Keep Customers Coming Back

I was thinking about why I do business with any particular company…more than once. I came up with 5 reasons that perhaps you could consider for your business, if you haven’t already implemented them as part of your company culture. Now granted, I am not the targeted customer for all companies but the following are pretty basic.

 1. I like to do business with companies/people who give me something more than the product or service that I purchase. I just love for people that I am doing business with to be nice to me, you know, not fake nice but really nice and helpful. I like to feel special and appreciated. And it is a real bonus when I get something extra…a discount or something free. When someone gives me something, I feel the need for reciprocity, like doing business with them again.

2. I like to do business with a company that has great products or services. But let me specify, I don’t want just great, I want great at the right price. I will not do repeat business with companies who take advantage of me; for example, overcharging me without adding value to the transaction. In other words, if I feel “ripped off” I am not going back. We all know that it is less expensive to take care of your existing customers than to go out and acquire another one.

3. I like to do business with a company that does something good and that I am proud to be associated with because I believe in their values. So if you support worthy causes, let everyone know about it! However, #2 still applies.

4. I like to do business with a company that makes my buying experience very easy. Don’t make it difficult for me to find things, don’t waste my time by making me wait, don’t have unknowledgeable people interacting with me (train them!) and go out of your way to assist me….I am trying to spend money with your company!

5. I like to do business with people who have MY best interest in mind, not THEIRS.  Don’t try to sell me more than I need or upgrade me to a new plan so you will get higher commission. I like the consultative approach and like to learn from my business interactions.

Marketing Measurement Systems 5

The fifth consideration in developing Marketing Measurement Systems for your business:

5. Manage the cost of new customer acquisition, cost of losing customers and implement a Customer Acquisition/Retention plan.

Consider this: Customers are Assets of your business, revenue-producing assets. Some businesses actually lose money on the initial acquisition because once the customer becomes active, the Lifetime Value is very profitable and the downstream revenue opportunity makes it worthwhile to lose money on the first sale.

Customer retention usually costs a lot less than acquisition. So before you spend money on new customer acquisition, focus on retaining the customers who are loyal to your company now. Customer retention is about taking care of your customers so they will stay with you. Doesn’t it make you mad when a business offers something better to a new customer than to an existing customer? What message does that send?

New customer acquisition programs may include:

1. Direct Mail- standalone pieces, postcards, catalogs, Valpak, newsletters
2. Direct Sales- “door knocking” & calling
3. Internet advertising including pay-per-click
4. Telemarketing  (B to B) for sales & lead generation
5. Advertising- Newspapers, Magazines, Radio, TV, Internet, yellow pages
6. Digital media- CDs, DVDs, flash movies
7. Public Relations- almost free but you need a disciplined approach
8. Loyalty programs- offer incentives to become part of a program
9. Trade Shows- expensive, big exposure
10. Community/Charitable Initiatives- giving back may get customers

Costs of customer acquisition must be measured by selling channel and the costs may be dramatically different. For example, if a direct sales representative brings in a new customer, the acquisition cost could be higher than if a new customer was acquired through an internet lead or direct mail piece. Of course, the customer lifetime value could be different as well. This knowledge may cause your business to segment new customer acquisition programs by potential customer size/opportunity.

Marketing Measurement Systems 4

The fourth critical consideration in developing Marketing Measurement Systems for your business:

4. Know the Lifetime Value of your Customers and the Recency, Frequency & Monetary Value of their purchases.

The Customer Lifetime Value (CLV) in the simplest terms is Average Order Size x Gross Profit % x # of Orders per year x number of years retained. Example: Company A has an AOS of $200, your business gross profit is 50%, the customer orders 4 times per year and is retained for 5 years: $200 x 50% x 4 x 5= $2000.

Please note that Net Present Value of Money and Cost of Retention play an important role in determining CLV. The Recency, Frequency, Monetary Value (RFM) can be used to model your customer database to determine the customers with the highest RFM score. Customers who have ordered from your company most recently and who have a high order frequency and high monetary value/AOS will be the customers who will most likely order again and will be the most valuable customers.

Both of these calculations must be done by customer segment. When you define the most profitable customers, you can focus on acquiring more of them through the most effective selling channel and marketing promotions.

