Customers get better with age

The secret to maintaining good customer relations is for distributors to avoid these two wrong assumptions.

by Stafford Sterner

There are probably 100 ways to do customer relations right. On the low-tech end, you can memorize the names of your customers’ children and pets as part of an attempt to keep everything warm and friendly. On the high-tech end, you can set up a Web site that permits customers to access all kinds of information regarding order delivery and account status. In between, there are a variety of tools for staying in touch with your customers, either as a group (market research and customer surveys, for example) or as individuals.

Each of these techniques has value, and the proper mix for your company depends on the nature of the products and services involved, as well as the nature of the market and the type, number and geographic distribution of your customers.

But if every good customer relations program is unique, most bad ones fail because they are based on one of two wrong assumptions.

Wrong assumption No. 1: 
There are plenty more where they came from.
Believe it or not, I have run into business owners who admit they don’t care about retaining customers. They actually believe they are better off squeezing their customers for everything they can get out of them, then moving on to look for new victims. They actually believe there are plenty of new customers out there, just ripe for the picking. In both cases, they are wrong.

New customers are exciting. They are an obvious indication of growth. They are also, however, expensive to get. Too many sales incentive programs reward new accounts, forcing the sales force to divert resources from efforts to maintain existing customers. Neglected customers become dissatisfied and defect, making it even more necessary to find replacement customers, keeping sales costs excessively high.

Let’s forget for the moment the cost of chasing customers that you don’t get. Even a successful first sale will often fail to cover the cost of finding and selling that customer. It may take a second or third order to break even. The question is, will the customer be around long enough to become profitable?

You need to know the cost of obtaining a new customer — not the industry average — but your own cost. If you don’t know, find out. Then, determine what your average customer spends with you per year, and how long it takes to break even on a new customer. Finally, you need to find out whether your customers are staying around long enough to make you money.

Wrong assumption No. 2: No news is good news.
A lack of customer complaints does not mean everything is fine. In fact, silence can mean a number of things, and only one of them is good. Perhaps the customer has a problem with someone else in your supply chain (like the trucking firm that handles your deliveries) and is directing complaints there. Maybe the customer is testing you, waiting to see if you notice the problem before making a formal complaint. Some customers don’t bother to complain, they just find alternative suppliers. Some don’t really have a complaint — but they are still vulnerable to a sales call from your competition — especially if that competitor cuts deals and makes promises in its drive to find new customers of its own. You can’t rely on customers to tell you everything you need to know, especially if you don’t ask. Once an order has been delivered, follow it up with a phone call. Ask questions. Did it get there on time?  Was the order complete?  Did the product perform as promised?  Were they happy with the experience of doing business with you?

If the information you gather helps you keep this one customer, it has paid for itself, but its value can go far beyond that. Existing customers know your products and services. If they are not buying, there is something wrong with what you are offering, and this is valuable information that can be used to improve relationships with other customers and help you sell new ones.

Customers don’t last forever, at least not all of them. Some die or go out of business. Some of them, however, make a change because of something you have done, and you need to know what that something was. You could use an outside service to poll your customers. You could invite your 10 best customers out to dinner for a roundtable discussion. It doesn’t really matter how you get the information you need, as long as you get it.

The ultimate goal: Leveraging the happy customer
A commitment to keeping existing customers happy is not growth limiting. In fact, a satisfied customer is one of the best and least expensive places to look for new business. To do so successfully, however, you must have a sales force geared toward taking advantage of the opportunity.

It is not enough to wait for the phone to ring and then write down what the customer says. That’s not sales, it’s order taking. A real sales force is trained to develop a partnership type of relationship with customers, and a partner provides input regarding what gets bought. That may sound strange, but it is actually quite reasonable. Your customers know their needs, but you know more about your products and services than they do. If you understand their business well enough, you become a valuable information resource, as well as a supplier of product.

To put it another way, it is not enough to sell the customer what he asks for. You keep a customer happy by selling him what he needs, sometimes before he knows he needs it. This requires real knowledge of the customer’s business and an understanding of solution selling. Not only can this approach keep an old customer happy, it can also turn an occasional customer into a regular customer, or a small customer into a big one.

Of course, there is nothing wrong with signing on a new customer, as long as you can keep the cost of selling that customer under control. What is your most effective tool for doing that?  Your old customer.

A happy customer tells three people about you, an unhappy one tells 10. Marketing, PR and advertising are important. But customer referrals are what prospects believe most readily. Encourage customers to tell a friend about your company. Ask if you can use them as references. If you have been treating them right, they will be happy to oblige.

New customers are good, but old ones are better. They are more profitable, because they have already paid back the cost of obtaining them. They are a valuable marketing resource, because they know things about your products and services that you may not know. They are valuable sales tools, because new prospects listen to them.

As one of your most valuable resources, your existing customer base should be at the center of all of your planning. Your sales strategy, supply chain formation and business plan should start with a single idea: keeping the customer satisfied.

Stafford Sterner is vice president of marketing and Web development for SJF Material Handling. In business for more than 20 years, SJF Material Handling Equipment is a Winsted, Minn.-based full-service provider of new, used and renewed material handling equipment.

This article appeared in the July/August '01 issue of Progressive Distributor. Copyright 2001.

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