Profit from customer loyalty

For businesses, the current trend to attracting customers now in the consumer market is participating in group buying sites by selling their products and services at deeply discounted prices.

On the surface, this customer acquisition method of increasing sales seemed to work. However, group buying does more harm than good to your business and its brand. You make plenty of sales, but hardly any of these dollars translate to profits. Businesses are starting to be wary of group buying. This is a topic for another day before we digress further.

Consider another channel of increasing sales- through customer retention and loyalty activities. Not only does instilling customer loyalty increase sales, it also creates profits and builds your brand.

According to The Gartner Group, 20% of your existing customers generate 80% of your profits. The key for any businesses to survive and grow is beyond just acquiring new customers, but to build sustainable sales stream of existing customers.

It’s about time businesses pay more attention to building and instilling customer loyalty which has a long-term impact on their brands and not getting completely sucked into the group buying craze. It is more than just increasing sales.

Here are 5 reasons why customer loyalty matters.

1. It’s easier to up-sell and cross-sell to loyal customers
Loyal customers are familiar with their favourite brands and more willing to try out and explore recommendations and new products. Marketing Metrics found out that the probability of selling something to new prospects is only about 5-20%, whilst the probability of selling something to an existing customer is 60-70%. For the same amount of effort to sell something, expected sales as such is higher from selling to your loyal customers.

2. Loyal customers are your free marketing agent, brand ‘ambassador’ to help build your brand
Loyal customers are more inclined to share their positive experience and making recommendation of a business to their friends. They love your brand, they speak about your brand and humans are generally more influenced by people they are familiar with. Word-of-mouth marketing is one of the most powerful channel of marketing, if not the most. They reinforce your brand in the mind of consumers that are unfamiliar and new to your brand.

3. Lower costs to acquire new customers
It is six to seven times more expensive to acquire new customers than servicing your regulars. Businesses have to advertise to attract their attention, incentivize them with discounts, educate them about their brand and product, provide personalised services which all amounts to costs. By focusing on customer loyalty and building your brand, your loyal customers will be a strong influencer to get new prospects to try out your brand, substantially reducing the associated costs in acquiring new customers. Cultivate loyalty, and get an army of free, sales people to spread the love of your brand.

4. Customer loyalty insulates your business from price competition

Competition is heating up! Let’s slash prices! But through loyalty, it reduces the effect of price sensitivity on your customers and in the words of Warren Buffett, it gives you an ‘economic moat’ from losing customers to competitors. It takes more than reducing prices to lure your loyal customers away. Loyalty also helps in the opposite direction when prices have to go up. In times of rising costs and inflation, the stickiness and commitment towards your brand makes it easier to pass on additional costs to customers without them defecting in mass, eventually helping to protect your bottom line.

5. Loyal customers provide honest, quality feedback
Feedback is crucial to know where and how to improve. Loyal customers, they love your brand. They wouldn’t hesitate or be shy to provide their honest feedback, especially negative ones as they want to see your brand thrive and serve them better. In many instances, new customers visit your brand, try it out, have some dislikes or unpleasant experience and they tend not to voice it out and telling themselves that they will not return again. You hardly get feedback loop from new customers and this is detrimental to your product and service quality.

In our startup, ChopChop, we help businesses to easily launch effective loyalty programmes through our mobile app and amplify all the important points above about customer loyalty. Going digital has also made it easier for customers to spread and share their favourite brands and for businesses to increase brand exposure through integration with Facebook, email and smartphones. Customer loyalty, as you can see, not only brings in quality, profitable sales but also building your brand, reducing your marketing costs and innovating on your product and services quality.

Michael E Porter and the Five Forces that shape industry

The first time I heard of Michael E Porter's Five Forces Competitive Framework was when I was pursuing my marketing degree program years ago and since then, it's application has helped me tremendously to chart my business directions strategically insofar as competiting with like-minded players in the industry.

In essence, the job of the strategist is to understand and cope with competition. Often, however, managers define competition too narrowly, as if it occurred only among today’s direct competitors. Yet competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products. The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry.

As different from one another as industries might appear on the surface, the underlying drivers of profitability are the same. The global auto industry, for instance, appears to have nothing in common with the worldwide market for art masterpieces or the heavily regulated health-care delivery industry in Europe. But to understand industry competition and profitability in each of those three cases, one must analyze the industry’s underlying structure in terms of the five forces. (See the exhibit “The Five Forces That Shape Industry Competition.”)

Something our advertising people cannot afford to ignore

The recent brouhaha over the logo for the upcoming National Day celebrations is emblematic of a much larger issue; the importance of design in our lives. Around the world, countries are beginning to realise the close links between design and innovation. A future that is being built around ideas and technology has at its heart design which is always a marriage of form and function.

