Anyone who speaks to me about marketing will know my pet peeves. Chief amongst them is organisations who conflate the term marketing with sales. You often see the term ‘marketing representative’ used instead of salesman. House builders have marketing suites on their developments, not sales offices. But sales is not marketing.
I also see plenty of businesses who have a ‘Sales and Marketing’ department. I hate this description it smacks of a silo mentality and that a firms marketing activities are subservient to its sales team. It also usually means that to the organisation’s senior managers, marketing is predominantly a promotional activity. But promotion is only one element of the marketing mix.
In my view, these definitions of marketing are wholly incorrect. Properly defined, marketing is a critical strategic activity that should sit closely to an organisation’s senior management; not a distant silo subservient to the organisation’s sales team.
That said, sales and marketing are linked activities. There is no point in a corporation developing a customer focused strategy, if it isn’t enacted by its sales representatives.
Marketing guru, Peter Drucker once said, “the only profit centre is the customer”.
For too long, the focus of sales teams was therefore growing the customer base. More customers meant more profit and greater market share.
However, in today’s highly competitive markets, the focus has moved. Bob Weyland said:
“The paradigm has shifted. Products come and go. The unit of value is the customer relationship”.
So today, particularly in B2B markets, the focus is about growing and deepening the relationship with your existing customers.
Studies have shown that the cost of obtaining a new customer is five times that of keeping existing customers happy. The longer you keep a customer, the more you can earn from them. It can take many years for a new customer to buy at the same level as existing customers.
The focus on existing customers means not taking them for granted. Every so often you have to do something special for them. You need to encourage their feedback and react to that feedback.
However, there will always be a process of erosion. Whatever you do you will lose customers. For example, the fashion retailer Top Shop targets consumers under the age of 30. So what happens when that target market ages? How many sixty year olds will buy clothes from Top Shop? Like products, customers will have a lifespan.
So as well as retaining existing customers, you will always need to obtain new customers. And of course you have to turn new prospects into repeat buyers.
In today’s markets, customers have extensive choice. There is an abundance of suppliers and brands. So you have to do more than locate prospects. In addition to locating prospects, you need to sell to them and you need to turn them into repeat buyers.
Generating customer leads is a three-step process.
Firstly you need to define the target market. That means a structured process of segmentation, targeting and positioning.
My brother runs a small landscape gardening business. I asked him who his target customers were. His reply: “Everyone and anyone”. This is clearly an unrealistic approach. For a start, his business doesn’t have the resources, financial or otherwise, to promote his services to all. He needed to identify customer groups which were worth obtaining; customer groups which would offer the best returns and who were the best match for his skills.
The targeting and positioning process means that you need to deepen your knowledge of the target market; you need to know what it wants; what it buys; where it buys; when it buys and HOW it buys.
Secondly, you need to solicit leads through communication tools, the promotion bit of the marketing mix. Traditionally, this has meant advertising, personal selling, direct mail and events such as trade shows. Today it may also mean product registrations, event sponsorship, using celebrity advocates.
Remember the internet and social media is a promotional channel, like television or radio when it comes to soliciting leads.
Thirdly, you need to qualify the leads you gather. Not all leads are worthwhile. For example, there is little purpose in my brother collecting leads five hundred miles from his base as the cost of travelling to do the job will erode any profit margin.
Some prospects may express an interest in purchasing your goods but will have no intention of actually doing so. They may lack the means. I would love to own a vintage Fender guitar, but the cost, and my level of ability on the guitar make that prospect a dream rather than a reality. Ferrari recently produced a high-end sports car model where to be able to buy the car, you had to prove that you had the ability and expertise to buy it. You never got to keep the car at your home. It was kept by Ferrari who would ensure it was safe for you to drive. Clearly, many motor racing fans would love to drive that Ferrari but would lack the expertise needed to drive it.
It really matters that you identify the BEST leads. You need to distinguish between hot, warm and cool leads. Hot prospects are those most able and willing to buy; those most able to buy.
Hot leads need to be prioritised. It is not worth wasting the time and resources selling to those only partially interested in buying.
A useful selling technique is to use SPIN questions:
- Situation Questions – e.g. how many employees do you have?
- Problem Questions – what problems and difficulties is the customer experiencing? What are they dissatisfied with?
- Implication Questions – How do the problems affect the customer?
- Need pay-off Questions – What is the value or usefulness of your proposed solutions? e.g. What if I told you that I could reduce the cost of the implication by 80%?
You aren’t selling products or services but solutions and capabilities.
So how do you calculate if a customer is worth getting? One method is to analyse the customer acquisition cost against prospective customer lifetime profit.
- Cost of sales representative = £100,000 per annum (this is the total cost not just their salary)
- Average number of calls per annum by the sales representative = £200
- Average cost per sale = £2000
This is an underestimate of the cost of customer acquisition as it ignores work on advertising, promotions and administration.
- Annual revenue from customer = £10,000
- Average number of years of loyalty = 2 years
- Profit margin = 10%
- Customer lifetime profit = £2000
This may appear to be a breakeven situation but the prospective customer lifetime profit is an over-estimate as profit margins will vary between customers.
So in this example the company is actually paying to acquire the customer. The cost of acquiring the customer exceeds their worth to the company.
Once you have obtained a new customer, your next task is to keep them. You have to develop a customer and move them through development stages. This is often referred to as the ‘customer ladder’. Customers move from prospects, to first-time customer, to client, to advocate, to member, to partner, to part owner.
To make a first time buyer a client, they must be satisfied; not dissatisfied or ambivalent. It is therefore crucial to develop a customer satisfaction index and to listen to your customers. You need to estimate the cost of losing customers. Do you need to improve your customer services. remember social media makes it very easy for dissatisfied customers to tell others. You need to resolve customer complaints quickly. You need to accept responsibility to win back goodwill. Remember ‘the customer is king’.
Once a first time buyer becomes a repeat customer, you need to identify key accounts. You need to classify customers by ‘depth of repeat’. You need data on frequency, recency and monetary value of a customer’s purchases.
Remember retained customers are better targets for cross-selling and up-selling. They reduce the cost of service through familiarity with your products and systems. Highly satisfied repeat customers become advocates and create word of mouth. Long-term customers are also less price sensitive.
Advocates represent the statements “the best advertisement is a satisfied customer” and “Satisfied customers become apostles”.
In some markets it is possible for satisfied customers to become members e.g. a golf club will often accept ‘pay and play’ customers but to survive in the long-term it will need a robust membership. Car manufacturers operate owner’s clubs which offer special benefits and privileges. Rock bands and TV shows develop fan clubs. If customers switch away from these clubs, they lose the membership benefits.
In B2B markets, often the aim is to develop a partnership with a customer. Software firms get customers to help develop and amend their products. They use beta testing where trusted customers get to use prototype programmes, to identify bugs and to suggest improvements. Aerospace manufacturers will work closely with engine manufacturers. The finished aircraft will be an effective joint-venture.
In a part-ownership model, the customer is a critical stakeholder. This is the model used by building societies, cooperatives, community owned pubs, credit unions and buying clubs. Customers have a direct say in the organisations policies and procedures.
So, if you want you business to be a success in today’s highly competitive business environment, it is not enough to garner new customers, you need to keep customers and develop them not just in terms of profit growth but in terms of an ever closer relationship.