How much is your customer really worth?

Here we are again at Marketing Madonna, it’s time for another insightful foray into the world that is marketing. First let me gloat a little, it’s Wednesday and I’ve already doubled the amount of business I’ve created in all of last week, hurray! Now today we are going to talk about one of my favourite concepts, the concept on the lifetime value of your customer.

Here are the statistics for you to give you a little background on what I’m about to say. It is ten times harder to create a new customer than it is to retain an old one. In most industries 80% of your business is created by 20% of your customers, this is often referred to as the top 20%. 96% of unhappy customers never complain. Every unhappy customer tells 15-30 other people compared to a happy customer who tells around six people. 95% of customers who make a complaint and have it handled efficiently and promptly become more brand loyal. Now if all these statistics were true and market research provides us evidence that they are, wouldn’t the way we approach our customers be drastically different?

Now I don’t want to get too industry specific but a restaurant or a café is the perfect example of this. Now remember the last time you went to a really bad restaurant for the first time, I bet after you had that really bad experience you told everyone you talked to about it. However, how about the last time you went to a really good restaurant, I bet you probably told a few good friends about how good it was but you really did tell to many other people right? Word of mouth is a power thing, as social proof as it was termed by Robert Cialdini in “Influence Science and Practice” plays an important role in peoples decision making process. There is only one real problem most business owners or even a lot of guru consultants don’t take into account. People on the whole in our society today aren’t very good communicators and they are even worse listeners. Did you even play that game Chinese whispers when you were in school and it would start of with “The cat sat on the mat” and as the people past the message around the circle it soon became “Magnus has a big butt.” Well sorry to break it too you but even since those days we really haven’t been taught to be better listeners, it’s not like there are University classes on how to be a better listener or anything. So we still have our sixth grade listening skills. Now what does this have to do with happy customers and word of mouth. Well everything, even if someone tells someone how amazingly wonderful your product is once the message has been passed on from person to person it can become somewhat dilute or even quiet skewed. Movies are a perfect example of this I mean how many people tell you what a movie is supposed to be like when they’ve never even seen it, talk about false advertising.

So back to the restaurant example, one think you might have noticed if you go out too the same place a few times you might start to see the same people there quiet consistently. That’s what you might call the top 10 or 20% of your clients depending on your industry. Now the sad thing is that a lot of businesses treat their top 20% of customers exactly the same as they treat their other customers or even worse they treat they regular customer worse than their other customers because they think they have their business indefinitely. Well let me tell you in the competitive business world today with the even increase amount of competition that is not a very intelligent idea. Now I’m not saying you treat you’re top 20% better than your other customers, I’m just suggesting you treat you customers differently based on whether they are first timers, industry shop arounds, semi regular or regular clients. Does that not make sense! Now if you don’t know whether they are a regular client or not why not train you’re staff to ask the simple question “have you been here before?”

Now there are many different strategies we can put in place to make the most of your top 20% of customers but that requires you to do one thing. You have to figure out which customers are your top 10 or 20% and then figure out how to resell, upsell or cross sell them. We’ll talk more about that in the next article and we’ll talk more about the life time value of our customer in future articles as well. The most important thing with targeting your top 20% for these kind of deals is that if you pick the wrong people to make these offers to you get people who take advantage of your generous who are not really your regular long term customers. This of course can lead to losses if you are offering special deals to customers when you do not already have their brand loyalty.

The importance of realising that the value of your customers goes much past the first sale and that look at their lifetime value to your business can not be understated.

Until next time I bid thee farewell

Peter Laurent