Why Customers Leave - An Expanded Look
Most companies assume that their customers are highly price sensitive. They design their marketing program with that idea in mind. When they have sales, more people buy. When they are not on sale, less people buy. What more proof of price sensitivity do you need?
Transaction vs Relationship Buyers
Actually, you need a lot more proof, because the response to discounted sales is usually quite misleading. As Paul Wang, Professor at Northwestern University points out, there are, in general, two types of customers: transaction buyers and relationship buyers. A transaction buyer is someone who is interested only in price. These buyers have no loyalty. You can keep your warehouse open on a Saturday afternoon to meet some special need that they have. The following Tuesday when they have another requirement, they will bid it out. These people will leave you for a penny’s difference in price. They have all the catalogs and know all the competitor’s prices. They spend hours on the Internet researching before they buy. They can afford to wait. They take pride in getting the best deal.
The other type of buyers are relationship buyers. These are people who are looking for a supplier that they can trust. They are seeking friendly companies with reliable products – people who recognize them, remember them, do favors for them, who build a relationship with them. Once they have found such a supplier, they tend to give them all their business. They know that they could save a buck here or there by shopping around, but they find the process wastes too much of their time and emotional energy. Relationship buyers, if properly cultivated, will stay with you for a lifetime.
Brian Woolf, President of the Retail Strategy Center and author of Customer Specific Marketing, said this: “For years, retailers have argued that having regularly advertised, deeply discounted prices brings price-oriented customers into their stores but that over time, these customers convert into regular, profitable customers.
Research at the Retail Strategy Center shows that this widely held belief is a myth. A handful of these customers do convert into “good” regular customers, but the majority actually defect within twelve months of their first shopping visit. I have yet to find a retailer anywhere in the world whose investment in this type of shopper has yielded an attractive return on investment.”
Mercer Management consulting research shows that for hotels, gas stations, drug or food stores, only 15% to 30% of customers are price sensitive. The other 70% to 85% are loyal customers who provide most of the profits. In fact, if you could take an Olympian view of the situation, it might look something like this:
Each company has a base of relationship buyers. When the products are on sale, they attract a small additional group of transaction buyers. When their competitors products are on sale, this same group jumps ship to take advantage of the discounts. In a few days, they move on when they hear of another price advantage somewhere else. Meanwhile, of course, the management of each company is telling themselves that their customers are all very price sensitive, and they have the sales figures to prove it!
Transaction buyers give you very little profit. Since they only buy discounted items, the margin on their sales is much lower than the margin on relationship buyers sales. In fact, you may find that your relationship buyers are subsidizing the sales to your transaction buyers. You provide special express lanes for people who buy less than ten items. Your regular customers with a loaded shopping cart have to wait in long lines.
What is wrong with assuming price sensitivity? By having sales, you gradually convert your relationship buyers into transaction buyers. Instead of thinking about recognition, service, helpfulness, and relationships, you gradually train them to think only of the price of your product. You train them to check the prices of competitors and to use the Internet. You ruin perfectly good relationship buyers by the way you treat them
Why Customers Leave
Why do customers leave your company, anyway? There are only four possible reasons:
- They die, or are no longer buying in your category
- They are unhappy with the price
- They are unhappy with the product
- They are unhappy with the way that they are treated.
Managements always focus on reason number two. “If we just cut our price below Company X, and let everyone know it, our customers would never leave.” But research in a wide variety of industries shows that reason number four is the most common. Why is this so? Because what binds relationship buyers to your company is not the price alone, it is the totality of the relationship which includes:
- Recognition
- Service
- Information
- Helpfulness
- Friendly employees
- Brand identity
- Product quality and price
Relationship buyers stop buying when you stop loving them, and stop treating them as they want and expect to be treated. How can you hang on to relationship buyers?
Know who they are. Keep track of them in a database. Let your employees at every branch, or on the telephone, who your gold customers are. Be sure that they are treated as Gold.
Communicate with them. Find special ways to build a relationship with them. Thank them for their business.
Use your best customer service people with them. Some banks segment their customers by profitability. When the phone rings from a profitable customer, their ACD uses ANI automatically to shift these calls to a specially selected Gold customer service team.
Build equity in the process. Provide rewards for volume business and for length of service. Make it expensive to leave.
Don’t stress price. If your neighbor helps you carry a heavy item of furniture upstairs in your house, you would never think of offering him money. You will supply a beer or a cup of coffee and conversation. This is what your relationship buyers want. They want to be treated like a good neighbor – a good friend.
