Focus 4 Analysis

Customer Retention

The easiest way to grow your customers is not to lose them.

The average business loses around 20 per cent of its customers every year simply by failing to attend to customer relationships. In some cases this leakage is as high as 80 per cent. Either way the cost is staggering, but all too few businesses truly understand the implications.

Take two businesses, one that retains 90 per cent of its customers, the other retaining 80 per cent. If both add new customers at the rate of 20 per cent per year, the first will have a 10 per cent net growth in customers per year, while the other will have none. Over seven years, the first firm will virtually double, while the second will have no real growth. Everything else being equal, that 10-percent advantage in customer retention will result in a doubling of customers every seven years without doing anything else.

Everyone wants to retain their existing customers. Few companies have proactive positive strategies aimed at retention. Most companies are organized for ‘acquisition’. Their advertising and sales programs are designed to find and promote their products and services to new customers. The companies are organized on a product or brand basis, not on a customer segment basis.  While they may have customer service departments, they often lack an integrated marketing strategy that is directed at retention, and that defines retention as the measurement of success. You should always be looking at the best customer retention strategies to retain your existing customers.

Try some of these:

  1. Do a good job.  When you and your employees do a good job, then everything else follows. There will be good service, good products, and naturally, customers will see and feel this, and will ultimately, keep coming back.
  2. Keep track – maintain a database. If you don’t keep track of who your customers are, how can you be sure that you are getting their repeat business?
  3. Stay in touch
  4. Welcome the complaints you receive
  5. Meaningful welcome and thank you communications
  6. Instigate loyalty programs
  7. Send out questionnaires and surveys to existing customers
  8. Have you scheduled a frequent communications plan to your customer base?
  9. Provide exceptional customer service – beef up customer service, and empower them to solve problems
  10. Enhanced technical support with follow up satisfaction calls
  11. Make a good first impression
  12. Make courtesy top priority with all customer-facing staff
  13. Do regular reviews
  14. Go contact the ‘lost sheep’

 

Customer Acquisition

Successful businesses spend a lot of time thinking about how they can increase revenues and profits.  They’ll typically have many ideas about things they could do, including developing new products, opening up new markets, and launching new sales and marketing campaigns.

Using a strategic approach, such as the Ansoff Matrix, is very useful to screen your options, so that you can narrow these down and choose the ones that best dovetail with your strategy.

 

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Ansoff Matrix

The Ansoff Matrix was first published in the Harvard Business Review in 1957, and has given generations of marketers and business leaders a quick and simple way of thinking about growth.

Also called the Product / Market Expansion Grid, the matrix shows four ways that businesses can grow, and helps people focus on the risks associated with each alternative.

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Market Penetration

Here we market our existing products to our existing customers. This means increasing our revenue by, for example, promoting the product, repositioning the brand, and so on. However, the product is not altered and we do not seek any new customers.

Market penetration seeks to achieve four main objectives:

  • Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling
  • Secure dominance of growth markets
  • Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors
  • Increase usage by existing customers – for example by introducing loyalty schemes

A market penetration marketing strategy is very much about “business as usual”. The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.

Market Development

Here we market our existing product range in a new market. This means that the product remains the same, but it is marketed to a new audience. Exporting the product, or marketing it in a new region, are examples of market development.

There are many possible ways of approaching this strategy, including:

  • New geographical markets; for example exporting the product to a new country
  • New product dimensions or packaging: for example
  • New distribution channels
  • Different pricing policies to attract different customers or create new market segments

Product Development

Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.

This is a new product to be marketed to our existing customers.  Here we develop and innovate new product offerings to replace existing ones.  Such products are then marketed to our existing customers.

Diversification

Diversification is the name given to the growth strategy where a business markets new products in new markets.

This is where we market completely new products to new customers.  There are two types of diversification, namely related and unrelated diversification.  Related diversification means that we remain in a market or industry with which we are familiar.

This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience.

For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks.

Modified Ansoff Matrix

Some analysts use a nine-box grid for a more sophisticated analysis. This adds “modified” products between existing and new ones and “expanded” markets between existing and new ones.

This is useful as it shows the difference between product extension and true product development, and also between market expansion and venturing into genuinely new markets – see below.

A word of caution – the three “modified options” (in green) involve trying to do two things at once without the one benefit of a true diversification strategy (escaping a downturn in one product market).

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