October 19, 2010
Developing & Maintaining Long-Term, Loyal Customer Relationships
Nobody really knows how much more it costs to obtain a new customer than to retain an existing customer, because it varies from industry to industry – two times, at the least, up to ten times on the high end. However, most of us would agree that it costs considerably more to get a new customer. So, it follows that customer retention must be a major component of an effective marketing strategy and that’s especially true for the electrical contracting and service business. From least desirable to most desirable on the customer-relationship continuum, the sequence is: “new” to “repeat” to “loyal.”
The key to long-term customer retention is loyalty and the key to loyalty is in understanding the “perceived value” the customer gets from doing business with you. Then it’s as simple as delivering that value 100% of the time, in a manner that is “easy” on the customer. The process of converting an existing customer to “loyal” status isn’t quite so simple and may take years to accomplish. According to business consultant, Del Chatterson, the customer experience typically evolves through four levels:
- Satisfaction with price and availability
- Recognition of superior service levels
- Appreciation of the value of your knowledge and experience
- Connection on values, mission and vision
Repeat customers tend to buy more than new customers…about 67% more according to global business consulting firm, Bain and Company. As stated in his book, The Ultimate Question, best-selling author, Frederick F. Reichheld, states that a repeat customer must successfully answer the question: “How likely is it that you would recommend this company to a friend or colleague?” before attaining the “loyal” status. Reichheld’s research discovered that companies that focus on loyalty lead their industries in profitability, companies like Harley-Davidson, eBay, Vanguard and Northwestern Mutual Life. Loyal customers have the potential to be your best salespeople, because they will find opportunities for you that would otherwise never appear on your radar screen.
Now let’s factor in the “Pareto Principle,” aka the “80-20 Rule.” You can be sure that the Pareto Principle is alive and well in the electrical services business, especially in the commercial and industrial facilities sector – fully 80% of our revenue comes from 20% of our clients (80% of the issues also come from 20% of the customers, but that’s a topic for another day). Reichheld also states that highest customer-loyalty companies grow their business at twice the rates of their competition.
Since the vast majority of the revenue will always come from only 20% of the client base, a low-risk, high-reward strategy for growing a successful service business is to convert repeat customers to loyal customers. The importance one places on developing a “Loyal” client base, for the 20% that generate 80% of the revenue, will largely determine the rate of growth, stability and profitability of their service business.
My three key components to success in the electrical services industry are the following:
- Provide exceptional customer service in a safe, timely and professional manner and at competitive rates for Electrical Service and Technology Solutions.
- Provide personalized and customized service for each client, based on your understanding of what he/she values in the customer-relationship, thereby converting repeat customers to loyal customers.
- Deliver that value 100% of the time.