If there’s one area of marketing that tends to be the most neglected, it is the giving of consideration and effort into client retention for the gaining of repeat business.
Many businesses have great marketing strategies for obtaining new customers but next to nothing in place for client retention.
They either assume it’s going to happen or have the belief that good service and a friendly receptionist is sufficient.
It’s a great shame because studies have shown that repeat business from a client is vastly less expensive to obtain and you rarely have to make expensive offers to gain repeat business.
The repeat customer is in fact the most profitable customer of all.
I’d like to suggest that a marketing budget should be divided into two segments…one segment for promoting with the aim of obtaining new clients by marketing to prospects and one for customer retention.
A prospect is someone to whom the business will spend money on in an attempt to acquire him or her as a customer. The cost of spending to gain a customer should be rated not just to the contribution from the immediate sale it generates, but also to the future cash flows expected from the newly acquired customer if the relationship is maintained for the gaining of repeat business.
While it is some years ago that it was undertaken, one of the most interesting studies in this area was that by advertising agency, Saatchi & Saatchi who were assigned the task of ascertaining why buyers of motor vehicles relatively rarely repeat purchased from the same motor vehicle dealership.
Investigations at the time found that 74% of people when surveyed after buying a new vehicle said they were impressed with the dealership and would most likely buy from there again but some years later when it was time to replace the vehicle, only 11% actually purchased from the dealership again.
They ascertained that the customer loss was primarily due to the customer feeling that they were just a number to be called for getting their service work. They felt the dealerships were indifferent to them and consequently there was very little ‘bonding’ between customer and dealership.
And that according to Saatchi & Saatchi is the secret to repeat purchase – coming up with a strategy of building the relationship so there is a level of bonding.
Joe Girard the world’s most successful salesman in cars is a classic case for illustrating the point about customer relationships.
In his day he was selling up to six cars a day as a result of his understanding that people buy from people they know, like and trust.
His secret was to go out of his way to build and maintain long term relationships. His strategy at the time was to send 13 cards to all his prospects and clients every year – one every month and one for Christmas.
He created a place for himself in the brains of his prospects and clients by constantly keeping in touch with them. At his height he was sending out 16,000 mailing pieces each month that included
- Thank you notes
- Season’s greetings
- News and information that would be of benefit to them
In effect he ensured that he was in the minds of people when they were due to buy a car – or when they knew of someone else thinking of buying a car. He gave people the impression that he cared about them and cared about the success and experience that they had with the cars they bought from him.
He made a fortune thanks to repeat business and also through customer referrals.
The world has moved on in technology since his time but the principles remain the same. Customer retention and repeat business relates to customer relationships.
As a result of their studies, Saatchi & Saatchi recommended to motor vehicle dealerships that they instigate strategies to maintain contact with their customers, among them the use of a newsletter.
Subsequent studies after the instigation of their strategies found that after-market sales increased, service work had risen, repeat purchasing had risen – and most interestingly, the time period between repurchasing had shortened.
In effect the process of maintaining awareness of the dealerships and the demonstration that the dealerships were keen to maintain the relationship had enormous benefit.
One of the most interesting aspects to the results was the shortening of the time space between repurchasing which indicated that people coming into the dealership for their service work enabled them to see the new models and of course they were promoted in the newsletter – end result they upgraded more frequently.
One of the questions that arises in customer relationship marketing is how much should be spent on the process?
In determining this, one of the most useful guides is to consider ‘customer lifetime value’.
This is a prediction of the net profit attributed to the entire future relationship with a customer. The prediction model can have varying levels of sophistication and accuracy, ranging from an educated guess to the use of complex predictive analytics techniques.
It’s an important concept because it encourages business to focus on the value of the average customer spend and what it could be if more customers became repeat customers.
If you think about the theoretical lifetime value of a customer who buys a new car at the age say of 35 years, the potential of that customer is enormous.
How many more vehicles is that customer likely to buy in his lifetime and spend on servicing, insurance, financing and adding accessories to his vehicles?
A dealership probably won’t get all the business remaining in that person’s lifetime but if it managed to gain a repeat purchase just one or two times more and maybe a referral of a friend and maybe sell a used vehicle to a family member as well – the ramifications are considerable.
Multiply that by say 25% of the dealership’s customers and suddenly the business profitability and the value of the business rockets up.
If you think about it – purchasers of a business look for the following –
- customer goodwill (likelihood of repeat purchasing)
- ease of operation.
All of these factors relate to customer retention and customer relationships.
Customer relationships should be viewed as an asset of a company, and accordingly the subject deserves far greater priority than most businesses choose to give it.