April 12, 2018

How much would you spend to keep a customer?

Would you spend $75 to keep a customer with a total gross lifetime value potential of $6,500? This blog was inspired by my experience with MSI, a gaming laptop brand who chose the $75.

In the past, I’ve written about how cost per acquisition (CPA)—what you are willing to spend to get a new customer—can be a powerful tool in your marketing, but we should also take into consideration what we are willing to spend in order to keep a customer.

I won’t win any marketing awards for suggesting that customer service is an important part of your marketing plan. Plenty of gurus who have come before me have written about how some of the most legendary brands in the world, such as the now iconic Zappos, built their legacies on the backs of incredible customer service.

Because of the fanfare around customer service, business owners intuitively recognize that customer service is important, but we often fail to talk about it strategically, which is why we still frequently see awful customer service out in the wild when we ourselves are the consumers. In fact, you might be missing customer engagement opportunities in your business and not even realize it.

As an agency, we look at this as part of the sales funnel process, and in our view, it straddles both sides of a conversion. Customer engagement comes immediately prior to the sale (lead nurturing) as well as after the sale with how you follow-up with retention efforts and respond to customer concerns or feedback.

The sales funnel diagram from my book, The Innovative Brand.

Customer service can have the following impact on your marketing and your business:

  • If a human is involved at the point of sale (in a retail location, for example), the quality of the customer service may impact the value and quantity of the products purchased. A good sales associate can increase units per transaction and prevent customers from having buyer’s remorse. Forward-thinking e-commerce experiences aim to replicate this, but the human touch is still very powerful.
  • If a customer has a problem with a purchase, the experience he or she has in finding a resolution to that problem directly impacts retention. Some brands have suggested that getting to provide service to a customer who has a problem actually leads to more revenue than if a customer never had a problem at all. For these brands, the customer service itself is a big reason why customers think to come back for a future purchase.
  • Polarizing experiences, positive or negative, drive word of mouth, and negative transactions on the whole receive more customer attention. An average transaction won’t get any fanfare. Customers will forget it and move on. If an experience is extremely positive or at all negative, however, customers are likely to talk about it with their network (in person, via social media, via review sites, etc.).

True story:

We were working with a food-based brand that had multiple restaurant/grocery storefronts as well as an expansive online and media presence. In tracking the data, we saw that despite strong numbers in digital exposure and engagement and in foot traffic to one particular location, sales were still down. In other words, the marketing appeared to be working on all fronts except where it mattered most: the cash register.

We picked a busy foot traffic day and sat outside the location. When customers left empty-handed, we politely stopped them and asked why.

It turned out that even the best marketing was no match for grumpy, unhelpful sales associates. Customers would come into the store, fully-intending to make a purchase, but leave when they either couldn’t get help or were outright treated poorly.

If you have done any retail shopping, this likely does not surprise you. Brands will spend millions of dollars to get customers in the door with fancy, ambitious ad campaigns and then put a disgruntled, minimum-wage sales associate directly between the prospect and the actual sale. Sometimes the sales associate behaves poorly based on their character alone (a recruiting and training problem) or because the company pays and treats them poorly (a culture and employee retention problem).

Either way, the customer suffers, and then the customer leaves the store to tell their friends about the awful experience they had.

Strategic Customer Service Choices

For customer service to have an impact, your brand needs to make a deliberate choice, followed by deliberate planning and effort. Customer service takes more than a “Hey, guys, be nice to customers.” For it to be a part of how your brand grows, customer service needs to be built into the DNA of how the business it operates.

Make no mistake, this is a critical part of your marketing. It may not be as glitzy or as fun as an ad campaign, but as you’ll see as we delve deeper into this guide, a customer service misstep can mean missing out on a huge chunk of revenue.

For an effective customer service strategy, you should do the following:

  1. Build your goals around total lifetime value.
  2. Invest in the frontline of your brand.
  3. Empower your sales associates and customer service representatives.
  4. Build customer service into your pricing.
  5. Talk to customers after their purchase.
  6. Actively listen for customers who are talking about your brand.

