Driving Repeat Business

Driving Repeat Business by Tim Smith, PhD, Aug 21 2002

Part 1 – Lather, Rinse, Repeat...Lather, Rinse, Repeat...Lather, Rinse, Repeat... We don’t just buy one bottle of shampoo in our lifetime. Likewise, we shouldn’t expect our customers to buy just Critical Success once from our companies. Factors Business-to-Business companies are increasing their focus on repeat and referral business. In many instances, this is a sound strategy in which to embark, but not for all businesses. Like all other issues in generating revenue, repeat and referral business isn’t a one-size fits all strategy. There are some critical factors that should be considered in embarking upon a marketing plan to improve repeat and referral business.

Repeat and referral strategies are a sub-topic of more general Customer Retention strategies. Customer Retention is well known to be much cheaper than Customer Acquisition or the capture of new customers. The focus of Customer Retentions strategies is to improve the share of business coming from the existing customer base. Customer Relationship Management is at the core of repeat and referral strategies, but CRM software is often not required. Rather, what is required is a sound approach to improving the existing customer relationships.

Repeat and referral strategies can be deployed in a number of B2B industries. Obviously, if a company is selling consumable commodities, repeat business is a core focus of the revenue engine. But these strategies can also be used in other industries with more complex and differentiated products. ADP Dealer Services and SunGard Data Systems are both successfully using this strategy to drive customer penetration in selling suites of products to existing customers. Alternatively, venture capital funds and portfolio managers will request existing investors to increase the amount of principal within their fund, an indirect form of increase share-of-wallet.

The critical factors that determine the expected success of a repeat or referral strategy are dependent upon the target market and product/service on offer. These factors also affect the tactics to be deployed in embarking upon customer retention strategies. While this article will focus on criteria to determining the expected success of an increased focus on repeat and referral business, the next few articles in this series will focus on some successful tactics to drive improved repeat and referral business.

Three of the most critical factors in determining the ability to succeed in repeat business strategies are: (1) Size of Customer Base, (2) Transaction Decision Frequency, and (3) Ability to Cross-Sell and Up-Sell.

Size of Customer Base:

Obviously, if a company has no customers it cannot embark upon a repeat business strategy. The logic of this boundary statement can be extended to companies with 20 years of experience and a thousand customers as well. A myopic focus of marketing activities on past customers is a way to decrease the size of the target market. Running a business from a critically small target market puts a business in a precarious position. If a few members of this critically small target market undergo normal dynamics, such as acquisition, bankruptcy, or management changes, the revenue accessible portion of the target market may become too small to support an ongoing concern. As such, a business with a high focus on improving revenue through repeat business can only expect success from this strategy if their current customer base is sufficiently large.

The question being raised is: Does the business have a sufficient customer base to warrant the expectation of sufficient revenue through mining the current customer base? If not, the business will need to either downsize or continue to have a significant sales and marketing program directed to new customer acquisition. A type of business which will clearly succeed with a customer retention strategy is one in which the market is somewhat stagnant and currently dominated by a limited number (2 to 5) major players. Other businesses that can benefit from a strong customer retention strategy are those in which the market is highly fragmented yet the company’s current customer base is sufficiently large.

The value of customer retention strategies is somewhat dependent upon the frequency in which the customers select to purchase from a product/service category.

Companies selling subscription based products and services, such as telephony service and outsourced software application service, may have a large portion of repeat business, but that doesn’t imply that revenue can be dramatically increased through an improved emphasis on repeat business. While these types of products/services are continually consumed and purchased, the purchasing decision is reviewed infrequently. For subscription based products and services, or annuity style revenue sources, customer retention strategies may firm up revenue, but they will not increase revenue. The current customer base is fixed.

Rather, revenues increases through a repeat business strategy require that past customers select anew to purchase. For instance, if a company has sold a system implementation project or a graphic arts project once to a customer, then that company should expect to gain revenue by re-connecting with that customer and selling a second systems implementation project or a second graphic arts project. Here, the issue is turning a one-off sale into a repeat customer sale.

At the core of this issue is the frequency in which the customer makes a buying decision. If your product/service represents a major capital expense, such as a multi-million dollar software and hardware project where the end product has an expected lifetime of four or more years, then it should be expected that the customers will not be in a position to re- purchase that product from your customer for many years into the future. For these products, service contracts may represent a more significant revenue stream from the existing customer base.

