In the last edition of The Networker, I talked about the importance of harnessing the power of referrals in your business and the impact that word of mouth can have on your bottom line. Referrals can be a fantastic method of generating new customers on the front-end, but if you don’t have a back-end to your business, you may be churning through your new customers while failing to optimise your profit potential.
STEP ONE: Front-end versus Back-end
‘Front-end’ simply means the first sale that you make to your customer… the first product or service that they purchase from you. ‘Back-end’, on the other hand, refers to all products offered for sale to the customer after the first i.e. repeat business. Many companies spend a large percentage of their marketing dollars and efforts on attracting new customers, only to abandon them after the first sale.
They fail to remember Pareto’s law – that 80% of your sales come from 20% of your current customers, and that it is 10 times easier (and more effective!) to sell to someone who has bought from you before!
STEP TWO: Understand the Dynamics of Customer Loyalty
Customer loyalty is at the crux of repeat business. In order to build customer loyalty, you must first understand the dynamics of consumer purchasing behaviour. Your customers’ purchasing behaviour, and their loyalty, is often based on the nature of the product (performance-based or ‘informational’ products versus image-based or ‘transformational’ products), and the level of involvement or risk required in the purchase.
The matrix below provides some examples of high involvement/low involvement and informational/transformational products. Often, the higher the level of involvement (or perceived personal, financial or social risk) in the purchase of the product, the higher the degree of loyalty displayed by consumers (in an attempt to minimise risk).
For low involvement purchases where there is little perceived risk, lower degrees of loyalty may be displayed and Brand Switching behaviour occurs. Brand Switching can be characterised in two ways: Routinised Brand switching, which is switching brands on the basis of price; or Experimental Brand Switching, which simply means changing brands for variety, due to unavailability or to trial an alternative product.
Ask yourself where your product or service fits in the Loyalty Matrix. What kind of purchase behaviour do your clients generally exhibit?
STEP THREE: Understand Why Your Loyal Customers Buy From You
Now that you can see where you fit in the Loyalty Matrix, you are better able to understand and address your customers’ purchasing behaviour. Next you need to explore specifically why your customers buy from you. That means putting yourself in their shoes. Ask yourself what attracts your customers to you in the first place. What keeps them coming back to you time and time again?
Once you have determined this driver, ensure that you clearly communicate it in all of your marketing efforts to your target market. Loyalty may be based on any one or more of the following drivers (please note, this is not an exhaustive list).
Which of the following best describes your product or service?
- The strength of the relationship between vendor and customer
- High perceived barriers to switching (i.e. financial cost, trust etc)
- Convenient location
- Superior performance and results
- Desired image
- High quality and extraordinary service
- Ease of transaction
STEP FOUR: Build a Database of Customers to Market to
Building a database is absolutely essential for anyone in business. Considering that 80% of your sales come from 20% of your customers, it makes sense to identify, target and reward those loyal and productive customers.
Once you have identified these customers, there are myriad low-cost, high-yield marketing opportunities open to you that will enable you to develop your back-end by marketing to them on a regular basis via direct mail, telemarketing, email etc.
A regularly updated, ‘clean’ database of current and past customers will also add significantly to the value of your business in years to come.
STEP FIVE: Build a Stable of Related Products or Services
Once you have determined what it is that brings your customers to you in the first place and have identified your best customers, you are ready to build your back-end.
Your back-end could simply mean selling the same front-end product over and over again to your customer, with the objective being to increase the rate of repurchase or the transaction value (thereby increasing the Lifetime Value of the Customer [LVC]. More on the LVC in next edition of The Networker).
Alternatively, your back-end may consist of complementary or related products or services that you market to your customer base. As a general rule, you should always maintain a strong focus on your core business.
However, by concentrating on back-end products that are high-leverage, low-maintenance and that do not require a significant investment in additional overheads or resources, you are able to boost revenues and take your business to a higher level.
STEP SIX: Market, Market, Market!
If you’re lucky, repeat business will automatically come to you. However, if it does not, you must actively seek it out through pre-emptive, pro-active marketing. That means going back to your top 20% customers on a regular basis with any new products, special offers, incentives and rewards for doing business with you.
Building a relationship with these people is paramount – you may decide to pursue any combination of telemarketing, direct mail, email or face-to-face meetings. Finally, systematise your back-end marketing promotions and continue to test your offers and track the results.