Arthur Middleton Hughes is Vice President/Solutions Architect at KnowledgeBase Marketing in Richardson, Texas, which maintains databases, provides prospect names, and conducts data processing, analytics and marketing strategy for clients. Arthur is the author of Strategic Database Marketing 3rd ed. (McGraw Hill 2006). You may reach Arthur at arthur.hughes@kbm1.com or at (954) 767-4558.
Posted by Editor - Get The Word Out! Marketing
Why Customers Leave
I just saw this over at Jordan Adler’s site:
Why Customers Leave
1% Death
3% Move
5% Buy from a friend
9% Sold by a Competitor
14% Product Price
68% Perceived Indifference
I’m not sure where the source of these stats came from, but from my experience, this would seem fairly accurate.
Do your customers know how much your care?
You can’t control all of these variables, but you can control how much appreciation you show. If you could lose up to 68% of your clients because they think you don’t care, wouldn’t it be worth a few bucks to stay in touch?
If you’re overwhelmed with contact information and need an appreciation system, we can help. Quickly, easily and affordably. Contact us today!
Ricci
Direct Mail Strategies: How to Get a 50% Direct Mail Response Rate With a Stroke of The Pen
Did you know that your clients and customers are getting hit with approximately 3,000 advertising messages a day! This barrage of advertising noise is making it increasingly difficult for prospective customers to hear what your business has to offer.
So, what can a business do to break through this noise and actually have their messages heard by their targeted customers?
Many businesses have just simply started to advertise more and louder…which simply compounds the overall problem. Some have tried gimmicks and sales. Still others have simply accepted a stagnant business growth model.
However, a few have begun to see huge success with a 2,000 year old tool that has none of the sexiness of a celebrity endorsement or the award winning graphics of a Madison Avenue Advertising firm. That tool is a simple handwritten note.
• A Midwestern restaurant owner sent out a series of handwritten notes to his customers and had a 20% response rate.
• A financial planner in the Northeast sent out just 80 handwritten notes to touch base with prospects and had 6 people call him and 2 set appointments.
• A non-profit was able to get 51 donations by simply sending a handwritten note to warm list of 100 people.
Why?
Handwritten notes are special. Clients cannot throw them away without reading them.
I dare you to try and throw out a handwritten note without reading it the next time you get one. Believe me, I’ve tried. I recently received a handwritten postcard from the hair studio that I had abandoned 6 months earlier for one closer to my home.
I knew it was probably just them asking me to come back as a client, but did I read it even though I knew it was a prospecting piece? Yes. There is a magnetic feeling that handwritten notes create that draws you in every single time.
Would I have read a prospecting form letter or an advertisement from the same studio? No.
So is it worth it to spend the time sitting down to write handwritten notes to your clients and prospects? When was the last time you have had a 6%, 20% or 50% response rate on a mailing?
Here are some tips on how to get a 50% response rate on your next handwritten note mailing:
- Each piece should begin with your client or prospects name not a generic greeting
- You should hand write the piece yourself or utilize some of the technology now available that will duplicate your handwriting accurately and easily – Computer generated font, while easier, will NOT get you a 50% response rate
- Give your client or prospect a reason to call you – “I just thought of an idea that might really cut your tax bill, give me a call so we can get together before you do your taxes this year! Talk to you, Mike”
- Put it on a card that will get their attention – Cute, unusual, beautiful, historic, children, animals…they all work but use a picture that catches their eye
- Hand address their address, Do NOT use labels – Labels tell them that you sent the same card to hundreds of other people. You have to keep it personal, even if you are sending it to hundreds of other people!
If you follow these few, simple and easy guidelines, you will be surprised at the huge response rate you will receive. It will also be the last time you’ll want to flush good money down the drain sending out generic form letters or invitations. A little elbow grease or a little smarts (using technology) will go a long way when it comes to direct mail response rates.
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Direct Mail Strategist, Michael Kaselnak can help you get a 6%, 20% or even a 50% response rate on your next direct response mailing. As creator of the Hoard Client Marketing, Sales Lead and Referral Systems, he personally brought in over $33 million in new business in just two years in a small Mid-western town. To learn how to put the automatic referral driver to work for you, check out this Free 3-minute movie: http://www2.hoardclients.com/movie |
*Editors note - Our system allows you to utilize the handwriting font that Michael talks about in this article! It even allows you to print your own signature into the card. Contact us for more information!
What to do with all of those business cards?
If you’ve been in business any length of time, you have more than your share of business cards.
They might be neatly organized, thrown into a drawer or *gasp* even thrown in the trash…
So, what’s the best thing to do with business cards? As you collect them, drop them a personal note. At the end, mention that from time to time, you’ll be sending them email updates and invite them to do the same. Then, add them to your update list.
