Now is a good time to be in the market for a new satellite television provider. The two main competitors, Dish and DirecTv, are throwing all kinds of incentives at you. iPad minis, free DVR upgrades, free Visa cards. Free, free, free.
The catch is, you typically have to be a new customer to take advantage of these offers.
It’s backwards, and it’s bullshit. When you reward new customers instead of existing ones you are training your customers that it pays to leave you. Valuing new customers and ignoring loyal ones basically mocks your repeat customers.
Many industries do this, especially when the space is dominated by 2-3 competitors with very similar offerings. Companies have to constantly offer new and additional incentives for new customers because they aren’t giving loyal customers any incentive to remain loyal.
Rock stars typically do the exact opposite. Fans are rewarded. Fans get special access, they get VIP treatment. They typically get the best seats at concerts, they are the ones that get secret shows, they are the ones that get first access to new products and breaking news. With rock stars, new customers are ignored in much the same way that many markets ignore existing customers.
I’ve talked about this before, but you build loyalty and create fans with rewards, not incentives. Offering me products if I will switch to your company doesn’t win my loyalty to your brand, it simply gives me an incentive to take advantage of the offer. I may have to sign a 2-year contract to get all the goodies, but if you have ignored me and my business, guess what happens in 2 years? I will switch to your competitor, because they just offered me prizes and incentives for switching.
You are training your customers to leave you.
It’s not about offering incentives for new customers, it’s about offering rewards for existing customers. Because referrals from happy customers is a far better marketing tool for you.
If the goal is to acquire new customers then you need to follow the rock star marketing model: Focus on delighting your existing customers, with the understanding that this will encourage your existing customers to become fans who will bring you new customers.
Great insight.. very simple and true. Rewarding loyalty makes a huge impact. Thanks!
Thank you Stacy!
I’m not saying that companies should / should not market the way you are suggesting above. You may very well be correct.
I will share with you why companies care so deeply about acquiring new customers.
The data below is for a “brand”.
In 2012, 4,000,000 customers purchased from this “brand”. Of this audience, 60% purchased again, spending $300 each. This means that 2,400,000 customers purchased again in 2013, generating $720,000,000 net sales.
In 2013, this “brand” has to acquire/re-acquire 1,600,000 customers just to keep the business flat at 4,000,000 customers. The 1,600,000 customers will spend $200 each, for a total of $320,000,000. Combined, we have a $1,040,000,000 “brand” – a big business, no doubt.
If the company stops chasing new customers, the company immediately loses close to 30% of its top-line net sales. If the company loses 10% of the new customers it was chasing, it loses 3% of its top-line net sales, and the executive team gets fired.
I’ve worked with more than 110 “brands”, many of them huge mall-based businesses. Every single one has a program to take care of existing customers. Those programs, however, in terms of impact on the business (with the notable exception of when I worked at Nordstrom), are minimal compared to the impact finding new customers has on the business (and maybe that’s the fault of the “brand” for having poor programs in place, who knows). I have worked on project after project after project with “brands” – folks who have tried just about every trick in the book to get existing customers to spend more. It is terribly, terribly hard to get existing customer to spend even 5% more per year, adjusted for inflation. It almost never happens at “brands” (happens all the time at small businesses doing < $50,000,000 a year in sales). It is actually quite easy to increase new customers by +/- 20% per year.
Heck, if you are DirecTV or DISH, you are keeping 90% of your 25,000,000 annual customers, year-over-year. If you do everything humanly possible to turn these customers into fans, you keep 91% of them, not 90%. Meanwhile, there are 80,000,000 homes that have cable or use an antenna – I'm not saying this is right/wrong, I'm just sharing the math with you so that you understand why Executives make the decisions they make.
Now, should "brands" focus on things it can do to please best customers? Absolutely! Should they do what you are saying, and make sure they have strategies that do not drive away their best customers? You bet! I'm not questioning any of that.
The reason you see such a strong focus on new customers is because of the math I illustrated above. Across my client base, Executives are aware of the math I shared with you. And that's why they care so deeply about new customers. So when those Executives read your headline, they take a look at their math, then they take a look at the headline, and they go back to caring about new customers.
You can accomplish the same outcome (getting your clients & readers to focus on their best customers) by shifting the focus of your message.
I know, this is the part of the discussion where everybody in social media tells me I'm wrong, that I "don't get it". I'm just sharing the math, and the discussions I have with upper management at "brands".
Thanks,
Kevin
Thanks Kevin, always appreciate your viewpoints here.
Totally agree with your math. Companies have to keep generating new sales because they lose sales, as your example illustrates.
The only way to get more sales is:
1 – Acquire new customers
2 – Convince existing customers to spend more
And I love you point that “I have worked on project after project after project with “brands” – folks who have tried just about every trick in the book to get existing customers to spend more.”
This is the problem. Brands are trying to convince existing customers to spend more, versus connecting with their most loyal customers who are not only spending more, but who are looking for ways to drive more sales for the brand.
If a brand asks a customer that has little loyalty toward that brand to help it by driving more sales, it’s often oft-putting. Even if you offer them a ‘deal’ such as, refer 5 new customers and we will give you a $50 gift card. In the customer’s mind you are asking them to work FOR you and do YOUR job for them.
But your FANS, the customers that have higher levels of loyalty toward your brand WANT to do this. The average customer has a completely different mindset, but the average fan is happy to work on behalf of the brand to drive more sales.
It’s not that programs such as you mentioned don’t work, it’s that the brands are typically NOT connecting with the customers that are willing to MAKE it work. For example you mentioned that Nordstrom’s is the only brand where you have seen existing customers impact sales. Nordstrom also has a great reputation for customer service, and as such as a larger fanbase than many companies. I would also bet that Nordstrom did a better job of connecting with its most passionate fans versus the average customer that has less affinity toward the brand.
The overarching point of all this isn’t to say that companies should forgo attempting to acquire new customers. Of course not. What I am saying is that brands should be brave enough to let the customer acquisition process flow more through their most passionate and loyal customers. Word of Mouth is still the most credible form of marketing out there, and many brands are doing little to utilize it.