How do you sum up business prospects for 2009?
Probably the most challenging business conditions since the 1930's
Many businesses are facing tough market conditions because of the downturn in the economy? How many will survive? How many could thrive if only they knew how to prepare themselves…? There’s no doubt that many businesses will fail due to being poorly prepared for whatever the next 12 to 24 months brings.
Your challenge as a business owner is to ensure your company’s business fundamentals are sound, that you fully understand your market and your customer needs; finally and possibly most importantly you honestly identify weakness in your skills and those of your employees and do something about it.
You might consider working with a business advisor a cost in the current economic climate, however, consider the real cost to you if your business fails simply because you didn’t prepare - New Mindset has the experience to help to prepare your business whatever the next 12 to 24 months brings.
December’s Viewpoint summarizes the salient points from our Viewpoints over the 2nd half 2008:
Twelve Christmas Business Points For Success
Keep your existing customers happy
5% increase in customer retention can boost profits by 85%. Some studies suggest that it’s 10 times more expensive to acquire a customer than selling to your existing ones and you might not see them become profitable from anywhere between 1 – 5 years.
Improve your cash flow by minimise costs
It’s not unusual for your costs to have crept up unnoticed each year. Analysis your costs to establish which can be reduced the savings immediately improve your bottom line. But don’t cut your sales and marketing budget without reviewing each element ensuring that you only reduce or cut those that don’t generate the maximise sales return.
Minimise debtor days
It sounds simple but make sure that your invoices go out on time, confirm they arrived and there are not any issues which will delay payment. If you are finding it difficult to obtain payment then you might want to consider outsourcing your invoicing activities, it will cost but this should be offset by you not having to finance your customer’s which is tough if the banks will not extend your overdraft facility.
Identify customers that are financially vulnerable
It’s critical to review your customer base to identify which customers might be struggling financially. It’s better to introduce tougher payment terms now to minimise your payment default exposure than become creditor when they go bankrupt.
Are customers aware of all your complete product range Tell your customers about everything you do? They might only buy one item from you but if they are aware what else you sell they potentially may buy these additional items from you. It’s a more profitable sales technique than selling to new customers.
Encourage customers to repeat buy
It less costly and more profitable to sell more to your existing customers so do have incentives to encourage buying more from you on a more regular basis which also enhances customer loyalty. Boost profitability offering items that compliment the main item being bought Profit margins on these complimentary items can be in many case can be high boosting profits per sales without little effort.
Sell benefits not features
Customers are only interested in the benefits your product or service can do for them. When you buy a drill what you really buying is a hole! So they want a drill that does it cost effectively, quickly, accurately and cleanly.
Allow customers to buy when they want to buy
Invest in a website that attracts visitors which your website site converts to a buyer. Don’t make the mistake of thinking that the web is not important to your business, it probably more important that investing in promotional brochures. Invest your money wisely when developing a website the design matters less than the content and understanding how your customers search for you.
Understand your market
Do you really know your customers needs as well as you think you do?, do you understand how customers want to buy from you?, could you expand your routes to market to increase sales?, have you got the most appropriate pricing strategy?, do you have the right product or service range?, do you know who your competitors are today and in the future?, are there new technologies being developed that might impact your product or service which are cheaper, more efficient, require less support or just make your product obsolete?.
Understand why customers buy from you
What makes you different or unique to your competitors? Developing a unique selling proposition (USP) enables you to differentiate yourself from your competitors. It allows you state why customers should buy from you.
Don’t sell on price add value to the proposition
Selling on price alone potentially makes your product or service into a commodity, you need to consider adding value to the proposition that makes it difficult for the customer just to consider price as the sole reason for buying from you. It attracts customers whose loyalty lasts as long your price is lowest. Low customer loyalty means having to invest in attracting new customers to replace the ones you have lost.
Learn more how New Mindset can help you to prepare your business to increase sales and improve profitability even in current economic climate - call now on 01276 537 282 or email.
Merry Christmas & Happy New Year
Thursday, 11 December 2008
Tuesday, 2 December 2008
November 08 Customer retention is the key to long term profitability not customer acquisition……….
Research has shown:
• Increasing customer retention by 5% can boost profits by up to 85% in the medium term, through reduced costs of repeat purchases and up/cross selling.
• Customers are not always profitable from day one, in some industries it can take 2 or more years to generate a positive cash flow.
• It can cost up your business up to 30 times more to win new customers - if you consider acquisition costs such as advertising, direct mail, pr, sales force, account set-up
Companies, particularly in the financial services sector, have long recognised that customers represent a major investment and have adopted a long term view of customer relationships and associated cash flows. They do not think in terms of single orders but the long term value of the customer in the form of multiple repeat purchases. This philosophy can be adopted by most organisations by taking a wider view of their business and possible product portfolio.
This long term view of customer relationships underlies Customer Relationship Management (CRM). At New Mindset we consider CRM to be:
“…a strategic program driving a universal approach to creating and developing long term profitable customer relationships through routine activities.”
