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Business Observer Friday, Nov. 19, 2004 17 years ago

Create Advocates, Add to Bottom Line

Loyal customers spend more, cost less and allow high profit.

Create Advocates, Add to Bottom Line

Loyal customers spend more, cost less and allow high profit.

Service firms can increase market share three ways: Attract more new customers, do more business with existing customers and recover customer attrition. Companies that focus marketing resources at existing customers address two of the three possibilities. They increase or expand customer relationships and decrease the chances that customers will stray to competitors. Your existing customer is your best customer.

Marketing to attract new customers is merely an intermediate step in the marketing process; for most service firms the more significant marketing opportunity occurs after prospects become customers. The prospect turned customer has made a commitment to the company by selecting it; by deciding for some reason that the companyis service and product represent the best available alternative.

Further, the one-time prospect has invested money and time to become a customer just as the company has invested resources to create the transformation.

According to professors Leonard Berry and A. Para Suraman, authors of iCompeting Through Quality,i an American Marketing Association top seller, what the company does to nurture the relationship with the customer, to build it and to strengthen it is crucial to its marketing effectiveness and efficiency. To work hard to attract new customers and then to be complacent in strengthening the relationship makes little sense. And yet firms commonly make this mistake all the time.

For most companies, existing customers represent by far the best opportunities for profit growth. If customers have an ongoing or even casual desire for a service, and can obtain the service from more than one source, then no marketing concept will be more important than developing marketing relationships with existing customers. Relationship marketing concerns attracting, developing, and retaining customer relationships.

Create the advocate

Its central tenet is the creation of true customers. Theyire customers who are glad they selected a firm, who perceive they are receiving value and in turn feel valued, who are likely to buy additional services from the firm and who are unlikely to defect to a competitor. Letis call them iadvocates.i

The advocate is the most profitable of all customers. Itis the customer every Gulf Coast enterprise covets. They spend more money with the firm on a per year basis and they stay with the firm longer. They spread favorable word-of-mouth information about the firm and may even be willing to pay a premium price for the benefits the service offers.

Moreover, companies with many advocates typically have lower marketing costs than companies with significant churn. If youire a Gulf Coast law firm, real estate office, community bank, high tech firm or service group and want to stop patron deflections, start turning satisfied customers into advocates; itis a higher level. It could be your life changing corporate decision.

Defections result in cost for (1) persuading prospects unfamiliar with your companyis services and their benefits to become customers; and, (2) providing start-up services to new customers such as new account ipaperwork.i In addition, a true customeris word-of-mouth advertising bolsters the impact of paid advertising effectively lowering the cost of advertising. These folks are your advocates, your itown criersi spreading the good word about you.

Depending upon the industry, marketing statistics of entrepreneurial service companies show you can actually improve profits in excess of 25% by simply reducing customer defections just 5%. You can see this is easily true if you calculate lost opportunity from the Lifetime Value of a lost patron.

They want you o you want them

In any service organization, a significant percentage of the roster wants to be relationship customers of the firm serving them. They want ongoing personalized contact points and with the same responsible representatives. They want these representatives to contact them and to greet them by name in telephone conversation, in writing, or in person.

If relationship marketing with existing customers is so beneficial, why are so few otherwise good thinking entrepreneurs not visibly practicing it? One factor contributing to the mediocrity of current relationship marketing efforts with existing customers is the common misconception that adding new customers is the quickest route to improved profitability. Hereis The Big Idea: The fact that existing customers typically offer richer profits more quickly than new customers is hidden by accounting practices. They do not fully reflect the cost of acquiring and serving new customers. Consider discussing this important focus with your Gulf Coast accounting firm. This one single concept, if permeated with enthusiasm throughout your organization could just be the 15% to 25% boost you are seeking for next year.

New advocates from old customers

The challenge, then, is to create true customers o advocates o who perceive they have a relationship with the firm and who value that relationship. Simply put, this requires benefits that are important to customers and difficult for your competitors to duplicate.

Think of relationship marketing like building a good marriage with your spouse; metaphorically speaking. You are good to each other; grow together as partners, developing a mutual trust, respect, confidence and hope for the future. You work to keep the spark alive. You appreciate each other and smile softly when together. And, when apart you continue to think of each other. Now, as an entrepreneur isnit that also just the kind of customer relationships you really want?

Lou Lasday, an independent marketing adviser who resides on Longboat Key, creates action-oriented strategic marketing initiatives for Gulf Coast emerging companies. A career direct response executive, he has been a general partner of a major national marketing communications firm and regional president of the American Marketing Association.

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