We all know the famous line that says keeping customers is less expensive than getting them. It is and, at least intellectually, we understand how painful attrition is to profitability, even if we can’t effectively measure it. Well worn, well accepted truisms. So, why doesn’t your marketing plan include a CRM strategy? It should. Customer Relationship Marketing is one of the most important and least exploited opportunities for business success.
Why are customers important? Here are five reasons why loyal customers are your most important profit drivers:
- Keeping customers, and especially best customers, allows you to recoup your acquisition cost and generate a positive ROI. The longer you keep them the more positive your ROI.
- Loyal customers are more likely to buy more things from you. They don’t have to be sold as hard because they understand your value proposition and, since they have a relationship with you, they are more likely to see your marketing, which increases revenue and profit, and reduces acquisition cost.
- Loyal customers will pay a higher price. They understand your product and see its value. You don’t have to bribe them to buy again. This further improves the profitability of loyal customers.
- Experienced customers cost less to service. Because they know how your product or service works they need less hand holding, make fewer calls to customer service, and require fewer visits from the sales rep. All this reduces your cost, which improves profitability.
- Now here comes the kicker, loyal customers are much more likely to be advocates. They will happily tell their friends and associates about your product. This brings in more great customers with limited to no acquisition cost.
I first learned about this concept, I call it the profit fan, from Fred Reichheldd’s excellent book, The Loyalty Effect. If you haven’t read it I strongly recommend you do. If you have read it, you should read it again.
To take advantage of the multiplying affect of customers your first step is to identify your best customers. Understand what they see in your product and how they view the category you compete in. Find out what your best customers are worth.
Then develop a CRM strategy, your customer marketing objectives and strategies, designed to increase your business’ value to them and their value to your business.
With an understanding of your best customers and having identified the CRM strategy that will create mutual value you can determine the best CRM tactics and set a budget based on customer lifetime value.
The final step is test, measure, and then test some more. Customer Relationship Marketing isn’t easy. Getting good at it is an iterative process that will, like all worthwhile pursuits, take time. But with patience, the ROI can be spectacular.