Aug 11, 2021 | Customers, Marketing
I like the word ‘Sticky’ it resonates somehow, and says, ‘hard to get rid of’.
As a kid, we had a ‘sticky’ dog in the family.
I remember we once left the dog by accident at a relative’s place across Sydney after a visit. When we realised we had left the mutt, Dad had to drive all the way back, and; no dog. About a week later, ‘Sticky’ turned up home, hungry, bedraggled, and obviously on the losing end of a fight somewhere, but the tail was wagging madly as he stumbled through the gate. Sticky. Don’t you wish customers were similar?
What makes a “sticky” customer?
How can you measure ‘stickiness’?
Customer loyalty, repeat business, lifetime value, brand building, all sorts of cliches refer to the central notion of a “sticky” customer.
A ‘sticky’ customer is someone who for one, or a range of reasons, strongly prefers to buy your product over alternatives.
We all know it is more expensive to find a new customer than it is to sell to an existing one, so it is paradoxical that many businesses spend more on finding new customers than they do on retaining existing ones.
So, what makes a sticky customer should be a subject of some consideration.
Some ideas.
Barriers to exit.
Once you have a customer, create high barriers to exit. Love them to death, remove friction, ensure that you are anticipating their needs.
Amazon is an exemplar.
I am a customer, I buy lots of books, and other odds and ends from them.
What I look at, then buy, and at what price is all recorded, and based on the history, they recommend other things to me, that are often very good recommendations.
Last Christmas, my wife was moaning that she had no idea what to get me, and while I was saying a good business shirt would be nice, my mind was recalling the recommendations I had just received from Amazon. It occurred to me that, holy cow, Amazon knows what I would like better than my wife of 40 years!
High barriers to entry for competitors.
The music industry has been disrupted by digital, the old model no longer works, as the barriers to entry that were high, became low. Anyone could publish their music online. Lady Gaga created new barriers to entry by building a “personal” relationship with a highly targeted audience, “live” on digital platforms. She has replaced one high barrier, the cost of creating and marketing a record with another, the cost of creating a ‘sticky” fan, who shows the “stickiness” by buying, online.
The further from commodity you can take your product, the better. Price does not play a role in the purchase decision, so long as it is in the bounds of the customers’ expectations.
Technical excellence on some key parameter.
Porsche has consistently demonstrated engineering excellence, but was going broke in the 80’s relying on the 911 exclusively. They took the strategic decision to leverage that technical excellence into adjacent areas. The entry level Boxster, then the Cayman, less entry but not the 911, then the 4 X 4 Cayenne, then the four door Panamera, and now is flooded with money.
Reducing customer churn usually offers huge benefits, and now Porsche is delivering a range that meets the preferences of all those who valued the engineering excellence and power of the Porsche brand, across a range of life stages and styles.
KPI Index
It is in this context that I use “the KPI Index.’ This is not your usual key performance indicator, of which customer churn and cost of new customer acquisition should be key ones, but ‘Kept Promise Index.’ The main reason an existing customer will move elsewhere is because you failed to meet their expectations in some way.
The product was not to specifications, delivery was slow or not to promise, there was damage, the price crept up, or the communication was messed up somehow. There are many reasons businesses fail to keep their promises, explicit and implicit to customers, and eliminating them will increase ‘stickiness’.
Detailed understanding of customers.
Some years ago, I worked with an insurance broker on this very topic.
Insurance is not a happy purchase, it is purchased reluctantly, grudgingly. Almost all the brokers marketing effort to retain clients, which on first glance should have been effective, was in the last few months of a contract, but his churn rate remained stubbornly high, squeezing profitability. I spoke to several former clients who had not renewed to try and figure out why, and the picture became clear very quickly.
After they had signed up, often after the broker had made a significant effort, they were left alone until the renewal was becoming imminent, unless they had a claim. They felt they were being ‘used’ by the broker, rather than being delivered a service, and the effort put in just prior to renewal was just a hard sell job, which was resented. We took a portion of the marketing budget and reallocated it to communication in the first 3 months or so of the contract, as well as instituting a regular newsletter type communication which offered all clients a means to stay on top of trends and instances that might affect them and their business. We also amended the renewal communications and spread them out over a longer period. The churn rate dropped rapidly, and the satisfaction scores went up, along with profitability. None of this was rocket science, it was just looking at the problem with a set of outside eyes based on customer experience.