Embedded within this definition are some key concepts:
Strategic program CRM does not just happen. It requires a clear directive and the assignment of resources and organisation priorities.
Universal approach CRM extends across the entire organisation. Every department is involved in the ‘supply chain’ and impacts on the product or service delivered to the end-customer. Each department must look to focus on its customers, i.e. next in the supply chain, seeking opportunities to-add value.
Profitable Some customers will never be profitable and will, in fact, be a constant drain on resources. Such customers should be released and the saved resources diverted to developing revenues with more lucrative ones, through segmentation and adaptations to the marketing mix for each group.
Create and develop relationships Strong relationships form when you understand and adapt to the needs, motives, and behaviours of the other. The organisation must build this understanding and shape its proposition to fit customer needs – even to the extent of spotting changes and providing a solution before the customer even realises they have a different need.
Routine activity Implement the processes, routines and systems to ensure that customers are contacted at regular and appropriate times, for example subscription renewals or information on new offers. Also ensure that information relating to their needs, drivers and purchase patterns is recorded for analysis and action. Without building this customer focus into day-to-day operations CRM will not happen.
Many organisations introducing CRM fail, however, to capitalise on its ability to generate increased profit. Traditionally, emphasis has been on tracking satisfaction levels and monitoring levels/reasons underlying defection. This approach has serious limitations in managing customer relationships, profitability and revenues.
• Monitoring satisfaction levels often fail to identify customer’s whose expenditures are changing, i.e. migrating, until it’s too late and the customer defects to another supplier.
• Understanding the reasons underlying customer defection to undertake remedial changes is useful. Unfortunately, though, you’ve still lost the customer and associated revenues and have to go through the costly process of recruiting a replacement.
Customer retention and expenditure is determined by their service experiences and loyalty to you. Where competition is low, active dissatisfaction with individual suppliers is prime in driving customer defection or migration. As competition increases, with suppliers delivering increased choice and minimum levels of satisfaction, other factors come to play in determining customer loyalty towards individual suppliers. These factors include; changes to personal circumstances, your company offer and your competitor offer.
Understanding these factors and interaction allows you to develop loyalty profiles. These can be used to segment and classify your customer base. A number of segmentation models been developed in an attempt to categorise the individual customer groups and develop the individual objectives and action plan for the individual segments. Mckinsey’s, a leading international consultancy, analysed customer across 12 separate industries and developed the structure below.
Downward Migrators Loyalists
Dissatisfied Deliberative Lifestyle Deliberative Inertial Emotive
3%* 7% 4% 42% 20% 23%
Actively Dissatisfied
May re-evaluate spend because of experience Freq. reassess spend decisions
Choose alt. brand on rationale criteria Re-assesses decisions because of changing needs Freq review spend decisions
Reaffirm brand on rationale criteria Infreq. reassess decisions
Don’t generally consider change Rarely asses decisions
Strongly feel chosen brand is best for them
Spend more than average
* Percentiles represent number of customers in each category, across an average customer base, and are a weighted average of Mckinsey statistics drawn from 5000 organisations across 12 industry sectors.
Segmenting the customer base, helps understand:
1. Which groups of customers are most likely to defect, reduce expenditure and what value of revenue is under threat
2. What alternate strategies, tactics and appeals should be adopted for each of the individual segments to safeguard revenues by reducing defection and migration. Individual initiatives will not appeal to all of the sectors.
3. Which customers are positioned to purchase additional higher value products.
Customer defections and migrations can be reduced by up to 30% by active management, with massive impact on underlying profitability . Customer expenditures change (migrate) over time, for a variety of reasons. Monitoring expenditure patterns and taking action permits:
• Rebuilding revenues with customers who reduce spend, for whatever reason
• Recovery of customers before they defect to another supplier
• Up-selling higher volumes and cross selling other products.
CRM in summary
• CRM as we have defined is key to building medium/long term profit and value in your business. It forms the core of the business strategy and its revenue development programs and is NOT simply an IT ‘customer database’ initiative.
• A stand-alone ‘customer database’ can become an expensive white elephant if it is not built into an organisation’s ongoing operations.
• Whilst customer acquisition must be undertaken, to offset natural customer churn, precedence should be given to customer retention. Selling to existing customers is significantly cheaper and more profitable than winning new customers.
• In reality, you are ‘standing still’ and losing money if you lose customers as fast as you win them.
Want to know more about how New Mindset can help you to improve profitability by increasing customer retention - call now on 01276 537 282 or email andy.hamer@new-mindset.com .
• Increasing customer retention by 5% can boost profits by up to 85% in the medium term, through reduced costs of repeat purchases and up/cross selling.
• Customers are not always profitable from day one, in some industries it can take 2 or more years to generate a positive cash flow.
