Why Are Customers Important? 5 Sources of Value From Customer Relationships
You likely understand that keeping customers is less expensive than getting them. It is. And at least intellectually, you understand how painful attrition. Its negative impact on profitability, even if you can’t measure it. Well worn, well accepted truisms. So, why doesn’t your marketing plan include a CRM strategy? It should. Customer Relationship Marketing is an important and rarely exploited opportunities.
Why are customers important? There are five reasons why loyal customers are an important profit drivers:
- Keeping customers, and especially best customers, allows you to recoup your acquisition cost. The longer you keep them the more positive your ROI.
- Loyal customers are more likely to buy more things from you. They don’t have to be sold on your product or service. They understand your value proposition. They have a relationship with you so they are more likely to see your marketing. These factors increases revenue and profit, and reduce sales costs.
- Loyal customers will pay a higher price. They understand your product and its value. You don’t have to bribe them to buy again. This further improves the profitability of loyal customers.
- Experienced customers cost less to service. They know how your product or service works. They need less hand holding, make fewer calls to customer service, and need fewer visits from the sales rep. All this reduces your cost, which improves profitability.
- Now here comes the kicker, loyal customers are much more likely to be advocates. They will tell their friends and associates about your product. This brings in more great customers with limited to no acquisition cost.
I first learned about this concept, I call it the profit fan, from Fred Reichheldd’s book, The Loyalty Effect. If you haven’t read it I recommend you do. If you have read it, you should read it again.
To take advantage of the multiplying affect of customers your first step is to identify your best customers. Understand what they see in your product and how they view the category you compete in. Find out what your best customers are worth.
Then develop your customer marketing objectives and strategies. Design it to increase your business’ value to them and their value to your business. Set a budget based on customer lifetime value. Use both to determine the best tactics.
The final step is test, measure, and then test some more. Customer Relationship Marketing isn’t easy. Getting good at it is an iterative process that will, like all worthwhile pursuits, take time. But with patience, the ROI can be spectacular.