We have arrived at the last one of the five-step marketing process. Curiously it covers activities happening once value has already exchanged hands after the fourth step. This blog post is part of our Marketing Basics series.
When you have managed to entice a potential buyer into purchasing your offering, it is time for value to exchange hands. It may sound odd put this way, but this exact thing is at the core of many a struggle experienced by small-business owners.
Many solo entrepreneurs or people with micro-sized teams (up to nine individuals) have a hard time pricing their products correctly, and an equally hard time marketing what they create:
- In order for customers to be satisfied, you must deliver value to them.
- Likewise, in order for your firm to be able to exist, you must capture value from them: money.
As long as buyer and seller agree on what value means, a sale is possible.
At this point it is worth reminding the reader that the only revenue-generating function of a firm is marketing through its five-step process outlined in this series. All other activities use money.
Once the transaction has taken place, your work is far from over.
A customer may experience problems with their product and contacts you for help. Processes related to customer service get activated.
The product or service you sell may come with a guarantee. It might be relevant to do a check-up such as car maintenance before the guarantee runs out.
Customer-loyalty programmes exist to keep existing customers in your sphere instead of having them switch to the competition.
Customer switching, customer satisfaction, customer delight, and ultimately customer loyalty cross over as concepts into Customer Experience, so if these are of interest I suggest you read our blog posts in The Happy Customer series.
Customer Lifetime Value
A good indicator of a healthy business is a strong measure of Customer Lifetime Value, CLV.
(Customer revenue per year) x (Duration of the relationship in years) – (Total costs of acquiring and serving the customer) = CLV
As is evident, if there is no revenue over time, but there are costs, such a person is best removed from the group. By removing we mean a simple example like an email list. Most email-automation providers today offer a free version after which you start paying per month, quarter or year. Dead weight, those who only signed up for a freebie, but usually never open your emails are part of increasing your costs unnecessarily.
Another way to “remove” a customer with very low CLV is to increase prices a bit. Those, who appreciate your offerings are okay to an extent with this, but a person, who keeps their purse strings pulled tight most of the time, will eventually switch to someone less costly.
What builds upon Customer Lifetime Value by calculating the sum of all individual CLV values is Customer Equity.
It is better to have fewer but raving fans, who come back repeatedly and are so happy that they even bring friends along, than maintain lukewarm relationships with wishy-washy customers, who rarely show up.
Making your message clearer can be the only thing needed to remove those with little interest, but add people, who enjoy your work.
Relationship marketing was developed in the 1980’s by among others now emeritus professor Christian Grönroos of Hanken School of Economics here in Helsinki, Finland. I had the privilege of attending his guest lecture in November 2019 at Hanken, where it became clear to me that marketing is ultimately about people. And if you forget this part, usually they go elsewhere.
In the words of em. prof. Grönroos, there are three goal levels of marketing: 1. acquire customers, 2. keep customers, and 3. develop customer relations. Key to success is promise management, the activity of making and keeping promises.
Relationship marketing relies on the fact that customers have a memory. Great Customer Experience does not depend on the size of a business, but if you treat all customers equally well, even when you may have just a handful as a new business owner, think in long-term relationships.
It may also be a good idea to detach yourself from various ideas on how the self-proclaimed gurus of business think you should act, as their own goal is to make money in the present.
Marketing is an on-going effort and there is no one-size-fits-all solution. It helps to find like-minded people to talk shop with even when industries are different. In fact, it may be the best thing you can do for your business to find entrepreneurs, who view your expertise from the outside, without know-how of their own. Sparring with them can help you understand your customers better and find holes in the marketing language that you use.
What do you think of concepts such as customer loyalty and relationship marketing? Share in the comments!
This blog post is part of our beginner-level series Marketing Basics.
Photo credit: Markus Winkler.