If you knew that the lifetime value of your customers is $10,000, what would you spend to acquire a customer? What would you spend to keep customers happy so they will continue to do business with your company?

Marketing Measurement Systems 3

The third critical consideration in developing your marketing measurement systems:

3. Maximize the Metrics from your Customer Database/Order Entry/CRM System to utilize this historical customer data as a roadmap for predicting customer behavior and sales trends.

What types of data are you collecting on your customers and their behavior?  Remember that the Value of the Database is the Quality of Information Captured. 

How are you managing your Customer Database/CRM System? Your customer database should allow you to store, modify and extract information such as: 

1. Customer detailed records and order activity
2. Type of customer such as NAIC code
3. Customer demographics and psychographics
4. Source of customer- origin of customer
5. Order history information of products ordered, dates, price, discounts
6. Order recency & frequency codes
7. Source of order by selling channel
8. Customer assignment by selling channel
9. Which marketing promotions they were offered & which ones resulted in an order

From this information you can calculate customer average order size, order frequency and average lifespan in addition to how you obtained the customer, what types of sales channels they are managed by and what marketing promotion causes the customer to order.  Determine the activity rate of your customers, Active versus Inactive.

Your database should include a prospect database with similar information except that the prospect hasn’t ordered from your company. It is critical that you track all contact activity with your prospects. Of course, you may decide to only rent prospect names and leave it to your list management company to manage all the contact information for you.

Marketing Measurement Systems 2

The second critical consideration in developing Marketing Measurement Systems for your business:

2. Implement Marketing Measurement Systems for your business that focus on Return On Investment.

Marketing Measurement Systems will allow your company to:

• Plan• Implement • Track • Measure • Analyze • Make informed decisions on how to spend your marketing budget. Then start the cycle again for each marketing initiative. Measure the Return on Investment for all marketing initiatives. Once baseline data has been established on your programs, you will also have past results for comparison. Calculating a Return on Investment on all of your marketing initiatives allows your marketing and financial departments to review the effectiveness of the marketing programs comparatively.

ROI calculations can be done at different times in the cycle of your marketing initiatives so review the ROI periodically and at the end of each program. In the simplest terms, return on investment is calculated as: ROI=[ (Payback-Investment)/Investment] x 100

Get agreement on how the “payback/profit” is calculated. If you are measuring the effectiveness of all marketing programs then you want to compare “apples to apples”. Determine if you are going to use gross profit or EBITDA. Get agreement on how the “investment/costs” are calculated. Are you going to use direct costs of the program? Are you going to include a percentage of overhead?

A marketing ROI should be calculted on new product/service development. If your business wants to offer a new product/service to achieve growth, an ROI objective should be established. If analysis tells you that New Product A can generate 25% of the growth revenue that you want to achieve but that the investment in this new product doesn’t allow you to meet the company ROI objectives, then go back to the drawing board and adjust the program to meet the ROI objectives or eliminate the program. 

Marketing ROI should be calculated on promotional programs, here is an example for a direct mail program. Direct mail is easy to measure when you have the marketing measurements systems in place in your business: # pieces mailed=25,000

Total program costs (direct only)= $10,000; Response Rate= 2%; Conversion Rate=50%; Profit per sale (gross profit)=$50; # Responders=500; # Buyers=250; Total profit (gross)=$12,500

Marketing ROI is 25%= [($12,500-$10,000)]/$10,000] x 100 Please note that this ROI is calculated on gross margin dollars.

So, in other words, you spent $10,000 to get $12,500 in gross margin dollars.

Don’t overburden your marketing program ROI calculations with all company overhead costs or you will end up doing nothing.

Marketing Measurement Systems

If your business isn’t taking an analytical approach to marketing, you are missing a key management tool. Over the years, I have spoken with business managers who think that “marketing” is “advertising”. If your marketing department consists of “creative people” implementing advertising programs, you are off track. While advertising is part of marketing promotion, marketing promotion is only one part of the marketing mix.