You have two options. Let your contacts rot for fear of “spamming” or actually send them some communication. Make it valuable, make it about relationships and why wouldn’t they want to hear from you?
Look, people aren’t going to swarm to you, begging for you to send them email updates. Somebody has to take the initiative. Take the first step. You might be pleasantly surprised if you do!
Ricci
PS - need help organizing all of those business cards and developing a communications system? Contact us to find out more!
Simpleology - Mark Joyner
Simpleology: The Simple Science of Getting What You Want
So far, it’s a quick read and mildly intriguing. The beginning comes across very elementary (ie: simple), but then there were a few pages that went right over my head. Maybe I was distracted on the plane? I decided to keep going. If I feel like I missed something when I’m through, I’ll go back and try to catch that.
It’s Matrix-y (what you see really isn’t reality at all….) and manipulating-technique revealing. He wants you to understand how tactics are used to manipulate you through media, advertising and politics.
He also has a complete course available to help businesses move ahead quickly and easily. I’ve just started taking it. I’ll keep you posted on how it goes.
Ricci
Overachievement - John Eliot
Overachievement: The New Science of Working Less to Accomplish More
As a woman, some of the comparisons were outside my scope of interest, but I get the idea. This is a good book to reinforce outside the box thinking, trusting your gut and using passion to launch you further. It’s the anti-book to deep breathing and relaxing techniques. He says that stuff gets you off your game. And he might be right. Can you imagine Donald Trump in a yoga position, with his fingers curled, attempting to “de-stress” during a tough negotiation?
What do you think? Leave a comment and let us know!
Ricci
Why network?
Why do most people attend networking events? To get more business, right?
If you network, how often do you walk away with immediate business? For most people, the answer is rarely, if ever.
What you walk away with is contacts. And so does everybody else (for the most part).
What’s going to separate you from everyone else is a plan to turn those contacts into connections and to turn those connections into relationships.
There are relationships that you simply can’t put a price tag on. Have you ever attended an event and met someone who later impacted your life in a strong way, but may never have done business with you? Keep your options open and remember, you’re there to expand your network, not just grab a buck.
If you attend the event with an attitude of what’s in it for me, you’re going to find everything wrong with it and will leave unhappy. Be negative and critical, and that’s what you’ll attract.
On the other hand, if you attend the event with an open heart and mind, looking to meet some fantastic new people to expand your network, you might just make that one connection that could make a difference in your life. You’re open, receptive and attracting the good in the room. People will be drawn to you, interested in you and want to know more about you. And that’s what you want. Think about it. Do you enjoy spending time with surly, spoiled, self-centered kids who are only interested in their own needs & wants? Or would you rather spend time with the fair child who smiles and brings you flowers for no other reason but to share kindness?
When you leave the event and attempt to connect with your new contact (you do attempt to connect with your contacts, don’t you?), what kind of feeling will your contact have about you? Do they answer the phone, excited to hear from you, wanting to spend time with you? Or do they avoid your calls, knowing that all you’re trying to do is hit them up for a sale?
Remember, this isn’t about a sale. This is about your life. Your connections and resources. Your ability to help others connect.
Go about doing good, no matter where you are, even at networking events.
So, why network? So you can be recognized as a leader in your community. So people can speak highly of you. So you can make your new connections feel like they are the most important people in the world to you. And the business will come.
Ricci
PS - for an easy way to turn your contacts into connections and your connections into relationships, contact us to send out your “it was nice meeting you” cards and email newsletters.
Kudos To iGoogle
Our team uses iGoogle to manage our internal documents, spreadsheets & calendars. If you need a way to collaborate with your team, you must check out iGoogle. The documents & spreadsheets area has just been updated to include folders. I knew for sure I was a geek when I awoke and exclaimed excitement and emailed my team at 5 in the morning after I opened up my docs and was rediculously elated by the new feature. We work on so many different projects, just having a listing of 20+ documents was just getting a bit overwhelming.
Another crazy good feature is the ability to text message an appointment to your calendar. I’m at the car wash and remember that I need to get an appt with my stylist. I call her and set an appt, but I don’t have my laptop and there is no internet anywhere….I could write it on the back of a receipt in my purse (hope I don’t lose it!)….or, I could write it in a binder and hope I remember to put it on my calendar when I get back to the office….or better yet, I could just text message my google calendar. Ya, it’s that easy. Thursday at 10:30am stylist. I get a confirmation message that it was accepted and now my entire team can see my new appointment, instantly. And I don’t have to remember to enter it later.
A remarkable feature. And it’s all free. You can’t beat it. When you get some time, check out iGoogle and see what it can do for you. Just go to www.google.com and create an account.
Ricci