Let’s break those down:

1. Build your goals around total lifetime value (TLV). If you are not familiar with this metric, total lifetime value is what your average customer will spend with you in their lifetime or over a significant long period of time (such as 5 or 10 years). This metric can be difficult for newer businesses, but even with limited data you should be able to make a projection based on your customer retention rates. This gives you the power to make bigger decisions. For example, if your product costs $20, and a customer is likely to buy 5 of them over a lifetime, your gross TLV is $100. If you know have that average, you might be willing to spend $30 to get a customer, meaning that you sacrifice early profits to get the bigger, long-term profits.

When you orient your brand this way, you can make more aggressive plays in the short-term and reach customers in a way that shortsighted brands cannot.

Original photo by JD Hancock used and transformed with permission Creative Commons license.

2. Invest in the frontline of your brand. Whether customers come to your brick & mortar store or to your website to make a purchase, the front-facing aspects of your brand should align with your brand image. If you want people to associate your brand with luxury, your store should be designed accordingly, and those design decisions extend to the people you hire and train as well. Whether you are running a high-end clothing shop or a hardware store, who you choose to represent your brand is important, and if you switched the two perfect employees for either store, it would be a disaster because of poor fit.

When I walk into a hardware store, I find comfort in being greeted by someone in blue jeans with a casual demeanor and a great depth of product knowledge. If I were shopping for high-end clothing, which is not exactly my speed but I’m writing a blog post with examples here, a greeter in paint-spattered blue jeans would make me question the brand. Match the hire to the position and train them to represent the brand.

3. Empower your sales associates and customer service representatives. In the 4-Hour Workweek by Tim Ferriss, Ferriss says that one of his biggest efficiency hacks was giving his customer support team a threshold for customer service calls. If it cost less than X amount of dollars to fix a customer complaint, a rep could just do it without asking for permission. That cut down on how often he personally had to answer calls and emails, and it significantly shortened the time it took customers to find a resolution.

If the people talking to your customers have no real power to help, everyone involved will feel frustrated. Train your people accordingly, and give them the tools and freedom they need to rapidly address small or common problems. The more friction you remove from the process, the better customers will feel about an interaction.

4. Build customer service into your pricing. One of our clients has a pricing rule: The margins on an item have to be large enough that even if they mail out a total replacement they do not lose money on the transaction. So, if a customer ordered a widget, and the widget arrives broken, the customer can call in, and the company will immediately issue a replacement. No mailing it back. No lengthy conversation about whether it was the customer’s fault. Just a quick, efficient customer service transaction that doesn’t cost the company money. Sure, the net profit goes down, but those customers end up coming back to buy again because of how well they were treated.

Being able to do this in your own business may be difficult at first. For our client, they diligently worked with manufacturing and order sizes to find that pricing sweet spot, and the short-term challenges they faced to get there were well worth it. Since they know how much customer service costs them for typical issues and how much a customer will come back and spend if they are happy and loyal (total lifetime value), they gladly give their customer service associates the power to issue no-hassle replacements.

5. Talk to customers after their purchase. You should not be afraid to address customer concerns. Instead, reframe customer service as an opportunity to show customers how awesome your brand can be. For example, we have a painting client who is preparing a big outreach push to collect photos of paint jobs they have done in recent years. Yes, emailing a past customer could mean them giving you a complaint about your product or service, but in the case of this painting client, this is a good thing. We would much rather address an issue early, so the next time they talk about the brand they can talk about how we proactively solved a problem they were having.

The alternative? A customer has a problem that you don’t know about complains about you for the next several years without ever coming to you for help. No matter what business you are in, customer follow-up should be just another part of your marketing. Oftentimes, automated email follow-up is sufficient, but if you sell big ticket items or rely on subscriptions, direct phone calls may be justified and perhaps more impactful.