• It can cost up your business up to 30 times more to win new customers - if you consider acquisition costs such as advertising, direct mail, pr, sales force, account set-up
Companies, particularly in the financial services sector, have long recognised that customers represent a major investment and have adopted a long term view of customer relationships and associated cash flows. They do not think in terms of single orders but the long term value of the customer in the form of multiple repeat purchases. This philosophy can be adopted by most organisations by taking a wider view of their business and possible product portfolio.
This long term view of customer relationships underlies Customer Relationship Management (CRM). At New Mindset we consider CRM to be:
“…a strategic program driving a universal approach to creating and developing long term profitable customer relationships through routine activities.”
Embedded within this definition are some key concepts:
Strategic program CRM does not just happen. It requires a clear directive and the assignment of resources and organisation priorities.
Universal approach CRM extends across the entire organisation. Every department is involved in the ‘supply chain’ and impacts on the product or service delivered to the end-customer. Each department must look to focus on its customers, i.e. next in the supply chain, seeking opportunities to-add value.
Profitable Some customers will never be profitable and will, in fact, be a constant drain on resources. Such customers should be released and the saved resources diverted to developing revenues with more lucrative ones, through segmentation and adaptations to the marketing mix for each group.
Create and develop relationships Strong relationships form when you understand and adapt to the needs, motives, and behaviours of the other. The organisation must build this understanding and shape its proposition to fit customer needs – even to the extent of spotting changes and providing a solution before the customer even realises they have a different need.
Routine activity Implement the processes, routines and systems to ensure that customers are contacted at regular and appropriate times, for example subscription renewals or information on new offers. Also ensure that information relating to their needs, drivers and purchase patterns is recorded for analysis and action. Without building this customer focus into day-to-day operations CRM will not happen.
Many organisations introducing CRM fail, however, to capitalise on its ability to generate increased profit. Traditionally, emphasis has been on tracking satisfaction levels and monitoring levels/reasons underlying defection. This approach has serious limitations in managing customer relationships, profitability and revenues.
• Monitoring satisfaction levels often fail to identify customer’s whose expenditures are changing, i.e. migrating, until it’s too late and the customer defects to another supplier.
• Understanding the reasons underlying customer defection to undertake remedial changes is useful. Unfortunately, though, you’ve still lost the customer and associated revenues and have to go through the costly process of recruiting a replacement.
Customer retention and expenditure is determined by their service experiences and loyalty to you. Where competition is low, active dissatisfaction with individual suppliers is prime in driving customer defection or migration. As competition increases, with suppliers delivering increased choice and minimum levels of satisfaction, other factors come to play in determining customer loyalty towards individual suppliers. These factors include; changes to personal circumstances, your company offer and your competitor offer.
Understanding these factors and interaction allows you to develop loyalty profiles. These can be used to segment and classify your customer base. A number of segmentation models been developed in an attempt to categorise the individual customer groups and develop the individual objectives and action plan for the individual segments. Mckinsey’s, a leading international consultancy, analysed customer across 12 separate industries and developed the structure below.
Downward Migrators Loyalists
Dissatisfied Deliberative Lifestyle Deliberative Inertial Emotive
3%* 7% 4% 42% 20% 23%
Actively Dissatisfied
May re-evaluate spend because of experience Freq. reassess spend decisions
Choose alt. brand on rationale criteria Re-assesses decisions because of changing needs Freq review spend decisions
Reaffirm brand on rationale criteria Infreq. reassess decisions
Don’t generally consider change Rarely asses decisions
Strongly feel chosen brand is best for them
Spend more than average
* Percentiles represent number of customers in each category, across an average customer base, and are a weighted average of Mckinsey statistics drawn from 5000 organisations across 12 industry sectors.
Segmenting the customer base, helps understand:
1. Which groups of customers are most likely to defect, reduce expenditure and what value of revenue is under threat
2. What alternate strategies, tactics and appeals should be adopted for each of the individual segments to safeguard revenues by reducing defection and migration. Individual initiatives will not appeal to all of the sectors.
3. Which customers are positioned to purchase additional higher value products.
Customer defections and migrations can be reduced by up to 30% by active management, with massive impact on underlying profitability . Customer expenditures change (migrate) over time, for a variety of reasons. Monitoring expenditure patterns and taking action permits:
• Rebuilding revenues with customers who reduce spend, for whatever reason
• Recovery of customers before they defect to another supplier
• Up-selling higher volumes and cross selling other products.
CRM in summary
• CRM as we have defined is key to building medium/long term profit and value in your business. It forms the core of the business strategy and its revenue development programs and is NOT simply an IT ‘customer database’ initiative.
• A stand-alone ‘customer database’ can become an expensive white elephant if it is not built into an organisation’s ongoing operations.
• Whilst customer acquisition must be undertaken, to offset natural customer churn, precedence should be given to customer retention. Selling to existing customers is significantly cheaper and more profitable than winning new customers.
• In reality, you are ‘standing still’ and losing money if you lose customers as fast as you win them.
Want to know more about how New Mindset can help you to improve profitability by increasing customer retention - call now on 01276 537 282 or email andy.hamer@new-mindset.com .
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