Managing your customer relationships

As a small business owner, you know that if you don’t provide superb service to your customer, you cannot grow your business. Your customers are your lifeblood: without them, you wouldn’t be here so you must nurture and care for each and every one of them. Right?

Yes. And no. On the yes side, there is no question that businesses today live or die by customer service. E-commerce has served to underscore the value of above-and-beyond service, with companies like Amazon setting such exceptional standards that it’s difficult for customers who’ve shopped there to accept anything less from other businesses.

On the no side of the scale, great customer service alone is not sufficient to retain customers and build business: to achieve these, service needs to be entwined with a commitment to customer relationship management (CRM).

One of the first and most difficult things you must accept when you embrace CRM is that all customers are not created equal, and therefore cannot be given the same level of attention. You must identify your most valuable customers, then assign your resources to servicing them and building strong relationships with them. This does not mean that you ignore, or dump, lower-value customers: it simply means that you channel finite resources into areas that provide maximum long-term return.

So What Is CRM?

Robert Wayland says in his book Customer Connections: “Customer relationships are assets that should be evaluated and managed as rigorously as any financial assets.”

CRM is simply a way of selling products or services by building individual relationships with each customer and each prospect, on a foundation of mutual trust, emotional support, privacy protection and tolerance for other relationships.

Relationship management is not flogging off product-line extensions, over-surveying customers, buying new customers with fabulous deals, discounts and lead-ins, irritating them with an endless stream of junk mail or telemarketing calls. CRM shifts the company focus away from being purely product-centred. “Get the order at any cost” morphs into “How can I help my customer?”

Through CRM, you encourage customers to continue purchasing from you in the future - without the old-fashioned ‘hard sell’. Perhaps even more importantly, you transform them into referral-generating advocates for your business. This is where the trust factor comes in. What’s the first step you take when you need a stockbroker, a health-care provider, or a plumber? You ask people you know for recommendations - because you trust your friends to give you reliable information.

In today’s sophisticated marketplace comprised of educated, informed, sceptical consumers, CRM is the only way to sell. However, it’s important to stress that creating loyal relationships with customers can never compensate for weaknesses in other areas of your business. So before implementing CRM, check that your organisation’s infrastructure is sound: that the products or services you offer meet customer needs, that your sales and distribution channels are up to scratch.

How Does Your Service Stack Up?

Perform an audit for service gaps: differences between what customers should reasonably expect, and the actual service performance. You can do this as a mental or physical walk-through yourself (depending on the size of your business); by having a friend pose as a customer; or through a focus group of customers.

Go through the entire procedure to see where things may break down, and if they do.

> Does every staff member respond promptly and warmly to customers, both on the phone and face-to-face?

> Do customers have a positive experience with a staff that is knowledgeable, friendly, courteous and helpful?

> Are staff members trained to understand, and be responsive to, customer needs?

> Are orders/quotes/requests processed promptly, efficiently and accurately?

> Is assistance or advice offered when appropriate: e.g. if a customer is considering a product unsuitable for the use they have in mind?

> Are necessary follow-ups done as and when promised?

> Are staff members adequately equipped to do their jobs?

> Are customer-service personnel trained and empowered to make decisions for prompt resolution of customer complaints?

The CRM Process:

Relationship marketing follows a well-defined process that places the customer at the very centre of the business’s thinking and activity. The ultimate goal is to turn first-time buyers into loyal, long-term customers who designate you as a preferred supplier.

The CRM process involves gathering all the information you can about the customer - within privacy bounds - and storing that data so that any staff member who deals with them can instantly access it.

Another part of the process involves following up shortly after a customer makes a purchase, at a time when they are most susceptible and impressionable, so they are never left with the feeling that they have been dumped by the salesperson who became their new best friend - until money changed hands.

During the first twelve months, a broad rule of thumb is to make seven contacts with the customer. The contacts, both verbal and written, must be tailored to the customer’s specific needs, and be of value to them. The cumulative effect of these contacts should be positive, resulting not just in sales but also increased goodwill.

> The first written communication should be a handwritten note thanking the customer for their business.

> The manager or a senior executive of the business should make at least one phone call soon after the customer’s initial purchase, welcoming them and ascertaining whether they happy with their purchase.

> At an appropriate time send a newsletter, or a sheet of tips and tricks for getting the maximum benefit from the relevant product or service.

