All of the leading experts recommend that you spend 75% of your budget to retaining existing customers (and re-engage them). Yet surprisingly, most companies do the exact opposite. Even large corporations like Coles, Woolworths, Max Factor and Target (not just the little SMEs) make the mistake of spending too much chasing new customers (or ones that have left) and often ignore their existing ones.
Several years ago I held a senior commercial role at one of the largest retail businesses in the country and I can confirm that they spent <20% to retain existing customers. They, like 95% of businesses out there, spend the bulk of their budget on chasing new customers or attempting to re-engage those that have left and gone to the competition.
And therein lies the biggest mistake you can make as a business owner…
Every dollar spent on direct marketing to retain existing customers is actually worth 50x the equivalent amount spent chasing new customers. With above the line advertising, it is very hard to capture the attention of new customers, embed your message in their mind and compel them to act. It is much easier (and cheaper) to reinforce your message with an existing customer and encourage repeat visits.
So, if everyone knows it is easier and cheaper, why are most businesses NOT focusing the majority of their attention and budget on their existing customer base? The answer to that question is unclear. But what is clear is that there are 4 Simple Strategies that you can use today to boost sales and retain existing customers.
1. Spend 75% of Your Budget on Existing Customers – The bulk of sales and marketing efforts should be focused on direct communications and NOT on social media, newspapers, PR, magazines or pay-per-click advertising. For those of you who are established and have been in business for a few years, this is going to free up a lot of time that has been wasted on chasing new customers.
2. Do Your Homework to Maximize Return on Investment (ROI) – I recommend that you take the time today to analyse your existing customer data:
– What are they buying?
– What could you introduce them to which would increase gross profit margin?
– How can you drive frequency (visits)?
3. Frequency Lifts Sales by 75% More Than Upselling – It is much more effective and profitable, to focus on getting customers to return to your website or business, as opposed to trying to sell them one more thing while they are there.
4. Focus on Customers Within a 10km radius – Customers who have moved outside a 10km radius of your business can be particularly tricky to re-engage. In research conducted at one of the largest retailers in the country, we discovered that 82% of the revenues were attributable to customers that lived within a 10km radius. And in my experience working with hundreds of small-midsized businesses, this statistic still holds true. If your customer has moved outside of this radius, it does not make sense to waste any of your budget trying to reactivate them.
Even though it’s important to appeal to and attract new customers, it’s absolutely crucial to your business’s survival that you retain and nurture the customers that have supported and shopped with you to date. Everyone knows that is cheaper and easier to garner incremental business from existing customers but what separates the truly successful entrepreneur from the pack is the ability to put this knowledge into practice by allocating a large portion of your budget and focus to existing customers.
To prove my point, I’m going to share with you two examples of what NOT to do.
I saw a billboard recently on a major freeway. It read “Texting While Driving KILLS”. Then down below in fine print were the words “For more driving tips, text ‘SAFETY’ to 79191.” Now I’m sure you are probably laughing or at least smiling right now because this is an obvious case of sending a mixed message. And you’re right, I’m sure it is very clear to you why this message is ineffective. But the sad part is – this type of miscommunication or presentation of conflicting ideas is seeping in and polluting your sales and marketing materials every day. To get more customers to your business, you have to stop making this costly mistake.
Take for example your website, your eNewsletter or your brochure/catalog. What exactly are you asking your prospect or customer to do? Did you make the mistake of trying to cram 3 or 4 competing requests onto one page? Did you ask them to buy your product, join your database, visit your blog and watch your latest video? Chances are, you got really excited about what you do and you wanted to share everything you could on just that one tiny page. And I can understand why you got excited but you confused your audience and most of them walked away because what you wanted them to do wasn’t clear.
Now what you did may not have been as blatant as “For more driving tips, text ‘SAFETY’ to 79191.” However, the end result was the same.
If you want to get more customers and prospects to your business, you need to focus on communicating one clear message. If your message is clear and there is only one action that they could take, you will find that the number of people who step forward and take that desired action will go up dramatically.
Now that brings me to my second point.
The second mistake I don’t want you make is to use words or sentences that are confusing. Take for example this sign I saw outside a motel – “Free Wifi Starting at $59.99”. I think the motel owner who put up this sign was either in a rush or ran out of space because he forgot a few important words. What he probably meant to say was “Free Wifi. Rooms starting from $59.99”. He only forgot two small words but those simple words made the difference between a message that was clear and one that made absolutely no sense at all.