Entertainment, graphic design, advertising and digital design fields like game development are at the forefront of this movement. A culture of innovation is built into the DNA of these industries because by their very nature they cannot replicate anything done in the past. There can never be two movies or logos or online games exactly alike, because only by providing a differentiated, better experience can they succeed.

As attention spans shorten, the importance of these industries goes up because of their ability to compress large ideas and stories into easily understood and remembered creative expressions. The colours, motifs, typography, etc used in logos, for example, have the power when done right to conjure up a whole slew of emotions. I Love NY, CNN and WWF are just a few examples that carry whole meaning systems just around their logos.

In this context, as the era of assembly line manufacturing gets replaced by an era of innovation, the focus should be on these industries to propel the country forward. We will always need things, but the drivers of growth are going to be the ideas surrounding them over the things themselves. Think software over hardware, Internet over TV, graphic design over auditing and the future over the present.

In Malaysia though, the utter lack of professionalism exhibited in the preparation of the Logo Kemerdekaan 2012 shows how low in the priorities of the government the creative industries really are. Innovation is a buzzword associated with all the transformation programmes touted by the government, but scant attention is being paid to stimulating the growth of the design industries that have the ability to quickly alter the innovation landscape of the country.

Instead of promoting professionalism and growth of this industry, in the words of the president of the Graphic Design Association of Malaysia (wREGA), Zachary Ong “we, the creative professionals, are appalled by the poor quality in creativity, skill, execution and rationale of the new logo design. We believe it does not do justice to represent the real virtues, principles and spirit of independence of our country. We are genuinely and deeply concerned that the quality of good graphic design of this country is deteriorating.”

Creative industries deserve to be treated at par if not as a priority to truly help engineer the transformation to a high income nation by 2020. Instead we have a situation where censorship is deeply affecting the output of the entertainment industry, the restrictions on advertising are leading to stagnation in the creative landscape, Malaysia is relegated to being a mere user of digital innovation, and design is seen as simply a trivial pursuit.

Things need to change fast, because the future is simply too important to ignore.

[Source: Kapil Sethi, an advertising strategist]

The Heart Of A Leader

I am a fan of Ken Blanchard.  In my book collection, I have two of his books, 'The One-Minute Manager" and "The One-Minute Sales Manager" which I read quite often.

I came across this article by Mac Anderson, the Founder of Simple Truths, which I would like to share with you, the people who lead people.

Ken Blanchard is a legend as a business author. He's written 25 books and his classic, The One Minute Manager, has sold over 15 million copies. Therefore, a few years ago, when he invited me to come up and spend a few days with him at his lake home in upstate New York, I jumped at the chance.

The first night of my visit to Ken's lake home, we were sitting on the deck with Humberto, his son-in-law, talking about some ways we could work together. It was about 10 p.m., when all of a sudden Ken jumped up and asked to be excused. He returned at about 10:20 and Humberto asked, "What happened?" Ken said,

"I can't believe it; I forgot to call Dorothy on her birthday."

Later that night, after Ken had gone to bed, Humberto told me that Dorothy is an 85-year-old part-time employee for the company. It then dawned on me that at 10 p.m. Ken left to spend almost 20 minutes talking to Dorothy and inquiring about how she had spent her special day. However, after spending more time with Ken over the next year, I came to realize that this was no fluke. This is who he is. The last time while visiting him at his San Diego office, I learned that one of his employees who worked in the warehouse had recently passed away. On that day, Ken had invited the employee's wife to come to his office. When she arrived, he spent an hour walking around with her carrying a tape recorder to record all of the wonderful memories that other employees had of her husband. When the wife left she said it was a day she'd never forget.

You see, what many leaders would have considered a waste of time, Ken saw as an opportunity to serve and to thank his people. He doesn't do it because it's expected of him, he does it because he truly cares. It comes from his heart, and his people love him for being the servant leader that he is.

Therefore, I could have searched the world over, and not found a better person to write a book titled, The Heart of a Leader. Ken Blanchard walks the talk, and is one of the best leaders I've ever met.

A river without banks is a large puddle ~ Ken Blanchard

Start your people on a journey to the land of empowerment, but don't forget that they need boundaries. If you cut them loose without any direction, they will get lost and revert back to their old unempowered habits. Like the banks of a river, boundaries have the ability to channel energy in the right direction. If you take away the boundaries, your people will lose their momentum and direction. Boundaries that create autonomy include:

Purpose—what does your company do?
Values—what are your company's operational guidelines?
Goals—where is your company headed?
Roles—who does what?
Structure—how is your company organized?

Don't send inexperienced people off alone and then punish them when they make mistakes. Establish clear boundaries that will free them to make decisions, take initiative, act like owners, and stay on track.