6. Actively listen for customers who are talking about your brand. Regardless of how big or small your business is, your customers will talk about you, and they will sometimes talk about you without directly including you in the conversation. For this reason, social media listening tools have become a big part of brand management, helping you to find conversations about your business that do not officially tag your business in the thread.

Just as in our previous point about talking to customers, if you are not listening for conversations about your brand, you may miss opportunities to address customer complaints, and therefore those complaints may continue indefinitely. Social media services like BrandWatch, Sprout Social, and HootSuite offer powerful listening tools. If budget is tight, Google Alerts and a regular habit of plugging your brand name into Google and Twitter search is a good idea in the meantime.

What Poor Customer Service Looks Like

This is a real story that recently happened to me, and it demonstrates just how extreme of an impact customer service can have on potential revenue.

The background:

I tend to purchase gaming laptops because I need a good bit of PC power for the video production end of our agency, and I often end up doing that work on the road or on-site at a shoot. Because of hardware needs and also because of how much mileage I put on laptops, I tend to buy a new laptop every two years.

I purchased an MSI gaming laptop for roughly $2000 after getting three defective laptops in a row from another brand. I was in love with the MSI laptop, and its bold design meant that it always started a conversation whenever I pulled it out in meetings or in coffee shops. I gladly sang the praises for the brand, and if friends or colleagues asked for laptop recommendations, I recommended MSI.

Two months out of the warranty, the internal power supply failed. That was frustrating, but it happens. While I set the laptop aside for repairs, I ordered a smaller MSI gaming laptop for about $1000. I planned to use that for day-to-day work and to dedicate the larger, bulkier laptop for video editing (it’s a beast of a laptop in terms of performance and in size).

The new laptop arrived, and the keyboard failed shortly after I began using it. I followed the MSI-recommended troubleshooting process, and that rendered the laptop completely unusable. Tech support recommended that I reinstall Windows from a boot-stick (an external thumb drive).

To fix my brand new laptop would cost me another $71.85 if I wanted two-day shipping for the thumb drive. That move gave me pause, because the laptop was literally brand new, but I needed the laptop to be functional and decided to just eat the cost because of how positive my experiences had been up until that point.

Two days go by, no thumb drive. I called in and discovered that MSI waited a whole additional day to actually ship the product despite my telling them about the urgency and my paying for expedited shipping.

Their response? “The 3 Day shipping is $37.76; therefore, we’ll credit $9.09 to your account.”

After I expressed my intense frustration over having a non-functional yet new product, and after explaining how this mishandling of shipping made that frustration worse, they said, “Ok, the best we can do is refund the shipping cost $46.85 to your account.”

When I said that at that point I would get a faster resolution from Amazon—by returning the laptop and ordering a replacement from another brand—they offered to refund me the cost of the thumb drive if I mailed it back to them. That’s it.

So, let’s do the marketing math here:

  • I already spent at least $3,000 with MSI
  • I didn’t fight them about the broken power supply being out of warranty
  • I had a defective, brand new product, and their best solution was to have me pay more
  • Instead of trying to keep me as a customer, they fought tooth and nail over $71.85
  • If I continued to buy laptops at my current pace for a total of 10 years, my TLV would have been roughly $6,500 (gross), conservatively
  • That TLV does not include how many purchases I may have driven via word of mouth or if my love for the brand led to me buying MSI laptops for employees or for family

When you look at the problem this way, the best path forward for the brand is pretty clear, right? Unfortunately, it’s all too easy for leaders within a company to lose sight of that.

Play to the Big Picture

If this was your brand, would you have fought over the $71.85 and risk losing a customer permanently?

I hope not, especially if you are like MSI and are investing a massive amount of budget into marketing outreach (going to gaming expos, giving away expensive products at events and via social media, sponsoring e-sports). Where they may spend hundreds of dollars to get a customer, they balked about spending $71.85 to keep a customer.

My story illustrates how marketing is intertwined with the whole of the business. Your slick marketing might get me in the door, but if the rest of your brand falls short of the expectations you set for me, you will lose me for life.

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