Cross-sell and Up-Sell

Many of the most successful companies in the high-tech community have learned the art of cross-selling and up-selling.

ADP Dealer Services for the automobile dealership industry and SunGard Data Systems for the financial services industry have multiple products to sell any customer within their install base. Their strategies rely upon selling a single point solution to a customer’s requirements, then finding a second problem within that customer that can be solved by another product within their suite. For companies with multiple products aimed at the same industry, cross-selling to the existing customer base represents a significant stream of revenue.

Other companies, such as SAGE in the CRM area with ACT, MAS 90, and SalesLogix, provide a nice example of executing an up-sale strategy. As customers outgrow their low-end product, ACT, they become key customers for their enterprise product, SalesLogix. Companies executing an up-sale strategy often have created or acquired a product suite to form the basis of a “Good, Better, Best” offering.

While the above examples of firms practicing cross-selling and up-selling are each producing revenues in excess of $100 million, these strategies can also be implemented in smaller firms. The requirement for practicing up-selling and cross-selling isn’t with regards to the firm size, but rather in regards to the product suite and its focus on a single market. Having multiple products or services that can be purchased at different price points provides the basis for a successful cross-sell/up-sell strategy.

Closing

While other factors will need to be examined in regards to assessing the expected success of increasing revenues, size of customer base, transaction decision frequency, and ability to cross-sell or up-sell are some of the most critical determinants. In our following articles, we will examine some of the successfully tactics to implementing a repeat and referral business strategy.

Copyright © 2002 Wiglaf Journal Page 2 Part 2 – Business-to-Business companies are increasing their focus on repeat and referral business. While this may represent a sound strategy, the devil is in the details. In this Direct Contact second installment on driving repeat business, we will explore the direct contact tactic. Tactic Directly contacting past customers is one of the most readily identifiable methods of communicating with a portion of the company’s market. The target audience for the communications is well defined. The contact details, such as name, address, phone, and email can be determined. And, the audience is usually receptive to company marketing communications.

For this well defined audience, the company must select the contact method and likewise the message. While it has been said that the medium is the message, this mantra doesn’t apply to many business-to-business firms. To address these questions, let us first consider the message then select the medium.

Message

What does company have to say to its old customers? Why is it contacting them? Sure, the company wants past customers to purchase again or refer business its way, but bluntness is more appropriate for analysis articles than customer communications. Some routine messages include: “We are still open for business.” “Our product line has been improved.” Or, “We have a new product or service offering.” Alternatively, these messages could be stated with a stronger customer focus such as “Thank you for being part of our 9 years of successful business.” “Isn’t it time to re-do your XXX”, or “Have you out grown your XXX” where XXX reflects the value-offering. These types of messages are most useful with point-solution products or services.

For more complex value-offerings that address core issues of the target customer, a less direct but more involved message may be necessary. For example, case studies of recent work, market research that indicates increased value from increased involvement with the value-offering, or industry news that is tangentially related to the value- offering. These lengthier messages are appropriate when the buying decision requires the participation of multiple organization levels.

There are many other messages that the company may determine to communicate to their current customer base. To increase the interest of the audience, the message should provide benefits to the customer base. At the same time, marketing communications are conducted only with regards to their ability to increase revenue to improve profits. Each communication should be associated with a call to action. This call to action can have a direct revenue impact such as asking customer to purchase now, or they can be less direct and request customers to investigate or call the firm to take the next steps toward closing another piece of business.

Medium

The selection of the message appropriate to the customer audience, value-offering, and sales-process, will greatly affect the selection of the medium. Many managers would like to see their sales force pick up the phone and make more phone calls to drive repeat business. Yet this medium isn’t always the best selection. Nothing is more destructive to a good revenue generating engine than forcing a powerful direct sales force to do low value-add work. Brute force can always be executed, but the key to profits is finesse. Hence, use the direct sales force only if it is prudent; otherwise, let the marketing portion of the engine accomplish the task.

