STRATEGY
Cut Costs Without Losing Customers
Discover the secrets to how you can cut costs while actually
increasing customer satisfaction.
THERE IS NO DOUBT in this economic environment that cash is king and
tough investment and cost-cutting decisions need to be made to
ensure that your business remains viable, for the sake of all
stakeholders.
However, decision-makers who are worried over the stability of their
company’s finances should remember one simple truth: The source of
your business’s cash flow is your customer base.
What all of this boils down to is the need to make smart, informed
investment and cost-cutting decisions that have both a short-term
and a long-term perspective.
If a company is not careful, it may perpetuate a business death
spiral: Cost-cutting impacts customer satisfaction and demand, which
in turn impact top-line revenue, creating the need for yet further
cost-cutting.
That vicious cycle results in a difficult position for any business
to re-emerge from. Yet it can be avoided — by maintaining a customer
perspective during these trying times.
Although each business’s model and situation are different, there
are common steps for addressing the challenge:
1. Revisit your segmentation. A business’s customer base is
its ultimate source of cash flow; however, not all customers are
created equal. It is surprising how few companies have
systematically analyzed the profitability of customer segments at
anything deeper than a gross-margin basis.
Examining your segmentation — with an eye toward which customers are
truly driving your cash flow and are absolutely critical to retain,
and which customers are less important but are consuming critical
fixed resources — will help to inform your investment and
cost-cutting decisions.
2. Recognize and appreciate your customers’ situation.
Recognize that your customers are also taking a hard look at their
expenditure profile, which may result in (1) eliminating consumption
of a particular product or service; (2) reducing consumption; or (3)
continuing to consume at the same level but with a lower-priced
product or service.
That third option is a result of the individual consumer’s switching
cost being lowered by the current economic environment. Pay
particular attention to that third group. The first and second
customer groups are difficult to influence, but the third can be
addressed by continuing to demonstrate the value that your company’s
offering delivers to them.
3. Map your customer touchpoints. Develop an understanding of
the impact that each touchpoint has on your customer and the degree
of perceived value your customer receives from each touchpoint.
Which add value and are critical to satisfaction? Which are “nice to
haves”? A simple map of known touchpoints and their hypothesized
importance will do if you haven’t studied this systematically.
Being armed with this knowledge of the relative importance of
activities will help focus your investment decisions and help avoid
cutting activities that impact satisfaction and loyalty.
4. Maintain or increase your customer marketing investment.
While investing heavily to acquire new customers may not make sense
in this economic environment, investing to retain your customers
makes absolute sense. This should not be customer marketing as
usual. We would not advocate barraging your customer base with
cross-sell and up-sell promotions.
Now is the time to increase customer equity through activities such
as these:
• Opening a dialogue with your customers: Thank your
customers for their business; recognize the economic situation and
sympathize with the challenges your customers are facing.
• Rewarding your customer base: For a period of time, offer
free services that have a limited impact on your cost structure but
deliver additional value to your customers; offer special promotions
that are low-investment items but are perceived as valuable by your
customers.
5. Step up customer service. Now is not the time to
under-deliver on your customers’ expectations, especially in
customer service. As we noted, switching costs have been reduced —
and one poor customer-service experience could be enough to drive a
customer to a competitor.
Without making a significant investment in customer service, a
business can take various actions to improve the level of service
delivered. The following are examples:
• Creating a sense of urgency in your customer-service groups:
Clearly set expectations that the business viability is dependent on
the customers’ experience and the customer service group has the
ability to make a significant impact.
• Developing programs to foster improved customer service:
Develop internal competitions for your customer-service team;
establish awards and recognition initiatives for your
customer-service team.
Current economic conditions require that businesses make difficult
investment and cost-cutting decisions. Maintaining a customer
perspective in these trying times will ensure that the right
activities are invested in and your customers are satisfied and
secure..
Those that retain their customers in the current
economic environment will not only be more resilient in the short
term but also best positioned to prosper in the long term, when the
economy begins to rebound.
J. Mark Carr is a partner, and Karl Gustafson is a
senior manager, at CMG Partners (www.cmgpartners.com), a strategic
marketing consulting firm that helps companies in a variety of
industries get more out of their growth opportunities, customer
bases and marketing investments.
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T R E N D S
Tapping talent through internship programs
Small business owners are discovering an upside to the economic
downturn: a deeper pool of talent to tap through internship
programs. Large employers have slashed the number of internships by
around a fifth this year as part of recession-related budgets cuts.
At the same time, demand for internships is rising among students
facing a tight job market where employers are putting a premium on
work experience.
Hiring permanent staff can be costlier and riskier right now because
of the uncertain economic environment, but business owners can keep
expenses in check by employing lower-cost labor, such as interns.
“It’s a good opportunity for small business owners,” says Keith
Ashmus, chair of the National Small Business Association. Ashmus,
who is also a co-founding partner at Frantz Ward LLP, a law firm in
Cleveland, says his firm’s ongoing paid-internship program is
attracting higher-caliber candidates as larger firms cut back.
Interns can energize a workplace with their enthusiasm. They can
pitch in to support projects that might otherwise languish on a back
burner. An internship program can also serve as an effective
recruitment ground for future hires.
Setting up an internship program doesn’t require a large investment
of time or money. To get the best results, business owners need to
find appropriate candidates and screen them to make sure they have
the skills needed to get the jobs they want done. Once hired,
provide a clear description of duties and give regular feedback, as
it should be a learning experience for the intern.
Source: The Wall Street Journal, August 24, 2009
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N E W S
Are Web 2.0 tools worth the investment?
Is investing in interactive Web technologies worth the time and
money? A new survey by McKinsey Quarterly polled companies about the
benefits gained from using various Web 2.0 tools and found that
several technologies were a boon not only for customer
relationships, but for relationships with employees and external
partners and suppliers.