 Let’s start at the beginning of the business planning process to see how marketing should fit into your organization. At some point in your business life cycle, you should have developed a Strategic Plan. This is a very detailed plan for your company to guide your business into the future. This plan will help to Focus your Business and to Visualize your Future Now.  During the Strategic Planning process, you will state your business objectives over the planning period which could be three to five years. These objectives could include objectives in the following categories:

Financial objectives, growth & profitability objectives, operational, community/social, technological, human resources related, expansion to new markets, new product/service development, maximizing shareholder value, merger/acquisition etc.

This objective-setting process is critical as these strategic objectives should give guidance to all departments of the business as they are developing the departmental tactical objectives. The strategic plan states the plans for the future and the tactical plans state HOW to get there.

 Annually, each department of your organization should develop tactical departmental plans to support and execute the strategic objectives. For this report we will focus on marketing. However, let’s consider a Human Resources tactical plan. If a strategic objective is for a business to grow 20% per year with a 0% increase in expenses, the Human Resources tactical plan would have to address the number of new hires per department to support such growth and profit. Employees may need to be added to customer service, order entry, sales, manufacturing for the increased output, and distribution for the increased delivery. The challenge may be to determine how to support a 20% growth with no increase in departmental budgets. However, that is why you hire good managers. Organizational charts, succession planning, management training, employee training and a hiring plan, may also be part of this annual Human Resources Tactical Plan.

 Now we will move into marketing. The first of the Critical 5 in this report is:

1. Develop and Implement an annual Tactical Marketing Plan which supports your strategic business growth & profitability objectives and focuses on Return on Investment.

These annual tactical marketing plans will include the entire marketing mix: Product, Price, Promotion and Place. So for a very simple example:

Strategic Objective: Grow the business 20% per year over the next 3 years with no increase in expenses.

The marketing plan would need to include financial models to show which products/services would be sold at what price to which customers/prospects through which distribution channels and with what types of promotions. For example, this model would be detailed to the point of showing how Product A at Price Point B would bring x% revenue and growth. It would also show which distribution channel Product A is sold through and how it is promoted through all channels.

If that sounds simple, it isn’t. It requires that your management team plan effectively, track their progress, measure the results and determine on how to move forward. The Marketing Plan is the roadmap for the marketing department to achieve the strategic goals. Once the first plan is in place, it makes annual updates easier, unless of course there is a major adjustment in the strategic objectives.

The marketing plan would state HOW the organization will meet these objectives within the stated ROI objectives for the business.

This is the basis for the Marketing ROI measurement systems that are key to your success.

Are your customers talking to each other?

Are your customers talking to each other? 

I have heard the following comment from a few marketing clients, “We don’t need a marketing promotional plan, we rely on word of mouth to market our business.” That comment was used to deflect my efforts to engage them in the development of a tactical marketing plan for their business.

If your business is going to rely on word of mouth marketing, take a proactive approach. Silence can hurt your business. You should in some way connect with your customers on a regular basis. You should nurture your business relationship with your customers and provide valuable information that they want to know.

If you depend on “second-hand” or reactive word of mouth marketing, then think about what triggers one person to tell another person about an experience they had with your company. Usually the exceptional experience is the one shared. People talk about exceptionally good or bad products, services, price or value. The average experience just doesn’t cut it.

A few years ago we had an exceptional dining experience in a small restaurant in La Jolla, California. The experience started with an aperitif of fruited vodka made by the owners. The bottle was presented in a block of ice with flowers frozen in place. At the end of a delicious meal the coffee was served with incredible flair. The coffee cart was rolled to the table with an ornate coffee carafe. A large lemon (grown in the owners’ backyard) was peeled in a spiral fashion and drizzled with a liqueur then set on fire. The lemon peel flamed and sparked in a spectacular show.  Coffee was poured, liqueur and lemon were added to the coffee and we were delighted. We told many people about the restaurant and took many friends there because it was exceptional.

If you want to read about how to implement proactive word of mouth advertising for your business, go to Squidoo.com and read, “48 Word of Mouth Advertising Business Ideas.”  The list is action oriented so don’t think that word of mouth means you don’t have to do anything but wait for customers to talk to each other.

Your competition is talking to your Customers, do you know what they are saying?

Your competition is talking to your Customers, do you know what they are saying?