Continually improve your customer interaction processes.
Based on customer feedback and understanding, focus on customer retention, every day.
NPS, and feedback from customers, and former customers, are ways to identify points of potential ‘friction’ in the customer retention processes, and progressively eliminate them.
All the tools trotted out as improvement tools in a factory: Lean, six sigma, and their toolboxes are very useful in diagnosing the customer experience, and improving it.
Generally, these are simple tools, not requiring any sophisticated maths or software, just a bit of simple observation, data collection and analysis.
The very best data source is to ask former customers why they left. That information can give you a wealth of insight into sources of improvement to reduce churn and increase Share of Wallet.
In business, we are faced by the same dilemma every day.
We only have so much resource, time, skill, the question is what do we spend them on?
We can only do so much, way short of everything we can think of, so we all recognise that the trick is to focus on what is important.
The distraction of what is urgent but not important is the greatest threat we have, successful people focus on what is important, but not necessarily urgent, recognising that in doing so they are making choices about what not to do, to the longer-term benefit.
Why would it be any different as we consider how best to retain customers?
Aug 6, 2021 | Communication, Marketing
Hindsight planning is a process of putting yourself as realistically as possible into the ‘headspace’ where you have achieved the goals you set, and then ‘plan backwards’. It sounds like a semantic game, but it is not. It is rooted in Psychology.
As Daniel Kahneman put it: ‘Once you adopt a new view of the world, or a part of it, you immediately lose much of your ability to recall what you used to believe before your mind changed’
Having agreed the shape and size of the business in 1, 3, or 5 years, whatever horizon you have agreed on, the task now is to ‘put yourself there’.
The difficult choices that are needed become more obvious when you can better see the challenging questions you need to ask.
Imagine the outcome has been achieved, and then articulate the steps you have taken in that journey. This is an exercise in perspective. Working backwards enables you to test ideas, assumptions, and choices, against an outcome you have agreed has already occurred, albeit in your collective minds. In that way, a ‘reality filter’ of sorts has been applied.
Some of the obvious questions that need to be answered may be:
- Where did the revenue come from? Growth is not possible in the absence of revenue, so list the sources. Current customers, new customers, channels, business models, products, technical achievements, geographies, and so on. However, do not just list them, articulate in some detail how it has happened. Again, that past perspective adds real ‘grunt’ to the conversations.
- Where did the capital come from? Growth is a veracious consumer of resources, particularly capital. How did you fund that growth? Reinvestment of retained earnings, capital raising from friends and family, or from the markets, public and private, debt finance considering the necessity for assets as collateral?
- What is the dominant business model? Are you a middleman, retailer, on-line item sales, subscription sales, did you achieve a position to monetise arbitrage opportunities? Digital has delivered a host of new and emerging business models to us over the last decade, but one thing that has become clear, if it was not already, is that differing business models do not live comfortably in the same house. Therefore, if your revenue streams come from different business models, the structure of your resulting business needs to be decentralised by those differing business models.
- What is the ideal corporate structure? Have you remained private, are you publicly owned, a partnership, Joint venture, franchise system? There are many options, and as in the previous question, potential siblings rarely successfully live in the same house.
- What capabilities were required to succeed, and where did you find them? This is a question in two parts. Firstly, what capabilities were required from individuals, technical, strategic, financial, and all the other factors that make human beings able to contribute? Secondly, what were the organisational, leadership and cultural factors that enabled the organisation to leverage the capabilities the individuals brought in each morning as they turned up to work.
- Which customers, markets, products, technologies, relationships, were critical to the success? The answers to these questions are a ‘must know’ level. Why did those customers come to you, choosing not to go to a competitor? What is the factor that differentiated you from the others?
