What
Price Loyalty?
by
Peter Thorpe
Most
companies spend a fortune trying to win new clients and virtually
ignore their greatest profit centre…
According
to one of the world's leading strategic consulting firms, Bain
& Co., most corporation now lose half their customer base
in less than five years. They also found that companies that
could halve that attrition rate, in most cases, actually doubled
their bottom line profits!
The
much used adage that it costs five times more to get a new customer
than is does to retain an existing one, is truer today than
it has ever been.
What's
natural attrition?
Most
companies today, seem to accept as normal, a so called 'natural
attrition rate' of around ten per cent, per annum. This means
ten per cent of their customers go away every year and do business
with somebody else.
But
why? And, what's natural about it?
It
is a proven fact, most people prefer to build long term relationships
and do business with someone they know and trust. So, there
is nothing 'natural' about attrition. It's really quite unnatural!
Of
course, hardly any company can expect to have a zero customer
attrition rate and most will always need to find new clients.
So, what is a reasonable, acceptable rate of customer attrition?
The
answer is still nil.
You
will probably never achieve it but you should always be working
towards never losing a single customer. Certainly, not through
any fault of your own or any action that could be avoided.
If
you ask most companies why their customers leave, they will
tell you it's because they got a better offer elsewhere. Often
they attribute it to price cutting in a competitive market.
In
my experience, working as a business adviser to hundreds of
companies over many years, this rarely stands up to scrutiny.
Research usually reveals their clients left for one of two reasons:
In
other words, they felt that the supplier didn't care about them
or their welfare and was only concerned with their own. (By
the way, in the majority of cases they are absolutely right!)
Building
relationships
Of
course, price cutting is a problem in most industries today
and it's not always an easy one to overcome.
However,
price becomes less of a problem if you have established a strong
relationship of trust and confidence with a client. Most buyers
won't change from a reliable supplier they like and trust, unless
the price difference is quite substatntial.
And,
if customers do have a problem and that problem is resolved
quickly and to their satisfaction, they are twice as likely
to remain loyal to that supplier as customers who never have
a problem in the first place!
In
fact, there is one well documented case of a company in the
US who actually deliberately created bogus problems for their
customers so they could resolve them and strengthen customer
loyalty! I think this is a bit drastic however, it does serve
to illustrate an important point.
So,
what should we do to build customer loyalty and form long term
relationships with our customers?
The
best way is to add value and give your customers benefits and
service beyond their expectations. It is also vital to maintain
regular, systematic contact with your clients.
Start
by practising four-site
I
believe your customers need to sight your name at least four
times a year-whether they have a need for your products or services
or not. Otherwise, they simply forget about you.
You
can do this in a number of ways. Here are a few ideas to get
you started:
- Create
a regular newsletter. Not just a brochure for your company
but a worthwhile document filled with news, information
and ideas. (If you don't have the expertise in-house to
do this well, call me and I'll help you).
- Instigate
a system of regular telephone calls from your staff. Offer
specials or announce new products or services
- Hold
regular product nights, plant tours or breakfast seminars
with interesting guest speakers
- Send
your clients birthday cards (for good clients, why not send
a cake?)
- Make
special premium offers to your VIP customers
- Consider
creating a formal loyalty program for frequent buyers
- Start
an e-zine (email newsletter)
- Write
letters to your good customers thanking them for their business
All
of the above involves some cost and a fair amount of effort.
However, I'll bet it's nowhere near as much cost or effort as
you put into trying to develop new business.
So,
let me ask you again-what price does your company put on loyalty?
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