Lack of Repeat Customers – tip of an iceberg?
“Profit in business comes from repeat customers, customers that boast about your project or service, and that bring friends with them.” —
W Edwards Deming
While reviewing the business plan of a venture recently, one thing stood out –the venture was doing a good job in attracting new customers, but was also losing them at a significant rate. Only about 15% customers were coming back to use their services again. After an in depth discussion and deep diving into the matter, some critical issues emerged in the business model and customer engagement model. Thus, an apparently not-so-important issue led to interesting business changing solutions.
Repeat customers are the foundation of a business’ scalability. Constructing a tall building requires a solid foundation – too much churn in the foundation will make it unstable. Similarly to build a strong business and to scale it beyond a certain level, we need to decrease the customer churn at the foundation stages.
Let us first define what a repeat customer is. For a services business, it is easy – a customer who comes back to avail your services again. For a product company, it is sometimes difficult to recognize a repeat customer, especially if you are in the business of making a one-time sale. In such cases, what can be tracked is whether they are coming back for associated/ other products of your company or if there are any referrals from them.
As we all know, the cost of acquiring a new customer is always more than when doing a repeat business. This cost eats directly into the profitability of the business. Additionally repeat customers are a direct gauge of customer satisfaction, which plays a part in customer referrals, and a further increase in customer base. Therefore, a repeat customer is one who makes a new sale easier!
Once we understand the importance of a repeat customer, let us look into the possible options if your business is losing customers. Though there are several factors that can be considered, let us start with the basics:
1. Customer Need / Satisfaction
The first step has to be to go back and check whether the customer got what your product / service promised to deliver. If this value proposition gets broken the customer is no longer interested in coming back. Recently, at my car servicing centre (whose key offering is a “peace of mind” service), some basic things got overlooked twice in a row. As a result they may lose me as their continuing customer.
At all times, we must remember that we exist as a business for only one reason – to satisfy a customer need; and if this basic promise to the customer is broken –we will surely lose customers on a regular basis!
2. Business Model
After looking into the customer need issue, next, one should look into the core business model of any business … in other words … your theory of business. Analyze whether your business model encourages customers to come back and gives them some advantage in re-engaging with you, rather than going elsewhere. Business models especially those in the broking / middle-man kind of business are inherently weak in this aspect.
Crowd sourcing models – which are becoming very popular and finding application in many different businesses – are susceptible to this issue as well. Here, the main value-add is to connect a buyer with a seller, so once a deal is done, potentially nothing prevents the seller and buyer to connect directly at a later stage, eliminating the middle-man and therefore gaining some price advantage.
To overcome this, one must innovate and find solutions (preferably based on value rather than contracts) so that buyers and sellers continue to engage with the business for a clear value add – loyalty points, special pricing, customized pre-work etc.
3. Competition
Another important factor to consider is keeping pace with the competition. One has to constantly look out for other players in the market satisfying the same customer need and find if the customers prefer them and why.
There is a need for constant evaluation and shaping of your USP vs that of your competitors. Not only that, the USP needs to be communicated to the customers at all times to make them see value in engaging with you. Over the years a lot of businesses have fallen into this trap.
One of my favorite examples is the evolution of Indian air travel industry. Indian Airlines / Air India got so complacent about being the only player in the market that they forgot to value the customer in the process. Once private airlines were allowed, it was very easy for them to take away a major market share from IA/AI and paving the way for the decline of the national carriers.
To summarize, monitoring repeat customers is an important requirement for any business. Problems on this front are early indications of flaws developing into the business. The visible issues are like the tip of an iceberg – one needs to dive deep to find out the real issues and fix them at the core level.
If the issue is to do with diluted customer need, go back to the drawing board and re-evaluate. If the business model is weak, work on making it more value based. If the competition is at your neck, re-shape and communicate your USP. Talk to your customers and understand their viewpoint to find why you are losing them. After all, a business is best scaled on the foundations of its loyal customers and you have a big role to play in keeping them loyal!
Posts
