November 2006

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article was first published in the Eastern Daily Press' 'The Business'  on 15 November 2006</I></div> <bR> <div> <B>Butterflies and barnacles</B></div> <bR> <div> I'm afraid that I'm writing about customer loyalty again this month. I make no apologies, though, because I believe strongly that keeping good customers is one of the most crucial aspects of running any successful business. I see too many examples of poor customer loyalty and, more worryingly, of sales and marketing activities which are virtually guaranteed to generate loads of transitory customers, so I thought I'd explore the issue of customer selection.</div> <bR> <div> In the past, we've looked at the long-term financial damage that can be done by fickle customers attracted only by short-team deals. The usual result is that the costs of acquiring the new customer are never recovered, because they are off to another supplier before any profit can be realised from their custom. To borrow a metaphor from Fred Reichheld, the loyalty expert I've referred to before in this column, they are like butterflies who flit around to today's sweetest offers, or who are lured to the most dazzling new fad or technology. Better, then, to collect barnacles, which will stick around and resist being prised away from a good relationship.</div> <bR> <div> The problem I witness most frequently is that the sales and marketing effort in many businesses is geared towards customer acquisition - at virtually any cost. If your sales force incentives are based on volume of new customers, don't be surprised if many of them are transient butterflies who will net you little profit. If you offer price breaks or discounts to attract new customers, expect an influx of just those customers whose loyalty is hardest to gain, and whose lifetime value is likely to be poor. Advertising can be a risky way to acquire good new customers, since barnacles are most seriously influenced by referrals from existing very satisfied customers, not by seductive media campaigns. </div> <bR> <div> Here are a few thoughts about how to gather more barnacles to your business, rather than an infestation of butterflies:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.png" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Study your existing long-term loyal customers to learn what attracted them in the first place, and base most of your new customer acquisition plans on the results of that learning;</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.png" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Do everything you can to encourage good referrals from your existing customers - great customer service, commissions, prizes, even just the occasional thank you note;</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.png" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Avoid discounts wherever possible. Find other ways to encourage trial business: free samples targeted at your ideal customer base, for example;</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.png" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Above all, don't reward people simply for bringing a new customer onto your books - seek to reward the profit brought to the business over time by loyal customers.</div> <bR> <div> Butterflies might be beautiful, but they will bring you only fleeting benefits, if any at all. Barnacles, on the other hand, stay put, are hard to dislodge and bring, therefore, more value to your business. So seek out the right sort of new customers to pursue, understand how and why they can be attracted to you and train and reward your people for looking after them well. Be picky to be profitable.</div> <bR> </td> <td valign="top" width=180 BGCOLOR="#CC3333" TEXT="#080000"> <bR> </td> </tr></table></body>