The first several articles in this series have addressed the issue of customer acquisition. Emerging growth companies consistently under rate the cost and time they will have to invest in order to acquire new customers. You should therefore focus on finding new customers that will provide you with more long term revenue than the cost to acquire them.
You want customers that will bring you high lifetime value (LTV). High LTV customers are those who will be resistant to switching to another vendor. Holding on to customers has become hyper-competitive. Comparative data on products and services, including consumer ratings (ex. Trip Advisor and Angie’s List), are now available at your fingertips 24/7.
Finding a customer that will be "sticky" and warrant high acquisition costs may require a step back in order to understand your prospective customer’s competitive strategy and grasp the deeper industry trends and dynamics. The following example shows how a nimble small business took advantage of changes in the corporate world to fill a need and became more “sticky” to its customers.
Real World Example of Being "Sticky" and Customer Loyalty
First, the big picture. In recent years, many companies, especially public ones, have made a major push to get fixed cost overhead (people and assets) off their books by outsourcing activities that they had traditionally done in-house. Any process that was not proprietary or high value add or that didn’t serve to differentiate the company was considered a support service and therefore a candidate for outsourcing. Outsourced doesn’t necessarily mean moved offshore. In a world that demands just in time inventory, it can mean just moved across the street.
In the office furniture market, Herman Miller transferred many of their preassembly processes to small local shops that could scale up and down as business conditions fluctuated. From one week to the next, these companies could have very different assemblies going through their flexible job shops. Their plant layout and staffing levels fluctuated on a daily basis with the ebb and flow of orders. Large OEM (original equipment manufacturer) manufacturing plants like consistency and repetition.
These start-ups filled a void created by their customers' desire to improve their return on assets and focus on where they can add the most value. Herman Miller lowered their fixed cost burden but at the same time created an opportunity for small local firms to step up and become an integral part of the Herman Miller supply chain.
The shops that consistently met or exceeded the company’s needs were rewarded with more business and became an integrated part of the just-in-time supply chain. The more procedures they took on, the more they became intertwined in Herman Miller’s mass customization model. The company became dependent on these shops to be successful. Their incredible service and flexibility, along with Herman Miller’s decision to lower their internal fixed costs, made these startups “sticky” suppliers.
Two Questions To Ask Yourself
It is these types of opportunities that warrant investment of time and money to get your first order. Before you chase your next customer, ask yourself, ”What problem can I solve for this customer, and in doing so, will I create LTV for my company?”
Being "sticky" to a customer base is one way to be profitable. In the ebook below, "3 Step Strategy To Improve Your Profitablity," you'll uncover several other key moves a CEO can make to keep the momentum going and the profits rising.
About the Author
John Farrall is a leader in growing businesses, with a track record of growing both the top and bottom line. During his 30+ year career at Milliken, he had profit and loss responsibility for business units in the commercial office furniture, retail home furnishings and hospitality markets. Time and time again, John improved profitability by growing the business while driving down costs and improving customer satisfaction. Contact or learn more about John here.
Connect with John on LinkedInPhoto By: Wikipedia
