaints — often signal dissatisfaction and predict the likelihood of attrition. Armed with this information, you can handle problems early, “save” your customers, and put them back onto the “perfect-world” path. Target Customers Based on Data and Information There are many situations where this approach can be appropriate and successful. Here are three general scenarios: 1. Do your customers make repeat purchases and have the option to choose from multiple products/services? The catalog, retail and travel industries are all good examples where this approach can be implemented effectively. Purchase information is collected and used to customize and send communications that add value to the customers’ experiences. 2. Companies with large upfront acquisition costs such as credit cards, magazine subscriptions and medical supplies are also good candidates to implement a customer lifecycle program. Since these organizations spend so much money acquiring customers, they need to build long-term relationships in order to achieve customer profitability. 3. How effectively do you obtain and retain information about your customers’ purchasing behaviors? If data collection is possible, and you have the ability to communicate with customers via traditional direct marketing methods (mail, e-mail, catalog, etc.), then planning a lifecycle approach is appropriate as well. When you build your acquisitions strategy with an eye towards retention, you acquire more targeted customers and actually spend less money trying to acquire or retain customers. By following the concept of Customer Lifecycle Management, you’ll develop and implement activation, up-sell/cross-sell and loyalty programs that focus on building solid relationships with your customers — thus uncovering many hidden sources of incremental revenue. Marketing Mix The Four “P’s” of Marketing: The Marketing Mix Product: What Sets You Apart Price: The Strategy Promotion: Spreading the Word Place: Channels of Distribution The role of marketing is to carefully examine customers’ needs and wants, then design a product or service that satisfies those needs, offer it at a fair price, make it available through various channels of distribution and create promotions or communications to establish interest. This process is referred to as the “4 P’s”: Product: Anything relating to the product (color, size, shape, etc.), as well as what the customer perceives as the product Price: Identifying the cost to the user and determining a pricing strategy Promotion: Using an array of communications tools (advertising, sales promotions, public relations, etc.) to reach customers and prospects Place: The channel of physical distribution (the product’s actual movement through a means of distribution) and sales (how the product is sold, whether through wholesalers, retailers, direct mail, etc.) These four elements represent the marketing mix, according to TEC experts Mitch Goozé and Jack Harms. Being successful means learning to manipulate the marketing mix in a proactive manner, rather than merely reacting to what your competitors do. Winning organizations understand the need to constantly change and move. Other organizations just react. Product: What Sets You Apart You may have a specialty product (something that’s highly unique) or a commodity product (virtually indistinguishable from what competitors offer); each category requires different marketing strategies, but the focus should always be on the product’s benefits, not on its features. It’s easy to describe your product’s features, but sometimes its benefits are more intangible. The most forceful benefits are those that offer customers emotional or financial rewards. It’s not fresher breath that mouthwash has to offer — it’s what the fresher breath brings you (popularity, better job offers, etc.). All kinds of possible “emotional rewards” exist, but the fundamental value lies in making the customer feel better in some way. Products that bring financial rewards translate into the customer saving money, making money, or gaining time and convenience. “The job of marketing is to design intangibles into the product and use them to make the product unique,” Goozé says. “In addition to the tangible things you sell, customers buy the intangible. For example, the more service-oriented your business is, the more the customer is buying. It’s crucially important, therefore, that your salespeople communicate the value of such intangibles to the customer.” According to Harms, “product” isn’t just the physical entity of what you deliver; it includes all the advantages bundled up with the product. “In the vast majority of cases, the physical entity is the least important part of the bundle,” he says. “That’s because it’s the most easily compared element. Customers can usually find a substitute for the product, which in turn leads to ‘shopping’ and price objections.” Harms cautions that the needs of retail customers differ from those of business-to-business (B2B) customers. “Business customers are buying products and services to improve the profitability of their business,” he notes. “Retail consumers buy things to enhance their lifestyles. It’s precisely when B2B companies start trying to solve ‘retail’ needs, i.e., reducing the buyer’s pain or providing them with peace of mind, that they lose the ability to truly differentiate themselves.” The TEC experts suggest asking these basic questions: Does our marketing approach sufficiently differentiate the product from the customer’s point of view? Boasting, for example, that your product offers “better quality” or “leading technology” isn’t enough to distinguish itself in the customer’s eyes. • Can we defend our product’s distinguishing characteristic against our competitors? And for how long? • Can we set ourselves apart by how we distribute the product? If you’re currently distributing your product through more outlets than your competition, you’re delivering a genuine bene...

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