Tag Archives: business process

Is there value in a Repeat Customer?

Why is it that although every marketing book / article I’ve ever read tells me with authority that it costs 5 (or more!) times as much to get a new customer as to sell to an existing one, so few companies understand this?

Do their executives and marketing people not read?

I know you’ll have many examples of such wasted opportunity, and I’d love to hear those that stand out in your mind, so to get the ball rolling, let me give you a couple of – to me – amazing ones…

Newsweek is top of mind at the moment as I have just received my annual renewal notice. This ongoing piece of optimism on their part really baffles me as the renewal fee is almost exactly TWICE what I would pay to take out a new gift subscription, and that excludes the (admittedly dubious) value of the little extras they send with gift subscriptions.

When I queried this with the “Customer Service” people at Newsweek a couple of years ago, all I got was a rather terse note saying that the renewal price is the best available offer for my country. This in spite of me providing them URLs to prove otherwise in my original query… So, each year for the past several years I’ve allowed a subscription to lapse and taken out a new gift one, saving myself a tidy sum in the process.

This is, of course, a lot more expensive for Newsweek: apart from the trinkets, they always allow a lapsing subscription to run on for a few issues while they send out several reminder letters.

Why not just give subscribers the same deal (without the trinkets) and save on the letters, too?

Another great example is that of Consumer Electronics stores – full disclosure: I love gadgets and electronics stores. The opportunities they miss to get steady repeat business are legion! Let’s face it: they have my information as I invariably pay by credit card and they could easily ask me to sign up for a “loyalty card” or just permission marketing.

But they don’t.

Each time I visit, I’m treated as a brand new customer (not a great experience in most cases to be honest). They miss opportunities to sell me upgrades or add-ons for products I’ve previously purchased (unless that’s the purpose of my visit). They don’t keep records of what sort of things attract me so I can be carefully guided by the marketing people to buy more. In fact, they have no idea who I am at all – and yet the company executives that I’ve come to know from some of these stores are searching for extra sales, especially in these tough economic times…

When are companies going to wake up to the real, lifetime value of their customers?

Reblog this post [with Zemanta]

Advertisements

Putting a Spring into Business Models

Are we thinking wrongly about business models and, for that matter, about the models that apply to many other activities, too?

While most of us think in linear terms, we respond to stimuli in a very non-linear way and this is why our models fail us.

A good example is that of traffic – the way it bunches up and stretches out as drivers slow and speed up, with each reacting to the vehicle in front – it’s much more like a spring or elastic band being stretched and let go, than linear.

Look at how consumers react to shortages of items. It really is much the same – an impending shortage leads to people purchasing a little more to tide them over, while a stock-out position either leads to brand switching or to buying extra once the item is back in stock, so the consumer doesn’t run out again. This, of course, means demand that follow a wave pattern, rather than a straight line.

However, every inventory-ordering system I’ve seen works in a linear fashion, leading to inevitable periods of over-stock after a shortage and accelerated stock-out if an impending shortage is discerned.

Doesn’t this equally apply to investors? Think about how the stock market reacts to news – it almost always over-reacts, whether positively or negatively, and then settles down. Again, although, we expect a “rational” (read: linear) response and our models are built in this way, the actual pattern of prices is anything but linear.

I have little doubt that it is this that leads to huge market “melt-downs” as automatic sales are triggered in response to the over-reaction to an event which leads to more automatic sales, and so on. Look at global stock markets early this year – do we honestly believe that the total value of companies was half (or less) what it had been six or seven months earlier? There’s no question they were worth less as earnings were impaired, but were they really worth so much less? The answer might be found in the big increase in share prices from March – perhaps it wasn’t a bull market as some were calling, but simply a correction to the over-reaction during the last half of last year, and things seem now to have stabilised. At least until the next piece of news…

The answer, it seems to me, is to rework our models to allow for human response to situations: the inevitable over-reaction and consequent wave patterns in demand, share prices, traffic and just about everything else. By allowing for this sort of response and predicting the effects, we can dampen them in the same way that a car’s shock absorbers dampen the effect of a bump on the suspension/springs.

Bad Processes Kill Business

While I argued last week that oversight of business is necessary to move us to a longer-term approach to growth, too much oversight is even worse for a business.

I’ve come across countless examples in my own, IT, industry where companies seem to try very hard to prevent sales, rather than make them – all as a result of too much oversight. Let me illustrate this with an excellent example.

The company in question, let’s call it ABSC (A Big Software Company) is a very significant multinational software vendor, with offerings targeted at a range of companies, from the very largest down to a mid-size level – and it is this mid-size level where the powers-that-be are expecting significant growth. The only problem is that their processes and procedures effectively kill sales in this market and make them extremely difficult in their traditional high-end one, too.

Let’s assume that an end-user, we’ll call it Widgets Inc., wants to purchase a 100-user system from this company after being sold on the concept by a Reseller of ABSC – in line with ABSC’s policies that all SMB sales go through the channel. The outline of the process is as follows:

  • Reseller calls ABSC and requests a quote (they cannot yet provide a quote to Widgets Inc. as there are no official price lists).
  • The Account Manager for Reseller at ABSC in turn requests a quote from ABSC EMEA HQ as even he has no pricelists. The turnaround time for this quote is typically 2-5 working days (not helped by different working days in different countries).
  • The Account Manager receives the quote from ABSC’s EMEA HQ and emails it to Reseller who can then provide an official quote to Widgets Inc.
  • Widgets Inc., accepts the quote and asks to place the order. Because Widgets Inc., is a new customer (as are most SMBs!), Reseller has to supply Account Manager with extremely comprehensive information on Widgets Inc., in order that this can be properly recorded on the ABSC systems for, amongst other things, credit purposes (even though ABSC is not providing Widgets Inc., with credit as that is up to the Reseller).
  • Account Manager enters all the data and applies for the software licenses. This approval process generally takes some 10 working days to go through the various internal levels in EMEA HQ (although 4-6 weeks is not unusual). Eventually, approval for the sale is granted and Reseller can download the software licenses. Total turnaround time from when the customer firsts wants to buy until delivery is some 4 weeks on average, and up to 2 months if there are any problems.

Apparently, the rate of lost/cancelled sales as a result of this tedious process is very high – customers simply go with their #2 option for the solution, where that solution can be provided more quickly.

Of course, what should happen is that Widgets Inc. expresses interest, Reseller gives immediate quote from its own pricelist, Widgets Inc. agrees and places order on Reseller who places this on Account Manager at ABSC and is then given the licenses within a day (after checks are made that Widgets Inc. is not prohibited by US Law from accessing the software).

Unfortunately, though, this streamlined approach to business is the exception rather than the rule in our industry. ABSC is, admittedly, an extreme example (although absolutely factual), but most IT vendors have degrees of this sort of inefficiency built-in. We might sell software and/or hardware to make [other] companies more efficient, but our own processes leave a great deal to be desired instead of showing the way.

Isn’t it time the customers started expecting the vendors to practice what they preach? It would not only allow them to get what they want, when they actually want it, but should reduce prices, too, as the sort of process described above is extremely expensive in terms of manpower and, therefore, cost.