Now, calculate how much the business is worth over five years.
Finally, consider how much effort you have to put into retaining the customer. It is almost certainly a minute percentage of their spending potential.
No matter what your business, you want customers to be loyal, to return and to encourage others to buy from you.
One study of the American car market found that a satisfied customer is likely to stay with the same supplier for a further 12 years after the first satisfactory purchase. During that time, the customer will buy four more cars of the same make. To a car manufacturer, it is estimated that this level of customer retention is worth $400 million a year in new car sales.
Clearly, building such a relationship also expands the traditional concept of the key components of marketing activities. While once these were centered on product, price, promotion and place (the four Ps), relationship marketing adds three crucial new elements - people, processes and proactive customer service. Customer service is no longer an added extra, but at the very heart of all of these activities.
Everyone in business has been told that success is all about attracting and retaining customers. It sounds reassuringly simple and achievable. But in reality, words of wisdom are soon forgotten. Once companies have attracted customers they often overlook the second half of the equation. In the excitement of beating off the competition, negotiating prices, securing orders and delivering the product, managers tend to become carried away. They forget what they regard as the humdrum side of business - ensuring that the customer remains a customer.
Failing to concentrate on retaining as well as attracting customers costs businesses huge amounts of money annually. It has been estimated that the average company loses between 10 and 30 per cent of its customers every year. In constantly changing markets this is not surprising. What is surprising is the fact that few companies have any idea how many customers they have lost.
Only now are organizations beginning to wake up to these lost opportunities and calculate the financial implications. Cutting down the number of customers a company loses can make a radical difference in its performance. Research in the United States found that a 5 per cent decrease in the number of defecting customers led to profit increases of between 25 and 85 per cent.
Rank Xerox takes the question of retaining customers so seriously that it forms a key part of the company's bonus scheme. In the United States, Domino's Pizzas estimates that a regular customer is worth more than $5,000 over ten years. A customer, who receives a poor quality product or service on their first visit and as a result never returns, is losing the company thousands of dollars in potential revenue (more if you consider how many people they are liable to tell about their bad experience).
Increasingly the emphasis is on building relationships with customers to create loyalty so they return time and time again. Creating customer loyalty can appear relatively simple. Everyone who buys a Land Rover Discovery, Defender or Range Rover receives a telephone call or a postal questionnaire checking what they think about the product they have just bought. This is hardly earth shattering, but gives customers an opportunity to voice their opinion and makes it clear that there is more to the customer-supplier relationship than a simple purchase.
In the car market, customer loyalty has long been recognized as a vital ingredient in long-term success. Research in the United States showed that a satisfied customer usually stays with the same car manufacturer for 12 years, buying another four cars within that time. Not surprisingly, buying a car now guarantees a steady deluge of information and sales literature from the car maker as they try to ensure that you are not tempted elsewhere.
Programs to increase customer loyalty are now all around us. If you are driving, they can be seen at every petrol station. In the United Kingdom they are long established. The simple purchase of petrol is not really affected by price. Left to their own devices, customers would stop at the nearest petrol station and fill up. Customer loyalty programs make it a more complex matter. The first petrol station might offer points to be used at Argos for which you have already collected ten partly filled cards; another might offer tokens (collect 12 and you get a baseball cap); and so on. The choice is endless and, peculiarly, has become part of our culture. People still talk about Green Shield stamps, treasure the football coins they collected in 1970 and drink from wine goblets (free with 25 tokens in the mid- 1980s).
The logic behind nurturing customer loyalty is impossible to refute. 'In practice most companies' marketing effort is focused on getting customers with little attention paid to keeping them,' says Adrian Payne of Cranfield University's School of Management and author of The Essence of Services Marketing. 'Research suggests that there is a high degree of correlation between customer retention and profitability. Established customers tend to buy more, are predictable and usually cost less to service than new customers. Furthermore, they tend to be less price-sensitive and may provide free word-of-mouth advertising and referrals. Retaining customers also makes it difficult for competitors to enter a market or increase their share of a market.'
Professor Payne points to a ladder of customer loyalty. On the first rung, there is a prospect. They are then turned into a customer, then a client, supporter and finally, if the relationship is successful, into an advocate persuading others to become customers. Developing customers so they travel up the ladder demands thought, long-term commitment and investment.
Customer loyalty programs cover a multitude of activities from customer magazines to vouchers and gifts. Basically, a customer loyalty program aims to persuade a person to use a preferred vendor in order to take advantage of the benefits on offer, whether a trip to Acapulco or a price-reduction voucher for a calorie-controlled can. Skeptics may mutter that there is nothing new in this. Indeed, businesses have been giving long standing customers discounts and inducements since time immemorial. What is different now is the highly organized way in which companies are attempting to build relationships and customer loyalty.
The process can begin even before the potential user is born. Nappy manufacturers are a prime example of companies which take a long-term view. Prospective parents are bombarded with sample packs, free information and literature about what will be best for their soon-to-arrive son or daughter. By the time of the birth, the parents already have some degree of loyalty to a company whose product they have never actually bought. It can seem excessive, but one nappy company estimates that a sales increase of a single per cent would pay for its entire customer loyalty program.Now, calculate how much the business is worth over five years.