> Send out a satisfaction survey that lets you assess the customer’s perception of your business, its products and service, and helps you to detect problems and nip them in the bud before they chase customers away. Be sure to include a section soliciting specific feedback - and act immediately on any negative comments.

> Other contacts can be triggered by events such as an account anniversary date, achieving a sales milestone, a decline in activity or contact, or a special invitation.

Creating And Keeping Loyal Customers:

Loyal customers are valuable: they buy more, and they buy more often. They are cheaper to serve, they are more profitable than newly acquired customers, and they are more likely to stay with you. 

With surveys suggesting that it costs ten to fifteen times as much to acquire a new customer as it does to keep an existing customer, no organisation can afford to allocate finite marketing resources to acquiring customers, only to lose them through indifferent service or lack of attention - and one study, conducted by the American Marketing Association, found that 69 percent of customers leave a business because no one paid any attention to them. Customers will come to you if they believe they will receive what they want. They will stay with you if you give them what they tell you they want - not what you assume they want! Helpful, friendly employees; service; information; recognition; product quality and price; and brand identity are some of the components of the glue that binds your customers to your company.

Placing A Value On Customers:

As we saw earlier, a CRM program involves identifying high-value customers. You need to take several factors into account when doing this: statistics are essential, but there are other, less tangible, considerations too.

The first measure is dollar sales value over a given period. If you operate an accounting software package, it’s a simple matter to run a report listing sales by customer for the current and previous financial year. Another, perhaps even more crucial component of customer value is their profitability. One Harvard Business Review article reported a company survey that revealed 20 per cent of customers generated 225 per cent of profits, 70 per cent hovered at breakeven point, while 10 percent were actually losing 125 per cent of profits. Furthermore, the largest customers were producing the biggest losses.

Most businesses have a core of customers who are expensive to service: heavy users of your time, always calling in for a chat, or phoning with small queries. However, these customers can be extremely valuable for various reasons including regional influence, which generates numerous referrals that bring in significant, profitable business. Other unprofitable customers that may be worthwhile courting are ‘reference’ accounts: large or high-profile corporations that add prestige to your organisation, as in people’s perceptions: “Oh, if you supply XYZ Group - you must be good.”

However you decide to grade your customers, make sure every member of your staff knows which customers are ‘GOLD’ so that they can lavish special care and attention on them. This doesn’t mean that low-value customers should be ignored, or treated poorly. Instead, the time spent on them should be proportional to their value, or potential value, to your business. For example: during busy periods, you will give priority to large orders from high-value customers, while the client who places a small order twice a year to take advantage of sale items will sit at the bottom of the list.

Increasing A Customer’s Value:

Because the cost of servicing an established customer reduces every year, calculating the lifetime value of a customer is the truest measure of a customer’s value - much more accurate than sales statistics, which are primarily a measure of how a customer has responded over a specific period of time. 

Do you know about your ’share’ of each customer? Do they purchase from other companies selling the same products, or do they source the bulk of their requirements from you? If you know that they buy elsewhere, what would be the impact of improving your share? How much could you increase your sales if these customers consolidated their purchasing? Selling more to customers who already buy from you is much easier and cheaper than wooing new customers, so this should be your objective for marginal customers.

First-year customers generally spend less than long-term customers. You need to identify new customers who hold promise of becoming profitable long-term customers and work on transforming them into loyal lifetime purchasers. Dropout rate is always highest in the first year, so devote resources to nurturing your new customer through that period.

Contact Software:

The key to a successful relationship management program is having quality information on file at the point of customer contact: information that every staff member can access and add to with each contact. Customer loyalty is contingent on the accuracy and currency of this information.

Large businesses invest millions in sophisticated CRM systems tailored to their needs. From less than $NZ300 per user, SMEs can choose from several user-friendly contact management software packages designed to facilitate CRM programs. Act! 6.0, Maus CRM and Maximizer Enterprise^TM 7 are effective CRM tools that allow a business to store detailed information about each organisation they sell to - and each person they deal with in that organisation.

Whichever package you choose, you can’t escape the time-consuming part of setting up the databases. However, once this is done, every contact - letter, fax, or e-mail - with every customer or prospect is automatically attached to their contact management file.

It’s important also to be clear on what you want from your CRM software, and ensure all staff members are trained to use it in a way that will produce the end results you desire.

So if you’ve always believed that you just don’t have the resources to embrace relationship management, think again: you can’t afford not to.

By Rosemary Ann Ogilvie

Originally published in Her Business magazine.

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