- Which competitors proved to be the most potent? Anticipating competitive action, and planning to accommodate the impact is a necessary part of every plan, as noted previously.
- Where did the new competitors come from? New competition almost always comes from the fringes, and often outside the normal scope of most extrapolative planning. Looking widely at what is happening in other markets, and other technologies may offer insights to where new, and more potent competition may come from. Honda started in motor bikes with the Honda 50, selling it to students in California as cheap local transport. None of the incumbents, Triumph, Norton, Harley, saw them coming, they thought they were toys, being bought by people who would never buy a big bike. Blockbuster ‘owned’ video, and could have bought Netfliks for $50 million, but thought them irrelevant, not even an irritation. 5 years later Blockbuster was broke.
- What is the emerging source of customer value in the market? Nothing new will be bought in the absence of a reason to switch from the incumbents, which always means new value has been created, somehow. How did you create yours?
- What did we do wrong, and what did we learn? You learn more from your mistakes than you do from the things you got right. Make sure ‘learning’ is part of the cultural DNA of your business.
When you have the answers to all these questions, and probably many others, found with the benefit of the virtual hindsight, you will be in a powerful marketing position, able to write the plans that double-down on the things that will deliver the objectives and success.
Normally, especially when things go wrong, we conduct a post-mortem to understand why they went pear-shaped.
Hindsight planning is in effect a pre-mortem.
It looks at all the things that could have gone wrong, all the problems that emerged, workable solutions considered, and what works and what did not.
When you have done that well, the chances of being surprised by something are significantly reduces, while your ability to respond is increased.
Header cartoon credit: Tom Gauld at www.tomgauld.com
Jul 26, 2021 | Communication, Customers
Contrary to much advice, sales is not just a pure numbers game, the quality of the numbers make more difference than the numbers themselves.
Throw the net widely to attract prospects, the more the better, is the common mantra. It implies anyone who shows the slightest interest is automatically in the net, and so becomes a consumer of resources as efforts are made to lead them down the ‘funnel’ to a transaction.
Sound about right?
What nonsense.
If you had 1,000 people and a 1% conversion rate, you would make 10 sales. if you had 100 good prospects and converted 10%, you would make 10 sales. The transaction numbers are the same, but the latter would be far superior, as rather than spend resources chasing the 990 that would not convert, you have cut down to 90, leaving a lot of sales resource to be off doing something useful.
You do need to fish where the fish are, but it helps to make sure that the species around is what you are looking for, and that the bait is right, otherwise, you will just catch a cold.
The lesson is to focus your efforts on your ideal customer, where you will get the most leverage for your resources. This means you do some work up front to identify the characteristics of your ideal customer, then qualify early and hard to husband sales resources and direct them to the point of greatest impact.
Yes, sales is a numbers game, but the quality of the numbers makes the difference between productive and broke.
It reminds me of the legendary copywriter Gary Halbert’s advice when he’d ask an audience for the best way to sell a hamburger.
At seminars, Gary would throw out that question and people would respond:
… Make the juiciest burger…
… Have the best location…
… Provide the quickest service…
… Create a killer sauce…
And so on.
Gary would then give the correct answer, which was…
Find a starving crowd!
When you need a sounding board to find your starving crowd, give me a call, I’ve been finding them for 40 years..
Jul 21, 2021 | Leadership
There is a huge hole in every ‘top 10 characteristics of a great leader’ list I have seen.
They all list approximately the same things, by different names, and in different order.
Honesty, integrity, transparency, vulnerability, vision, creativity, dependability, empathy, and so on.
In none of them have I seen the one characteristic that to me just sticks out like a beacon.
Compounding.
Compounding is as Einstein pointed out, ‘The most potent force in the universe‘
Leaders who actually lead, do so not because they demand to be leaders, but because they invest, tiny bits, over a long period. in the individuals around them. Each investment (read interaction) may be small, but it compounds on the last one, and the one before, where they counselled, advised, observed, offered praise, stepped back when praise was offered from elsewhere, and provided cover by taking responsibility when there was a cock up.
Compounding good leadership practices breeds great leaders.