Direct Postal Mail or e-mail are two of the most inexpensive means to contact past customers. Currently, businesses are moving away from postal mail and towards e-mail as a means to contact their customers. The US Post Office reported that overall mail volumes dropped 1.6 billion pieces, or 3.4 percent below the same quarter last year for the quarter ending June 2002. This trend can be expected to continue in the future as the number of customers prepared for e-mail continues to increase. However, e-mail remains a questionable communication medium for a number of markets, such as small manufacturers, restaurants, or other old-economy small businesses. Furthermore, e-mail has some constraints in relation to the problem of spam. If a company selects to use e- mail in a direct contact campaign, it should be careful to gauge the audience’s receptiveness and preparedness to this medium. For many businesses, postal mail represents a safer investment

Regardless of the selection of the message and medium, companies should not expect that a single distribution will bring dramatic and immediate results. Rather, driving

Copyright © 2002 Wiglaf Journal Page 3 revenue with repeat business through direct contact tactics requires an ongoing effort. Multifarious effects lower the return to a single broadcast communication. From timing and budgeting, lost messages, and the insufficient creation of the impetus for action, to writing that didn’t quite hit the head of the nail, there are many reasons to make direct marketing communications part of a continued revenue generating campaign and not a one-off effort.

Directly contacting past customers can produce significant revenue within the fiscal year. It relies upon the reformation and strengthening of customer relationships that may have lied dormant. It also benefits from having a more receptive audience that is readily identifiable.

Part 3 – Business-to-Business companies are increasing their focus on repeat and referral business. While this may represent a sound strategy, the bird’s eye view often looks Customer Group different from the ground. In this third installment on driving repeat business, we will Meetings explore the tactic of using Customer Executive Meetings and User Group Meetings.

Customer Executive Meetings and User Group Meetings are used by firms selling products/services that affect mission critical functions in their customer’s business. From foundation level ERP systems to more specialized business applications, business software vendors have found Executive Meetings and User Group Meetings useful for a number of reasons. The business value of customer group meetings includes capturing evolving customer requirements, gaining competitive information, and understanding trends within the industry. Concurrently, customer group meetings are a forum for requesting referrals or driving the customer base to an upgraded product platform. With each of these values, customer meetings drive the creation of stronger bonds between the company and its customer base.

Regardless of the hosting company’s purpose of these meetings, the attendees of these meetings are expecting to gain something from their involvement beyond a few days in a luxury hotel and a pow-wow with their friends. Content is the key.

Executive Meetings are for the customer corporate executives. Outside speakers and well-prepared business seminars are part of the content value-offering in Executive Meetings. The topics that will interest this audience will be those of broader industry issues affecting the customer company. The effects of new government regulations, changes in their industry structure, their evolving customer trends, threats of substitute products or services in their industry, or new sources of competitive strength for their company are some sample themes used in Executive Meetings. The presentation of these issues at Executive Meetings reinforces the concept that the hosting company isn’t just a vendor of products and services, but a friend to be trusted as the industry evolves. The hosting company is working to improve its revenues by improving its customer company’s competitive position.

User Group meetings are for the customer end users. These include both the technical and non-technical portions of the customer’s company. User Group meetings for technical individuals include how-to presentations such as how-to install an upgrade, how-to create an interface, or how-to implement customization. These also include case studies presented by the technical users themselves describing their handling of a business requirement. For the non-technical portion of the User Group, presentations include issues of solving business problems, increasing productivity, or simply accomplishing common tasks. Likewise, case studies presented by end-users themselves are of compelling interest.

In many industries, professionals within a particular field are required to participate in a minimum number of hours of instruction to maintain their certificate of good standing. If it is possible, User Group meetings that are certified by the appropriate agency will increase the customer benefits of participation in the meeting. As such, this opportunity, if it exists, can dramatically improve attendance.

These Executive Meetings and User Group Meetings build a stronger relationship between the customer and the hosting firm. These relationships drive revenue through a greater willingness to purchase from you whenever their needs change, or a greater inclination towards referral business.

Business-to-Business companies are increasing their focus on repeat and referral

Copyright © 2002 Wiglaf Journal Page 4 business. While this may represent a sound strategy, talk is cheap but action is the key. In this fourth installment on driving repeat business, we will explore the use of Newsletters to drive repeat or referral business.

