Are Your Customers Falling Off the Ladder? Every business owner must ask this critical question regularly. Your customer loyalty ladder profile can say a lot about the health of your business. One of the primary reasons small businesses and startups fail is a lack of marketing activities directed at customer loyalty. This failure rate is exaggerated during a struggling economy as customers hunker down with the businesses that they already have established a solid relationship with. This customer ladder is the path your customers take from the first moment they hear about your business to the final level of interaction in which they choose to engage your business.
Beyond just looking at how customers fit into your ladder we need to look at how your budget is allocated across it. Where in the ladder will we obtain the greatest return on investment (ROI)? Various experts have identified several different versions of this ladder, some with 5 rungs and some with a few more depending on the level of granularity desired to describe the customer. Take a close look at your customers and identify what percentage of your sales comes from each of the following classifications. Then look at where you spend your marketing dollars.
The Suspect – a person or business that has heard or been exposed to your business or advertising.
The Prospect – a person or business that has responded by showing interest in your message. We can add granularity by identifying a rung for those who merely showing interest from those who are beginning to negotiate how they want to buy. These would be your buyers or shoppers.
The Customer – a person or business that has purchased your goods or services once.
The Client or Member – a person or business that has made multiple purchases. These are your loyal customers.
The Advocate – a person or business that refers prospects to your business. Let us note that a referral will skip the expense of moving from the suspect rung to prospect. The cost of moving a referral from prospect to customer is significantly lower than new prospects coming through your suspect phase.
The Raving Fan – a person or business that can’t help themselves from selling your goods or services for you. An advocate will make referrals but a raving fan is part of your team. A healthy business will spend 30 percent of their marketing dollars on activities that move customers up to the top portion of the ladder. They will spend 70 percent of their marketing dollars on advertising seeking new customers. Many struggling businesses I have come into contact with are allocating their marketing dollars in a 5/95 split, consuming most of their budget frantically seeking new customers. They need this because they are losing customers after a single purchase. Their customers are falling off the ladder. They have made a critical mistake of not building a relationship with the customer to increase their loyalty. To bring a suspect up your ladder to the customer level through traditional advertising can cost four times the expense of attracting a repeat customer. In addition it can take 30 to 50 times the advertising dollars to bring a suspect up to the customer level versus having an advocate refer the prospect. This illustration depicts just how important it is to never lose sight of marketing to your existing customer base. Loyal customers can be your anchor through the ebbs and flows of a business cycle, and the passion of advocates and raving fans can be more effective than an in-house sales team at bringing highly qualified prospects to your business, all due to the power of a referral.