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Building Customers’ Loyalty
Harvy Simkovits, CMC — Published in Mass High Tech 11/15/99

Customer Acquisition vs. Customer Retention

Many companies spend enormous amounts of time, money and energy to acquire new customers. Yet how many of these companies spend the same time, energy and money to maintain and grow their existing customer base? In today's marketplace, where most companies are feverishly working to grow market share, prospective users get the attention and deals while loyal customers sometimes get left in the dust with little attention and less desirable offerings.

You can see this happening today with cellular and phone service providers. It seems that every week there is a new deal available to people whom are willing to switch phone plans. Customer loyalty crumbles as customers chase the next best deal. To counter a similar trend, one insurance brokerage firm took bold action when they saw term life insurance rates decrease significantly over recent years. They decided to contact every customer who had a term policy with them and let those customers know that they could obtain more dollar coverage or increased term length for the same monthly investment. Customers were ecstatic. As a result, company insurance policy sales went up because the goodwill that was demonstrated by the brokerage firm generated more business for them from their current customer base.

Maintaining Loyalty

Sometimes companies forget that, over time, their existing customers become more knowledgeable about competitors' offerings. Thus, buyers need to be continually resold on the company and the products and services it offers. One lawn care company experienced a loss of customers to its competitors due to what appeared to be lower competitor prices. However, when they compared their pricing structure with the competition, they discovered that their price was actually comparable. Their competitors had unbundled the various components of the lawn care service, pricing some components separately, thereby giving the appearance of a lower price. Consequently, this lawn care company went back not only to its lost customers, but also to all its existing customers with a new pricing structure that gave all customers more choice as to the service package and pricing level that would best fit their needs.

Companies that want to maintain customer loyalty for the long haul need to effectively gather relevant customer information through their sales and service force, or through outside customer data gathering firms. Customer information is vital in figuring out what products and services your current customers value, and how you subsequently need to update or evolve your product or service's positioning and packaging. This information can give you a significant edge over your competitors. For example, that same lawn company surveyed a subset of its customers and discovered various customer profiles. Some customers wanted to interact with and learn from the lawn service person, while others just wanted the work done without seeing the service person at all. Armed with this and other learning from its customer data-gathering, the company trained their sales and service personnel to position and package their company's offerings to any current customer situation. As a result, they improved their customer retention rate.

The Issue of Price

Many companies mistakenly just differentiate their repeat business based on price, thinking that, pricing is the only issue that current customers care about. Price matters, yet unless your product is a pure commodity where its primary differentiation is price, price should be the last thing to talk about with your current customer. If price is discussed too early, it gives the buyer an opportunity to weed your company out of contention before you get a chance to inform or educate them about your offerings.

With this insight, one manufacturing company changed their whole product quotation process and quote documentation. Instead of focusing on price up front, they now offer each existing customer product and service options that would meet their objectives. They also provide various pricing packages from which the customer can choose. Giving your current customers a choice among options, after a careful study of their evolving needs and objectives, gives them greater control in their purchasing decision, thereby making you look more professional and customer-focused in their eyes.

What should you do about existing customers who expect lower prices for the same product or service than they had previously obtained? In today's competitive marketplace, consumers have become used to lower or steady prices for certain consumer products and services. Therefore, every company must consider how to reduce their costs of doing business, and then pass some of those savings on to customers so as to maintain their loyalty. Alternatively, repackaging your add-on services into various levels (e.g., silver, gold and platinum levels) would give your customer a better choice that could fit their needs and budget.

Customer loyalty ultimately requires that you not only do the above, but also continually work to make your customer your friend. This means building their trust by always keeping their best interests in mind, which could mean helping them with a business need that may be somewhat outside your company's usual realm, or even referring their business to a competitor if you cannot successfully fulfil their need. Most customers will remember you for the courageous and self-less service you provide, and for the value you continue to offer and give them.

Harvy Simkovits, CMC, President of Business Wisdom, works with owner managed companies to help them grow, prosper and continue on by offering innovative approaches to business development, company management, organization leadership and learning, and management education. He can be reached at 781-862-3983 or .

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