I have a beef with many businesses: They expend so much effort on finding new customers, and very little on keeping the customers they already have. Nothing sticks me more than a business that caters more to complete strangers than it does to customers who have proven their value for years.
It bugs me to death to see a new customer ahead of me in line receive a shiny, el-neato, doo-dad gift just because they decided to patronize a different business while I — a longtime, loyal, put-up-with-all-the-price-increases, never-switch-or-stray-to-a-competitor type — get stuck with the privilege of paying full price and getting no gifts.
We can’t really fault the businesses for this, can we? After all, it’s common knowledge that the only way to grow a bigger business is to get more customers. Well, common knowledge is wrong! The best prospect is likely a customer you already have.
There are only three ways to grow a business: (1) Get more customers; (2) Get existing customers to spend more; and (3) Get existing customers to spend more and do so more often.
Let’s look at the numbers behind option No. 1. It costs about 58 cents to produce a decent-looking direct-mail postcard today, including list rental, printing and postage. You need to offer a pretty substantial discount to entice a potential customer into overcoming their fear of the unknown and bringing you an order of drycleaning — typically something like $5.00 in free services.
Even by offering free services, you might only be lucky enough to have one in 10 customers bring in a small order (perhaps $7.00, after the discount), and end up generating a $1,080 profit for your efforts. But the sorry fact is that prospecting for new customers typically generates only a 2% return.
If you mail out 9,000 cards, it will cost $5,220; if 2% respond with an average payment of $7.00 after the discount, you’ll lose $3,960. Even if you’re lucky enough to double response rates to 4%, it’s still a money-losing proposition. Finding new customers is risky, and could cost you a lot of money!
What would happen if you used a customer list from your point-of-sale (POS) system instead? Most systems on the market today feature all kinds of reports you can run to slice and dice customer data and generate simple lists such as “inactive customers for 180 days” or “customers who spent more than $1,000 in a year.” While helpful, these reports may be too generic be an effective customer-relationship management (CRM) program alone.
I believe advertising should be simple, but effective. It doesn’t make sense to target consumers who aren’t likely to use your services (new customers). Nor does it make sense to market to customers who are going to come in anyway (customers who bring in orders reliably every week or two). You simply end up leaving money on the table by giving them a discount when they were going to come in anyway.
But between those two groups of customers, there is a gulf of consumer habits that your database will help you explore. Inside your customer data, you’ll find a large group of customers who come into your shop with an order very infrequently. What you want to do is focus on those infrequent customers and encourage them to bring in just a few more items when they do come in, or to bring in just a couple more orders than they normally would over the course of a year. Simple, huh?
It isn’t. Most computer systems don’t have the ability to generate that kind of a report. But fear not! An expert and in-depth analysis of your database and customer records will yield actionable information about the customers you want to target.
You can now remove weekly and fortnightly customers from the data set and marketing program. You can also drop the “small potatoes” clients and “one-time Charlies” from your list. After careful manipulation of the data, you’ll be left with a list of customers who have a proven record of spending money on drycleaning, are already familiar with your business and trust you.
These customers are extremely likely to have more drycleanable clothing in their closets. With help, you can stack the deck in your favor, and create a list of the customers who could very well increase their annual spending with you by 10%, 20% or 300%.
Now that we know whom you plan to target with an offer, you can pull that trigger and put your offer in front of them. My firm, for example, provides clients with postcards featuring artwork and offers designed to bring in additional dollars and orders. One recent campaign included a simple 20%-off offer that went to the aforementioned infrequent customers.
Results, of course, vary from cleaner to cleaner and market to market. But the results speak for themselves when compared to the redemption rates and ROI resulting from campaigns targeting new customers. When customers have established some sort of relationship with you and you have prequalified the type of customer to whom you make the offer, you can influence their purchasing behavior more easily.
Does such a campaign cause infrequent customers to come in more frequently? Do such efforts encourage customers to increase their annual expenditures? Those questions can be answered easily by taking a snapshot of your entire customer list and creating a customer-measurement system. That, I will have to save for another article.