One of the mistakes that small businesses make is thinking that what big businesses do is not for them. It’s true, big businesses have access to capital markets which small businesses generally don’t. They clearly also have economies of scale. However, when it comes to marketing I frequently come across the attitude from SMEs that big businesses do things that ‘don’t work for us‘. Fiddlesticks! Day 1 at marketing school you’ll learn about the three things I have outlined below. These hold true for ALL businesses and form the basis of all marketing campaigns. Knowing them could change your life ….
1. ACQUIRE MORE CUSTOMERS
Excuse me if this seems obvious but if don’t have a regular policy for new customer acquisition, survival is likely to be tough. Clearly there are a number of techniques, but here I want to concentrate on two ideas that will significantly improve your chances; lifetime values and risk reversal. Lifetime values are behind every ‘introductory offer’ you’ll ever see, risk reversal is what ‘money back guarantees’ are all about. This is how they work:
For the sake of this example, let’s say that, on average, a new customer lifespan is around 5 years (there is some research to support this).
So – if you give a new customer a free introductory offer worth £100, the potential return is £1400 over five years. In essence you have ‘bet’ £100 to win £1400. Not bad odds. Have you ever wondered why, practically every time you open a bank statement or shake out the contents of a magazine, wine companies like Laithwaites are so keen on giving away cases of wine? ? Using the numbers above, a £60 case of wine (which probably costs them £30) could easily acquire them a customer who, each year, buys 5 cases at £60 per case. Over 5 years that’s £1500.
I realise the smart ones amongst you will recognise that these returns are top line – i.e. not profit and that you need to factor in those customers who take up the offer and don’t buy again. But hopefully point is made.
This is the one that sends the CFO into a spin. You agree to take back any product that a customer is not satisfied with. Scary though this may sound, here’s what it’s about. When we are buying, having established everything we need to know about a product or service, we have one last hurdle to over-come; do we trust these people with our money? By offering a money back guarantee you instantly remove this anxiety. The ‘risk’ is shifted from the customer to you. Fret as the CFO might, the reality is that the returns rates are always low and are far out weighed by the number of new customers that you will win from using this strategy.
2. INCREASE CUSTOMER SPEND – UP SELL
Take a moment to work out the impact on your business if you had managed to increase the spend of every customer you had last year by £5.
The difference between ‘successful’ and ‘really successful’ can often be the difference in increasing the spend-per-customer by as little as £5. Once a customer has made a purchase, the likelihood of them making another one rises significantly. By offering accessories, related products, insurance and add ons – anything that increases the spend, by however little, can have a major impact on your profitability.
One of the cleverest such strategies was the one which helped build Marks and Spencer. Way before its time M&S operated a ‘no-quibbles’ returns policy. Looking back, it seems odd that no other major retailer did this. For years customers thought that M&S were just being nice and of course they were. But behind it was a solid piece of business thinking. Some clever member of the Sieff family recognised that every time someone came to the store with a return they tended to buy something else. Thus the ‘no quibble’ return policy was nothing more than a cunning ploy to increase footfall and spend. Occasionally they may have had to throw away a returned item but by far the greatest part was put back on the shelves and resold. A brilliant and practically free method of not only increasing the amount their customers spent, but also significantly increasing the rate of spend (see point three below).
Tip: Always offer an opportunity to buy an additional product or service at the point of sale. This is when the customer is most in love with your company and therefore most likely to spend more money.
3. INCREASE FREQUENCY OF SPEND – LOYALTY
As with point 1 above, this is a simple matter of arithmetic where a small shift can make a big difference when spread across your entire customer base.
Ever wondered why your coffee shop is so keen on those bits of card they stamp each time you buy a latte? What Avios or nectar points are all about or why Amazon Prime offers free delivery store-wide? It’s all about trying to make you as loyal as barnacles on the bottom of a boat. By persuading a customer who shops with you once a year to shop twice, doubles their contribution. This is why so many successful businesses work so hard for our loyalty. Tesco’s 10.3 million Clubcard holders are the lifeblood of their business. The whole purpose of these loyalty cards is precisely that – loyalty. Their aim is to create a sense of community rewarded by discounts, special offers and incentives. It’s a powerful multiplier. Imagine Tesco’s 10.3 million spending just £5 extra a year because of piece of plastic in their purse or wallet. That’s an extra £51.5m per year and £257.5m over 5 years. This is quite apart from the money they would have spent anyway.
Tip: Consider a lock-in strategy by offering incentives for loyalty. A typical ‘lock in’ is offering a second year at half-price. For most businesses, knowing they will retain their customer is worth the reduced margin – especially a they will be applying point 2 above throughout the period.
If there is anything you are doing in your marketing strategy which does not ultimately lead to:
STOP DOING IT!
It startles me the number of times I hear from businesses that some piece of marketing or other was about ‘brand awareness’. B*****ks! If you’re BMW and have a worldwide advertising budget of $500m then maybe a little ‘brand awareness’ is a good thing, but for the rest of us it’s just an excuse for poor advertising and is plain and simply a waste of money.
For help in creating a marketing strategy which will acquire more customers and increase loyalty and spend, call us on 07836 213891