Introduction
This series will introduce you to a new way of increasing profits. It's
not complicated. In fact, it boils down to reselling past customers (and
friends of past customers). Sounds simple. And it is—but I'll offer
specifics that will help you get the job done.
Customer retention vs.
customer acquisition
There can be an odd disconnect between most Web sites and the
businesses they support. This is especially true in small and medium-
sized businesses. Often, a firm's Web site doesn't relate to what
actually occurs on the sales floor or in face-to-face sales
presentations.
Satisfying your customers
Worse, e-mail and the Web are typically not used for effective
customer follow-up. Most Web sites—especially e-commerce Web sites
—are on a "treadmill to Hell," constantly attempting to attract new
customers instead of focusing their efforts on satisfying and selling to
the firm's current customers and prospects. As a result, profitability
suffers and the firm does little or nothing to cultivate a loyal customer
base.
Instead of focusing their efforts on those who have already "voted
with their wallets" by buying from the firm, firms try to recruit a
constant stream of new customers. As a result, many firms spend a lot
of money attracting customers to their Web sites rather retaining the
customer after a purchase.
The fancy term for this form of lunacy is "churn" (or turnover—
meaning customers who don't come back), and it's what your stomach
(and your investors' stomachs) do when this happens.
A more sensible alternative is to retain your customers. By making
your customers more loyal and getting them to become repeat
customers, you lessen the need to advertise and promote your Web
site. By harnessing technology to resell to existing customers, you are
rewarded by higher margins and can convert your present customers
into "advocates" who will do your advertising for you through word-of-
mouth advertising.
Traditionally, it has been said that it costs five to seven times as much
to acquire a new customer as it costs to get a current customer to buy
from you again. In today's highly competitive Internet world, the
figure is even higher.
The best study of the economic advantages of customer retention is to
be found in a book called The Loyalty Effect by Frederick F. Reichheld
(1996, Harvard University Press). Reichheld writes: "Raising customer
retention rates by five percentage points could increase the value of
an average customer by 25 to 100 percent."
Customer Lifetime Value
Relationship Marketing, in addition to emphasizing keeping current
customers rather than getting new ones, reminds us that customers
are important long-term assets that must be valued (and treated
likewise) not harvested.
This long-term approach puts an entirely different spin on e-
commerce and the relationship between a firm's Web site and its
ongoing business. Profitability comes from making existing customers
happy, so they become loyal repeat customers.
Profitability also comes from identifying your most profitable
customers and having the courage to focus your efforts on
them, rather than trying to please "everyone" (and ending up
pleasing no one).
5-Stage Customer Development Cycle
One size does not fit all when it comes to the Web. Web site visitors enter with different
information needs, based on their relationship to your firm. There are five stages to the
Customer Development Cycle.
1. Awareness: This happens even before a person's first visit to
your site. Do they hear about your business from a friend? Do
they see a link from another site? Do they read about your
business on another site or in a magazine or newspaper? Do
they find your site on a search engine? Do they see your Web
site address on your business card, newsletter, or even invoice?
People don't just magically appear at your site. You have to
work to get them there.
It's vital that you obtain your visitor's e-mail address. People
don't usually just volunteer their e-mail address. You need to
find an incentive that will motivate them to provide you with
their e-mail address. One of the surest ways to get someone's e-
mail address is to give something away. That may sound
expensive, but it doesn't have to be, especially if you can give
away something electronic they can download.
2. Comparison: Before a person can consider buying something
from you, they have to compare your product or service with
those from your competitors.
Meaningful content and credibility are the keys to success at the
comparison stage. The more information you can provide, the
higher the likelihood you'll make the sale. The comparison stage
also provides you with an opportunity to learn more about your
Web site visitor's needs and, in doing so, be better able to fine-
tune your offering to their needs.
3. Transaction: The transaction stage is where money (or credit
card information) changes hands. Unless you are giving
products away for little or no profit, the transaction stage will
only take place if you have played your cards right during the
awareness and comparison stages. The transaction stage should
be viewed as the beginning, not the end, of the relationship. The
transaction stage sets the stage for the highly profitable stages
that follow.
4. Reinforcement: The reinforcement stage is where you add
value to your customers' purchases by showing them how to
maximize the value and pleasure their purchases can provide.
