How to Grow Your Business in a Down Economy

by

Anyone can grow a business in a thriving economy. Separating people from their money is easy when there is a steady flow of income and every economic news story promising more. Implementing successful growth strategies is more challenging when the economic environment includes the threat of lost income and little hope for new opportunities.

Continuous news coverage of failing businesses, lost jobs, corrupt management, and devastating wars is terrifying. Fear paralyzes people even when they haven’t lost their job, been affected by management corruption, and are not near a war zone. All they want to do is bunker down and hold on to their belongings. If your business includes bunker construction or survival kits, this is your economy. For the rest of us, we have to find new ways to grow our companies.

It’s challenging, but growing a business in a down economy is not an impossible task. Successful companies like Walt Disney, Hewlett-Packard, and Microsoft were launched during a recession. If you have an established business with a customer base, you already have a foundation. Building on it is easier than starting from nothing.

The growth tactics that work in a down economy will continue to produce sales as conditions improve. The investment you make to turn your business around will continue to generate a return for years to come. It’s hard to think about long term returns when facing short term disaster but knowing that the things you do now create a sustainable foundation makes it easier to justify the effort and expense.

The first steps to turning your business around are:

Stop the bleeding

When disaster strikes a community the first responders use a process called triage to sort injured people into groups based on their need for medical treatment. This allows them to maximize the effectiveness of limited resources. Businesses in trouble need triage. Management has to take an objective look at where the money is going and how well it is working for the company. Expenditures that don’t improve customer relationships, increase sales, or reduce costs have to be eliminated.

Improve your service

Keeping the customers you have is a top priority. Review processes and policies to insure that you are providing top notch service. The easier you make it for your current customers to buy from you, the more likely they will remain loyal. Streamlining processes to improve the customer experience has the added bonus of reducing costs. Fewer steps mean less handling is involved. This is a win-win step. It increases customer retention and saves money.

Challenge your team

If your business fails, your employees lose their jobs. They know this, but most people don’t think about how the company’s health affects their livelihood until it is too late. Ask your team to share ideas on how to improve service, acquire customers, and reduce costs. The people doing the work often have the best ideas for making it better.

Reactivate old customers

Sometimes people stop buying from a company before their customer life span is complete. Reaching out to good customers with a history of purchases can provide insight into why they stopped buying, re-engage them, or both. Doing this well requires strategic planning because it can be expensive. Start with the ones who spent the most money before leaving and work your way down the list until it stops being effective.

Engage current customers

Your best sales team is the people who love your products and services. Contrary to social media lore they will not aggressively promote your business without encouragement from you. Give them a reason (or ten reasons) to share their experiences with friends and family. When you reward their efforts, they are much more aggressive in their sharing.

Expand your business

Increasing products, services, or territory is counter intuitive when sales are down and costs are increasing. Even so, this step can create a turning point for your company. Look for opportunities to repurpose products or services, add accessories to best sellers, and opportunities to attract new customers. Assess the costs and risks but don’t let fear drive your decisions.

{ 3 comments }

Why Hit & Run Customers Cost Money & Hurt Your Company

by

Today’s economic conditions require businesses to squeeze every penny out of each transaction. Doing this requires an in-depth understanding of customer behavior so that the marketing and service strategy optimizes the return. In our video “How to Get the Most out of New Customers”, I talk about the importance of recognizing hit and run customers before they cost you money. Franck Silvestre responded by asking, “Could you explain why hit and run customers cost money?”

Franck, it’s tempting to think of all new customers as being equal. They are contributing to cash flow and look alike when they make their first purchases. We, as marketers, are used to people becoming long term customers after the first buy. This is why so many companies focus more on acquisition than retention. Historically, 95 percent or more of the people who bought once from a company would continue to buy if there wasn’t a major service issue. Marketing worked something like this: Find the best sources for customer acquisition, provide incentive to buy, and reap the rewards of lifetime value.

Things are different now. People are using the Internet to find the companies selling the products they need. With a few clicks, they can compare prices, service, and shipping charges. In other words, people have options and they are using them to get the best deal.

In our analysis, we see as much as 60 percent of new customers leaving after their first or second purchase.

Think about that for a minute. Before the Internet, five percent or less of the new customers acquired were hit and runners. It wasn’t enough to raise any flags. After the Internet, 60 percent are hit and runners. This is a huge difference that has a direct effect on the profitability and success of the business.

The scariest part is that traditional marketing metrics don’t identify hit and run customers. The newest members to the database continue to receive marketing materials until they cycle out of the active segment. This escalates costs without providing any return on investment.

Let’s say that your company invests $2 per month in marketing dollars for every active customer in your database. Activity is defined as having purchased within the last twelve months. The average acquisition is 1,000 customers per month.

The annual marketing costs for each customer is $24 which means that you are investing $288,000 annually in marketing to newly acquired customers. If 5 percent are hit and runners then $14,400 of your marketing budget is wasted. The costs of identifying those customers would exceed the initial price. When that number jumps to 40 or 60 percent, then $115,200 to $172,800 are lost. The sooner you are able to identify the hit and runners so you can stop marketing to them, the less it will cost.

A few business models thrive off of hit and run shoppers.

WOOT! is a good example. Their prices are so good they naturally attract customers. Once people find out about the site, they watch for the deals. Contrary to the social media marketing myths, most companies can not replicate this activity. Thousands of followers, fans, and updates don’t convert into cash without an effective marketing strategy that includes customer retention.

{ 8 comments }

When Attack Comments are Cries for Help

by

Context is everything. Yesterday this point was driven home to me by a comment on my blog that suggested that I was better suited for government work. My first thought when I read the comment was “what is he thinking?” Fortunately before responding I realized that we were talking about two different things and both of us were right.