I’ll bet you do because it is probably everything that your company has done “wrong.” If your competition is looking for an edge, they may dig up everything they can about your business practices. They may ask one customer, “What has your current supplier done that you would like to change?” and then tell another customer that their company has your company beat on that particular issue.

There are so many negative statements that your competition may say about your business in comparison to theirs: • Your prices are too high. • Your product/service quality is poor. • Your product/service offering is limited. • Your product/service offering uses old technology. • No one ever answers the phone. • You charge too much for shipping. • Your lead times are too long. • Your ordering process is too complicated. • Your sales people aren’t knowledgeable. • Your customer service people aren’t helpful. • Your accounts receivable people are rude. • After the sale there is no customer support. • Your ecommerce site is hard to use. • No one is ever available to help. • Your business isn’t concerned about the environment. • Your business is so big that you don’t care about your customers. • Your business is too small to effectively support your customers.

When the representatives of your business are in contact with customers, customers may be looking for evidence of what they have heard. It is important that the people who represent your business are prepared to answer these concerns in a professional manner. Sometimes perceptions are hard to change and it may take time to prove to a customer that these negative statements are not true.

So what is the solution? Don’t give your competitors anything negative to talk about. Know what your customers expect, know what the competition is doing, solve customer problems, communicate effectively, train your people, stay on top of product quality and market needs, develop a human resources plan to meet the needs of your business, ensure that your systems and technology enhance your business processes, and put the customer first in your business.

Who is talking to your customers and what are they saying? 6

Who is talking to your customers and what are they saying about the integrity of your business?

The fifth of the five critical considerations in helping the people who communicate with your customers is as follows. And by the way, there aren’t just five! 

5. Does your business have a reputation of being honest, ethical and trust-worthy? There are several levels to which this applies. First, there is the company’s reputation in the market. Have there been any corporate scandals that your PR people have had to overcome? How have you trained your representatives to respond to questions about such incidents? Are your people prepared to get negative input from customers? What is the leadership of the business doing to heal the organization and the employees? 

Second, in everyday transactions with customers there is a chance to do the right thing, to keep everything on the up-and-up, to make money and have an ethical business. If you tell a customer that you are going to do something, then do it. If you promise a customer a specific price then stand behind the promise. If you offer a service guarantee then live up to it and give what you promised. 

The leadership team of an organization will set the ethical standards for their representatives. If the leaders make statements against the customers and set a negative internal climate, then the employees will become part of that culture and absorb the negativity. Business leaders should clarify that the only reason their organization exists is for their customers. If that isn’t clear, your representatives may head off in the wrong direction. 

Business ethics should be taught to the representatives of your business. And remember leaders, it is necessary to practice what you preach.

Who is talking to your customers and what are they saying? 5

Who is talking to your customers and what are they saying about how easy it is to do business with your company and the people who represent your company?

The fourth of the five critical considerations in helping the people who communicate with your customers is:

4. How easy is it to do business with your company? Have you trained all of your representatives on all of your business transaction processes so that customers feel no pain when trying to do business with you? Dependent upon their job responsibilities, do your people know how to take an order, enter an order, process a credit, place a special order, provide contact information on company representatives, source products for customers, offer product/service recommendations, explain your company shipping processes, explain prices, explain discounts? Do they give customers the facts? Do they know the facts or have reference material if they don’t? Do customers have to wait for answers?

I have an experience to share. I went to a department store to exchange a pair of pants, the exchange was for a different style from the same manufacturer at the same price. I had my receipt and had used my department store charge card. The first “customer service” person started the exchange process by trying to enter a refund by giving me a gift card. Since she didn’t know what to do, she told the next “customer service” representative to finish the transaction. The second person did not know what to do either and engaged the help of a third representative. After 15 minutes, they gave me my exchanged pants and I walked away wishing I could have recorded the transaction, it was like a Saturday Night Live comedy routine. I just stood and watched in amazement and knew the real problem. They had not been trained, they did not have a reference guide and there were no managers to be found. Now on a very practical note, as I watched how they were managing the exchange, there is no way that their inventory management system was adjusted accurately.

Make doing business with your company easy for the customer. If you don’t and they have alternatives, they will start looking around for a more efficient company with company representatives who know what they are doing.