Customer Relationship Equity

As a follow up to my previous post on lost customers I am going to spend a few key strokes talking about building equity with customers. This is most important with "relational" customers. Very price sensitive customers are not loyal to a business, they are only loyal to low price where ever it goes. The building of equity means that one small slip in delivering a product or service doesn't result in a lost customer.

What are the factors that affect equity and how does a business build equity into the customer relationship? First, the purchase price of the product or service is an important factor. If the purchase is a 99-cent bag of chips the relationship isn't as important as it is with a $500.00 suit. The next factor is the purchase cycle. The longer the time between purchases the harder it is to build equity. With a long purchase cycle it has to become an ongoing project between purchases rather than strictly at each purchase event. The car business has known this for some time and they establish programs to contact customers on a regular basis. The third factor is how good the company is at satisfying/pleasing/delighting the customer. Obviously if you aren't even satisfying the customer you aren't building equity. The further along this satisfaction continuum your company performs the more equity you build with each purchase occasion. If you can delight customers consistently you build relationship equity faster than if you are just "pleasing" them.

My dry cleaner is an example of a business that has built equity in me as a customer. From about my third visit they remembered my name. It's consistently a good experience and it's even happened that they've seen me coming toward the store and they were searching for my clothes before I walked through the door. It makes sense to build equity to increase the likelihood that the customer will be loyal. They won't respond to a competitors temporary sale/coupon and the occasional mistake won't result in a lost customer.

There Goes Another One

I had a favorite Vietnamese restaurant and I just become a lost customer. Businesses make changes which result in lost customers. The customers don't say anything they just stop coming and becasue there is a lag between the change and the decline in business they don't see the connection.

Here's my story. I was taken to the restaurant originally by a friend. It was very similar to my previous favorite but a little better in a number of ways. The decor was a little nicer, it was a little bigger and the portions were better. In all areas the difference wasn't huge but all things added up to a better experience. Over time this has grown to be a pretty busy little spot.

One of my favorite dishes was their fried noodle with prawns and vegetables. I ordered this for lunch yesterday. Originally, in the vegetable mix they would use broccoli (the dominante vegetable), cauliflower, carrot, onion and asparagus. The changes have been gradual over time. Now there isn't a dominante vegetable. The amount of broccoli has decreased substantially, there is very little cauliflower, way more carrot and asparagus has been replaced with bok choi. And the portions size has gone way down.

The business owner is trying to squeeze a little more profit out of the business by cutting costs. However, as a customer I feel cheated. Without saying anything I stop coming. My friend stops coming. The business grew gradually and it shrinks gradually. What this business looses is its best customers, the ones that are there a regularly and they were bringing their friends. These are the most profitable customers a business has.

This same thing happened with my favorite Mexican restaurant and they are no longer in business. The irony here is that to make your company more profitable don't reduce the value of your offering, increase it. If you want your business to grow you have to be generous with your best customers. Sometimes there is cost cutting that can happen in operations but be very careful with your product value package. Carl Sewell, author of "Customers for Life" says it best. When you are in retail, anything you would do for your best friend do for your customer because in retail your customer is your best friend.

Rubber Chicken Two

As I mentioned in Part One, my Rubber Chicken is a prop in a presentations. The point being, most people see chicken as a commodity and when they do, the only differentiator is price. When your business offering is seen as a commodity the competitor with the lowest price gets the business. You have to find ways to differentiate. Maple Leaf Foods in Canada is marketing chicken under the brand name Prime Naturally and they state the chicken is "vegetable-grain fed with no animal by-products." It sells for a higher price than the unbranded generic chicken in the meat case. In the U.S., Perdue Farms has been promoting their brand of better quality chicken for many years. Perdue is often used as a case history in marketing courses.

When the family picks up chicken from KFC they are buying a differentiated product. No one's chicken is exactly like KFC's which means for the family that is sold on KFC they will pay more for their favorite. They don't comparison shop and they don't negotiate at the counter trying to get it for less they just keep on buying KFC.

It's very important to find ways to differentiate. To give you a sense of how important, consider the title of marketing expert Jack Trout's book "Differentiate of Die: Survival in our era of killer competition." Add value, add service, create exclusive offers. Study how others achieve this. It's a great way to grow your business because you a growing higher value transactions not just low margin volume.

The Perfect Job

While reading a friend's blog I began to ponder the life of a food critic. Think about it, everybody needs to eat and to get paid for it seems just about perfect. Added benefits? You will probably be invited to all sorts of restaurant openings and if you pay for a meal it can be claimed as a business expense. I think I'll become a beer critic!

Rubber Chicken

A friend has just given me a rubber chicken. I now have two and my day is a little brighter. This gift brought back thoughts of presentations I do for breakfast clubs and business groups. My original rubber chicken was a prop which I used when talking about ways of increasing sales.

The point is that most people see chicken as a commodity and will buy from whichever business has the lowest price. There are ways of moving away from being a commodity and increasing sales. The same people that are buying from the store that has chicken on sale think nothing of paying $20.00 for a cook book or $100.00 for a cooking class in an effort to learn ways of preparing chicken. The consumer is paying for information.

This also applies to computer software. People often pay more for training on using software than they pay for the actual program. In my case I saw the software as "free" because I bought a software "suite" mainly for the word processor and got other things included. I spent $150 for the class to learn to use the spreadsheet software and $200 to learn how to do presentation. Look for ways to include instruction when consumers purchase from you. People place value on this information. If they know how to use something it might also lead them to buy more. How many home improvement retailers offer how-to seminars?

Stay tuned for Part 2 coming soon.

Maybe You Need Help

In my career as a marketer I've seen many small business owner that don't understand marketing and it's impact on their success. These owners have an area of expertise within their business. It might be production or operations. They recognize that they need to seek outside expertise in areas that are not their strengths such as finacial or legal but they leave the marketing to a junior. Business owners need to recognize that marketing is a key function and that it needs attention at a high level within the organization. It is also a worthwhile exercise to have someone with expertise from outside examine the marketing and make suggestions on improvements.