Company sponsored email newsletters as a marketing tactic is gaining terrific momentum – for both the company marketing value-offerings and the target audience. For the selling company, newsletters deepen customer relationships, provide additional brand-nodes and brand-links within the target market’s mind, and remind customer’s that the value-offering is available whenever the customer’s goals are activated. For the target audience, newsletters can provide value-added information, explain alternative means of using a product/service, or highlight additional opportunities.

At first blush, email newsletters appear to be a costless marketing tool. Email cost nothing to send in comparison to postal mail and sending the newsletter to old clients and prospects reduces the price to creating a recipient list to zero. Yet this viewpoint ignores the opportunity costs associated with the preparation of newsletters and its distribution.

For marketing newsletters to be positively received by the audience, the content of the newsletter must address the issues of the target market audience. For instance, a newsletter from a venture capital fund to its investors may be focused on the performance of the fund and the companies within it. For a professional service firm, the newsletter may be focused on the research and discoveries made within the firm. For any firm, possible topics may include industry trends, new ways to use the product or service, case studies of current customers, or press releases.

The preparation of this content requires effort. While some of the content may be pulled from the general sales and marketing literature produced by the company, much of the content will need to be freshly prepared for each publication. The preparation of this content requires time and effort on behalf of the company staff. This effort comes at an opportunity cost and this cost should be considered prior to planning a newsletter publication program.

A second cost issues is in regards to the distribution. While email can be distributed manually, a distribution list with an audience in the hundreds or thousands will quickly overwhelm the time resource of the sales and marketing staff. A cheap, semi-automated solution can be created using the Microsoft Office suite, yet this has some limitations in regards to presentation. To alleviate this pain, many vendors have created automated software solutions to the distribution of professional looking newsletters.

One of the most publicized issues in regards to email newsletters is that of spam. Clearly, companies want their customers to receive their marketing communications positively and opt-in methods currently have the strongest acceptance. Yet audience receptivity isn’t the only issue with regards to spam. A second looming issue growing in importance is the ability to send a newsletter through a corporate firewall.

Companies appropriately have created restrictions to the type of email that its employees can receive. Unfortunately, these restrictions have created barriers to communication. Many phrases that include the word “free” will automatically force the email to be rejected. Other less obvious phrases also cause problems. Because I want this email to reach my audience, I can’t simply write these phrases in this communiqué. To get around this problem, just remove the word “(delete)” from the following phrases: “as (delete) low (delete) as”, “interest (delete) rate”, “save (delete) up (delete) to”, etc. The point is that rather innocuous phrases made within an article can force the entire newsletter to never reach its audience. Someday, I suspect that this issue will be appropriately addressed, but the conflict between security and free association will continue to be a tension point in our future.

Marketing newsletters will continue to grow in importance. Despite the hurdles mentioned above, email newsletters can improve customer relationships and drive transactions with repeat and referral business. And like other marketing tools, email newsletters should be integrated within a larger marketing plan to achieve maximum effectiveness. Their value as a marketing tool is measured by their ability to support the revenue generating engine.

Copyright © 2002 Wiglaf Journal Page 5 Part 4 – Business-to-Business companies are increasing their focus on repeat and referral business. In this final installment on driving repeat business, we will review the series Wrap up and highlight some questions for further research and discussion.

One of the most important issues to address in embarking on a repeat/referral business marketing plan is how it will fit within the overall revenue generation strategy of the firm. Companies must weigh the costs and benefits of investing in customer retention versus customer acquisition. While a rare few companies can focus solely on customer retention strategies, most companies will need to balance old customer retention with new customer acquisition. This balance is struck through a combination of market insight and quantitative justification.

Embarking upon a repeat/referral business strategy requires selecting a tactic to achieve the goals. While the not providing a compete litany of tactics, we did look at direct contact tactics, customer group meetings, and email newsletters. There are others that should be explored, such as event hosting, networking, trade shows, advertising, and sales meetings.

As with every marketing concept, selecting an idea isn’t the only step. Planning, execution, measurement of results, and updating the plan are also required. Revenue generating departments should strive to both improve revenue and their efficiency at capturing it. This requires careful thought and budgeting with the revenue generation department.

--- Tim Smith, PhD is a principal at Wiglaf, a Market Research and Sales and Marketing Strategy consultancy serving tech-driven businesses operating in business markets. Small and medium sized businesses select Wiglaf for our quantitative and fact driven approach. www.wiglaf.biz.