Finally, consider how much effort you have to put into retaining the customer. It is almost certainly a minute percentage of their spending potential.
No matter what your business, you want customers to be loyal, to return and to encourage others to buy from you.
One study of the American car market found that a satisfied customer is likely to stay with the same supplier for a further 12 years after the first satisfactory purchase. During that time, the customer will buy four more cars of the same make. To a car manufacturer, it is estimated that this level of customer retention is worth $400 million a year in new car sales.
Clearly, building such a relationship also expands the traditional concept of the key components of marketing activities. While once these were centered on product, price, promotion and place (the four Ps), relationship marketing adds three crucial new elements - people, processes and proactive customer service. Customer service is no longer an added extra, but at the very heart of all of these activities.
Everyone in business has been told that success is all about attracting and retaining customers. It sounds reassuringly simple and achievable. But in reality, words of wisdom are soon forgotten. Once companies have attracted customers they often overlook the second half of the equation. In the excitement of beating off the competition, negotiating prices, securing orders and delivering the product, managers tend to become carried away. They forget what they regard as the humdrum side of business - ensuring that the customer remains a customer.
Failing to concentrate on retaining as well as attracting customers costs businesses huge amounts of money annually. It has been estimated that the average company loses between 10 and 30 per cent of its customers every year. In constantly changing markets this is not surprising. What is surprising is the fact that few companies have any idea how many customers they have lost.
Only now are organizations beginning to wake up to these lost opportunities and calculate the financial implications. Cutting down the number of customers a company loses can make a radical difference in its performance. Research in the United States found that a 5 per cent decrease in the number of defecting customers led to profit increases of between 25 and 85 per cent.
Rank Xerox takes the question of retaining customers so seriously that it forms a key part of the company's bonus scheme. In the United States, Domino's Pizzas estimates that a regular customer is worth more than $5,000 over ten years. A customer, who receives a poor quality product or service on their first visit and as a result never returns, is losing the company thousands of dollars in potential revenue (more if you consider how many people they are liable to tell about their bad experience).
Increasingly the emphasis is on building relationships with customers to create loyalty so they return time and time again. Creating customer loyalty can appear relatively simple. Everyone who buys a Land Rover Discovery, Defender or Range Rover receives a telephone call or a postal questionnaire checking what they think about the product they have just bought. This is hardly earth shattering, but gives customers an opportunity to voice their opinion and makes it clear that there is more to the customer-supplier relationship than a simple purchase.
In the car market, customer loyalty has long been recognized as a vital ingredient in long-term success. Research in the United States showed that a satisfied customer usually stays with the same car manufacturer for 12 years, buying another four cars within that time. Not surprisingly, buying a car now guarantees a steady deluge of information and sales literature from the car maker as they try to ensure that you are not tempted elsewhere.
Programs to increase customer loyalty are now all around us. If you are driving, they can be seen at every petrol station. In the United Kingdom they are long established. The simple purchase of petrol is not really affected by price. Left to their own devices, customers would stop at the nearest petrol station and fill up. Customer loyalty programs make it a more complex matter. The first petrol station might offer points to be used at Argos for which you have already collected ten partly filled cards; another might offer tokens (collect 12 and you get a baseball cap); and so on. The choice is endless and, peculiarly, has become part of our culture. People still talk about Green Shield stamps, treasure the football coins they collected in 1970 and drink from wine goblets (free with 25 tokens in the mid- 1980s).
The logic behind nurturing customer loyalty is impossible to refute. 'In practice most companies' marketing effort is focused on getting customers with little attention paid to keeping them,' says Adrian Payne of Cranfield University's School of Management and author of The Essence of Services Marketing. 'Research suggests that there is a high degree of correlation between customer retention and profitability. Established customers tend to buy more, are predictable and usually cost less to service than new customers. Furthermore, they tend to be less price-sensitive and may provide free word-of-mouth advertising and referrals. Retaining customers also makes it difficult for competitors to enter a market or increase their share of a market.'
Professor Payne points to a ladder of customer loyalty. On the first rung, there is a prospect. They are then turned into a customer, then a client, supporter and finally, if the relationship is successful, into an advocate persuading others to become customers. Developing customers so they travel up the ladder demands thought, long-term commitment and investment.
Customer loyalty programs cover a multitude of activities from customer magazines to vouchers and gifts. Basically, a customer loyalty program aims to persuade a person to use a preferred vendor in order to take advantage of the benefits on offer, whether a trip to Acapulco or a price-reduction voucher for a calorie-controlled can. Skeptics may mutter that there is nothing new in this. Indeed, businesses have been giving long standing customers discounts and inducements since time immemorial. What is different now is the highly organized way in which companies are attempting to build relationships and customer loyalty.
The process can begin even before the potential user is born. Nappy manufacturers are a prime example of companies which take a long-term view. Prospective parents are bombarded with sample packs, free information and literature about what will be best for their soon-to-arrive son or daughter. By the time of the birth, the parents already have some degree of loyalty to a company whose product they have never actually bought. It can seem excessive, but one nappy company estimates that a sales increase of a single per cent would pay for its entire customer loyalty program.