When I wrote “5 Things to do when Business is Slow“, I was thinking about the normal lulls in a cyclical business. They are predictable and can be used to improve the corporate environment when management plans well. The tips are solid and can be used for positive growth in employee skills, morale, and productivity.

The comment called my points “absurd” and questioned my qualifications. Since the tips includes things I’ve successfully implemented with incredible results, I knew they weren’t “absurd” and wondered why he was being hostile. After kicking my ego out of the way, I realized that the post was absurd if you were looking for tips to save a failing business. In today’s economic climate, companies are dying and people are hurting. Someone coming from that perspective would naturally find the tips disappointing.

There are two type of business slow periods. One is the normal cycle where products or services are out of season. Finding ways to maximize the benefits during a temporary sales decline is good management. The other is a death spiral possibly caused by events out of your control. When a company is in this stage, following the tips in my post is absurd.

I’m grateful for the comment because it gave me a different perspective and the inspiration to write another post with tips on how to grow a business during an economic downturn. It also reminded me to think about other people’s perspective before responding. The seemingly negative comment was reflective of the disappointment felt when the post didn’t offer viable solutions as expected. It was more of a cry for help than an attack on my credibility. In other words, it wasn’t about me.

This experience leaves me wondering how much nicer social networking would be if everyone looked past negative comments for ways we could help make things better for each other?

{ 14 comments }

How to Get the Most From New Customers

by

Growing your business requires customer acquisition. If you aren’t continuously bringing in new people to replace the ones who are completing their buying life cycle, your company is dying. Newly acquired customers fit one of three types. Adapting your marketing strategy to maximize your return is the best way to move your company forward. The three types are:

Active: Moves into the buying cycle and stays until the lifespan is complete.

Discount: Only purchases sale or discounted items.

Hit-&-Run: Purchases once or twice and never returns.

Watch the video for tips on how to market smarter.

For tools to help measure customer acquisition, retention and costs, check out our Customer Loyalty Toolkit.

{ 29 comments }

What If Everything You Believe about Social Media is Wrong?

by

What if going viral was the beginning of the end for your company instead of a dream come true? Or, spending hours on end tweeting, posting, and conversing was an epic waste of time? What if you could get past the hype and discover the real secret to social media success? Would it change how you use the channel for your business?

Participation in social media is relatively new to most traditional marketers. When you come to the channel from a direct marketing background as I did, it’s natural to look for landmarks and guidance through unfamiliar territory. Landmarks are hard to find because social media is vastly different from every other channel. Guidance is questionable because most of it is based on the experiences of people creating personal brands instead of established businesses.

Being a direct marketer, I’ve spent the last few years doing what direct marketers do. I tested. And, I tested some more. I followed the guidance of the people who preceded me and documented the results. When my results were less than stellar (translation: dismal), I compared what we were told to do with what the guides were actually doing. I found that many of the leaders were buying followers, using bots, and generally speaking, misleading people who wanted to learn about the channel.

There were many times during the process of learning about social media that I was tempted to walk away from it. The ugliness of communities warring over perceived slights was almost too much to handle. Please feel free to call me stubborn for continuing to persist. Some of my best friends do. But, before you do, you should know that there was more to it than an unwillingness to accept defeat. I saw something in all of the chaos and misdirected guidance that can make the difference between a company’s success and failure.

There is a secret to social media success that has nothing to do with viral marketing, very little to do with fan/follower acquisition, and everything to do with customer relations.

Viral campaigns are extremely rare, attract hit-&-run shoppers, require extensive resources to manage, and are impossible to replicate. Social media is much more than a rainbow chasing channel. It is an opportunity to convert transactional relationships into interactive ones.

Social media isn’t an acquisition channel, it is a retention tool. Think about that for a minute. Social networking is better at keeping customers than it is at getting them. If this is true, then most social marketing strategies start at the wrong place. They begin with the platform and creating content designed to attract conversation. A better approach is to begin with your customers and let them guide you.

Coca-Cola figured this out pretty quickly. Well, in fairness, they lucked into it because their fans built their community. The corporate decision to adopt the community instead of dismantling it was a stroke of genius, but the heavy lifting was done by the fans.

Odds are that your company isn’t like Coca-Cola with avid fans that invest their time in creating a community to honor your products or services. You have to do the heavy lifting yourself. It’s possible that you’ll get lucky if you start with the platform and try to attract customers. But why take that chance?

Wouldn’t it be better to start with your customers and let them guide you? After all, improving relationships with your customers should always be your primary objective. Here are some tips to get things started:

  • Capture your customers’ social media user information at every touchpoint. Have your IT team add some fields to your database to store the data. If they can’t do it, get a better IT team. Use other tools to store the information until the new team gets everything set up.
  • Use the captured information to budget your resources. The platform that has the most customer participation gets the most resources. This is no different from managing your catalog campaigns. Put your money where you get the most return.
  • Establish benchmarks so you can see cause and effect even when measurable metrics are hard to capture. It’s possible to measure the unknown if you create a good foundation.
  • Measure the value of customers by acquisition and participation source. You may find that the new customers coming in aren’t as valuable as the ones who are cycling out. The sooner you know this, the less money you’ll lose.
  • Reach out to your customers via the social channels. They are easier to recognize now that you’ve captured their handles. Talk to them and start something special.

Social media provides a way for direct marketing and catalog companies to get to know their customers. It’s a shame to waste that opportunity on pipe dreams of rainbows, unicorns, and viral campaigns. And, who knows? You might just become the next big thing.

{ 18 comments }

← Previous Entries

Next Entries →