The reinforcement stage presents you with an opportunity to
position yourself apart from your competition by thanking your
customers for their purchase and paving the way for future
purchases. It's where you begin the process of creating word-of-
mouth ambassadors for your firm out of satisfied customers.
This is a big part of what [Link] itself does!
5. Advocacy: Advocacy is the final stage of the Customer
Development Cycle. Advocacy takes place when you provide
your customers with the tools, or feeling of community, they
need to become your promoters, motivating past customers to
drive new visitors to your Web site and pre-selling your firm
with word-of-mouth recommendations, the most effective form
of advertising ever devised.
Later in this series, we'll take a more detailed look at identifying your
Web site visitor's information needs at each level of the Customer
Development Cycle and providing the information that will "drive" the
Web site visitor to the next level.
The role of technology
Web-based Relationship Marketing is based on two types of content:
Open Content and Premium Content.
Open content refers to pages of your Web site that all visitors can
access. Open content pages are linked to your home page through
your site's navigation bar and the text navigation links at the bottom
of each page. No registration is needed to access your Web site's open
content.
Premium content refers to pages with richer information content,
content that visitors must be qualified to access. Access to premium
content is limited to those who have registered their e-mail address or
who have purchased from you. Current technology makes it easy to
provide limited access premium content. Premium content can consist
of unlinked pages, password-protected pages, or downloadable files.
E-mail is the "engine" that provides access to premium
content and propels visitors from level to level of the
Customer Development Cycle.
When visitors to your Web site register by filling out a form and
sending you their e-mail address, you can respond by providing the
"key" that allows them access to your site's premium content. You can
send them the URLs of unlinked pages, passwords to unlock
password-protected pages, or access to pages containing files they
can download in Microsoft Word or Adobe Acrobat format.
Keeping it open?
Some sites, such as [Link], prefer to leave all of their content
open. Why? Because you can lose a large percentage of viewers by
demanding they "sign up," even if it's free. Instead, what [Link]
does is make its useful e-mail newsletter, the FuseLetter,
subscription-only (also called "opt-in" because people "opt" into it).
That way, if people want the latest information, tips, and tricks, all
they have to do is sign up. By doing this, [Link] builds value
because e-mail is an important way to inform and remind customers,
and you leave the site open as a kind of "web" that can attract (and
trap—in a good way, of course) new visitors.
Challenges
When marketing through the Web, there are many challenges to
overcome. The biggest are credibility and relevance—and both are
crucial to the success of a Web initiative based on the five-stage
Customer Development Cycle. To succeed, you will have to devote
more time and resources to informing your customers, both through
your site and via e-mail.
Another challenge is the need to develop meaningful incentives to
motivate visitors to share their e-mail address with you and, at each
level of the Customer Development Cycle, provide more information
about their needs. The most cost-effective way is to offer incentives
you can deliver on-line. [Link] offers free fonts and graphics to
anyone who signs up for the FuseLetter, and then even more free
fonts and graphics if they refer a friend to sign up.
A final challenge is the proliferation of e-mail. Already, everyone's
incoming e-mail box is filled with too many messages. The challenge
is: "How can you make your e-mail stand out and be welcomed when it
arrives, rather than left unopened or (even) deleted?" Since
Relationship Marketing is really about building a relationship and a
more personal contact, sending e-mail that's written person-to-person,
rather than "business to person" is a way to start.
Conclusion
Yes, it may be fun to read about the "overnight millionaires" of Silicon
Valley. But it will be even more challenging, rewarding, and fun to see
how you can use the tools of Relationship Marketing to build your
existing business without taking unnecessary risks or investing the
huge amounts of capital it takes to drive visitors to the Web sites of
new Internet businesses.
Relationship Marketing is the key. Learn from what others are doing,
but maintain your focus on how you can use the Web to build closer
bonds with your existing customers and prospects. The Web may be a
"new technology," but that doesn't mean you can't use it as a "classic"
marketing tool to build close, loyal relationships with your existing
customers.
About the author
Roger C. Parker is the author of the forthcoming Relationship
Marketing and the Internet (Adams Media). Visit Roger's web site for
further information.