Now you may not be offering free wifi but I bet you may have used or at least seen terms like “scalable architecture”, “a customer-centric model”, “ holistic approach” or “results-based focus”. These words mean nothing to the reptilian brain (the part of your customer’s brain that decides and takes action). That part of the brain is 45million years old and it struggles to process and understand complex words, numbers, unfamiliar symbols and graphs that contain too much information. If you want to speed up the decoding process and make it easier to get more customers to your business, you need to make your message simple. Choose words that are clear and easy to understand. Complete your thoughts and sentences – don’t make it difficult and give your customer the excuse – “I need to think about it”. If your customer has too think too hard to decode your message, he simply won’t make a decision
Now I want you to be honest with yourself – is there a chance you might be sending mixed messages to your potential customers? Are your sales/marketing messages clear and succinct? If not, now is the best time to go back and re-write your materials. If you want to get more customers to your business, you need to simplify what you are asking them to do and use language that is easy to interpret.
08 Jun 2011
For those of you who are in the retail industry, you may have noticed a recent trend to clean up in-store environments – reduce shelf heights, remove dense ends and dump bins, widen aisles etc. – in order to increase comfort and make the shopping experience less stressful for customers.
The big question then becomes “does clean make customers keen? According to Walmart, arguably the largest and most successful retailer in the world, clean stores mean fewer beans (on the bottom line).
As reported in the New York Times, Walmart conducted a massive in-store experiment to improve sight-lines, rationalize the overall number of items offered, remove warehouse-like merchandising in centre aisles, and increase the width of core aisles. According to Walmart’s CEO William S. Simon, “(Customers) loved the experience. They just bought less.”
As a result, Walmart reverted back to its original strategy of offering more products, with tighter aisles, more clutter and lots of bargain bins in the hopes that customers would spend more because of a perception “there were bargains to be had”.
If you do a quick search on the internet, there are dozens of experts who subscribe to the view that a larger selection, more bargain bins, and sales signage equates to “better value”. In essence, the more you look like a market stall, the better it is to generate buzz and sales. They argue that if your merchandise is neatly presented on the walls and in well organized aisles, with no point of sale impulse offers and dense ends full of 2-for-1 specials, customers will tend to think your store is expensive (i.e. overpriced) and they will not buy from you.
And if you think about it, you can probably name a whole list of retailers who subscribe to this “clutter is good for business” philosophy and they seem to be successful. But how can we be sure that clutter makes customers keen? Have we been too quick and prematurely jumped to a conclusion that clean is a traffic and transaction turn-off?
Recent empirical evidence from the science of neurology sheds new light on how we think, and more importantly, how we make decisions. In fact, the decision making part of your brain responds strongly to certain stimuli only.
Did you know that your brain consumes 25% of your body’s energy? As a result, you brain wants to conserve energy so you tend to pay attention and be attracted to things that have sharp contrast, high visual appeal, strong emotional cues and a clear beginning vs. end message.
Now what does this mean for you in the context of your shopping environment?
A chaotic, cluttered store is cumbersome for your brain to navigate – you have to work hard mentally to hunt down and search for bargains. It may create some emotional appeal but it is likely perceived as having low contrast, low visual appeal and no clear beginning vs. end. Shopping in this environment takes time and energy and it also forces your brain to go into “thinking” mode. This is a critical point because thinking is counter-productive to deciding. Thinking takes place in one part of your brain (the neo-cortex), while deciding happens much more quickly (and automatically) in your old or “reptilian” brain.
So what does this research mean for the strategy and conclusions reached by Walmart?
Based on science, the strongest buying cue that you can give your customers is this – if your store (or business) has incredible bargains, people will buy (and even sift through a maze of clutter) because something is in it for them. The “what’s in it for me” (WIFM) principle is one of the strongest influences on the part of your brain that decides.
There is no hard evidence to suggest that clutter makes your customers keen.
Walmart and many others have come to a conclusion based on what they THINK people are doing to reach a buying decision in-store. However, neuroscience has empirical evidence to support the opposite conclusion is more probable. Clutter and chaos create an environment where your customers have to think too hard, which is exhausting for the brain. They will do it if they have to, as long as the perceived bargains and value are very high.
Doesn’t it make more sense to find another way to communicate good value and service without exhausting your customers and causing them to waste their time? Wouldn’t you be more likely to get more sales and word of mouth referrals from your delighted customers?
In the end, Walmart may be correct about the fact people buy more in a certain circumstances but they are wrong about WHY that is. The best way to create more excitement and sales is to make it easier for your customers to decide. You need to show them what’s in it for them, increase the contrast between your solution and your competitors and communicate a strong, clean visual message that compels them to say “YES”.