Let's look at typical marketing at dealerships and many other businesses. Step 1: Run an ad in the paper. Step 2: Hope for traffic. Step 3: Hope to sell something. and Step 4: Repeat the process. At least that's the way it seems to be working right now in this strange economy. Really, step 2 is intended to create traffic and step 3 to sell some of them.
If you really think about it, when it comes to transportation, the vast majority of a dealership's business is not based on need, but desire. So, when people cut back, they rein in their desire for change in their fear of change. Interesting. If need were driving the economy, it would be a very small in comparison with where it is normally. We could all cut our food budgets in half if we needed to. Buying a new car could be put off for a long time. So, this is one of the main reasons the ads don't create the traffic they used to.
Let's try some more meaningful marketing. In 1993, I read the book The One To One Future - Building Relationships One Customer At A Time by Don Peppers and Martha Rogers, Ph.D. Basically, the book said that the time honored mass marketing rules of the past are not working well anymore and it is time to focus on your own best customers while taking your focus off of market share and onto customer share. I thought the book hit the mark squarely back in 1993 and it is still on target in my opinion--even with the addition of the Internet.
The One To One Future states: "If your company is typical, it costs you five times as much to get a single new customer as it does to keep one you already have. Moreover, most businesses lose about 25 percent of their customers annually. If you could cut just 5 percent off of that customer loss, you could add as much as 100 percent to your bottom line. Yet companies allocate six times as much to the expensive process of trying to generate new customers as they do to the less expensive process of trying to retain their current ones."
They continue: "If you see a single customer not as a one-time transaction, but as a series of transactions over time--not as an on-off switch, but as a volume dial--then you can think of the task of generating a greater share of the customer's business as maximizing an individual's lifetime value to your firm."
"In Customers For Life, car dealer Carl Sewell estimates that each of the customers that venture for the first time into one of his dealerships' showrooms represents a potential lifetime value of over $300,000. He gets to this figure simply by calculating the number of automobiles each new customer is likely to buy during the course of his or her lifetime and estimating their average price, along with the service his own dealerships can expect to deliver and charge for. It's a very common sense approach. General Motors' vice president for consumer development, after accounting not just for cars purchased and service rendered, but also for income from auto loan financing, figures that a loyal customer is worth $400,000 over a lifetime."
What is missing from the desired marketing results that many businesses are having today is that they are focused on the new customer and spending almost all their resources trying to increase the number of new customers when they could be achieving much greater returns by focusing on building on the client base they already have. Yet most, have no system for doing that and spend little or none of their resources in this area.
Think about what was said earlier in the book quote, ". . . most businesses lose about 25 percent of their customers annually." If a business is spending almost all its resources trying to get new business with little thought to the clients they already have, and they are losing 25 percent per year of those new customers (I think it is much higher than 25%), that is a problem in good times, but when a business downturn hits, it can be devastating--even fatal. This is one of the main reasons for many business closings in this economy in my opinion. If you're always focused on the new customer and now there are less than 50% of those over a period of time, it doesn't take long for the losses to mount up.
Although changing to this one to one kind of marketing focus is not a quick fix--it takes time--it is never too late to get going on it. You could read both of these books this week and that will help a good deal to get a different perspective. Tomorrow, I'll delve into more that can be done.
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