When it came to customer-related benefits, blogs were the most
useful tool, bringing measurable benefits to 51% of responding
companies worldwide. That was followed by video-sharing and social
networking (48%) and RSS feeds (45%). Technologies such as wikis,
podcasts, ratings and tags were less useful, but still benefited
customer relationships for up to one-third of companies worldwide.
More than one-half of respondents said Web 2.0 tools increased
marketing effectiveness, while 43% reported higher customer
satisfaction and 38% reduced marketing costs. Businesses in the
high-tech/telecom industry were most likely to report
customer-related benefits of Web 2.0, at 65%, followed by
business/legal/professional services firms, at 60%.
Companies cannot simply adopt these technologies and expect their
customers to use them en masse, however. Among firms reporting
measurable benefits from Web 2.0, 74% said it was important to
integrate the tools with other forms of customer interaction, and
52% said marketing the Web 2.0 initiatives themselves was a best
practice.
Source: eMarketer.com, September 16, 2009
Red Flags Rule deadline looms for small biz
Chances are, your business is subject to a new Federal Trade
Commission (FTC) rule and you didn’t even know it. Back in January 2008, the
FTC’s FACTA Red Flags Rule went into effect, requiring financial
institutions and “creditors” to develop a written program to prevent, detect
and minimize the damage from identity theft.
What many small business owners didn’t realize is that the term “creditor”
includes any business that provides its products or services before
invoicing clients. This resulted in mass confusion regarding which
businesses are covered, so the FTC extended the compliance deadline several
times in order to get the message out. The current deadline is now set for
November 1, 2009.
Defining who is subject to this new regulation can be confusing. For
example, you may be considered a “creditor,” but your customer accounts may
not be covered by the rule. And accepting credit cards as a form of payment
does not, by itself, make you a creditor.
To help clear things up, the FTC has developed a Red Flags website (www.ftc.gov/redflagsrule)
with information that can help determine if your business is covered and how
to comply with the Rule. It includes an online compliance template to design
an Identity Theft Prevention Program, as well as articles directed to
specific businesses and industries, guidance manuals and frequently asked
questions.
Sources: www.ftc.gov, blogs.business.com
New thoughts on price and perceived quality
We’ve all heard that raising prices often raises the perceived
quality of a product or service. So does that mean that raising
prices will increase sales?
Past marketing studies support this theory. But according to new
Cornell University research, “A positive perception of a product
based on its higher price doesn’t automatically translate into a
decision to buy it.”
In order to determine the extent to which price influences
consumers’ attitudes toward a product, the researchers conducted
experiments with differently priced foods. A few of the findings:
Participants did not clearly favor the higher-priced items.
Furthermore, a higher price tag can create a favorable first
impression of an unfamiliar item, but this may not be enough for a
consumer to buy it.
The researchers believe that price still has some effect on demand
but that the effects are too small to be significant.
“When you make something more expensive, the psychological effect
may make it more attractive, but that’s forgetting good old
economics — when something is more expensive, you can afford less of
it,” said one of the researchers.
Source: bnet.com, September 10, 2009
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T I P S
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Do you have a lot of prospects pending
but not closing? You may not be asking the tough questions early
enough. Find out if the person you are talking to is really a player by
asking the “cleansing question.” “Mr./Ms. Prospect: We’ve been talking
for a while now and have agreed that we’d be able to help you with
_________. I want to make sure that I’m not wasting your time or mine.
What is the probability that we’ll be able to work together in the next
month?” If they say “zero probability,” great — now you can find out the
real problem or move them out of your pending file. If they give some
other probability, get a commitment and time frame.
Source: www.businessbyphone.com
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When giving negative feedback to
an employee, paint a picture of the behavior you expect to
see in the future. Be specific about the behavior you want
improved or eliminated. For example, don’t say “You’re always
late for work.” Instead, say “I’d like to see you at your desk,
ready to work, by 8:30 every morning.”
Source: Manager’s Edge, 1101
King St., Alexandria, VA 22314
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Get more out of your coupons
with a few tweaks. First of all, never give away single
coupons to just one customer. If you give away multiple coupons,
people are sure to be walking around the office handing them
out. Next, get everyone recruiting friends for your discount by
having a minimum number of participants required to activate it.
Instead of the generic 10% off for each coupon, make it a
significant discount that only works if they bring in three
friends. Finally, help your coupons spread by putting them in an
email and let your subscribers pass it on to their friends.
Source: www.gaspedal.com
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Diffuse an irate person with
this question. When Los Angeles-based wedding planner Scott
Regberg has a customer go into an out-of-control rant over a
minor, readily handled problem and act as though it’s the end of
the world, he calmly asks: “Do you really believe that?” The
trick is to ask the question not in a hostile or degrading
manner, but in a calm and straightforward way. It causes most
people who use hyperbole or exaggeration to backpedal and
restate their position, allowing you to pin down the details of
the actual problem. In the uncommon instance that someone
replies with a firm “yes,” be reachable and listen carefully to
what they have to say. Either way, you’ll have the opportunity
to sort through the problem.
Source: Just Listen: Discover
the Secret to Getting Through to Absolutely Anyone by Mark
Goulston, AMACOM (2009)
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Peer-to-peer lender, Kiva, now
facilitates microloans to entrepreneurs in the U.S.
Originally created for business owners in the developing world,
Kiva has partnered up with Opportunity Fund and Accion USA to
replicate its lending model in this country. No loan will exceed
$10,000 and loans are targeted at entrepreneurs with low or
moderate incomes who can’t get credit. Kiva does not define who
qualifies for a loan and leaves that job to its partners.
Opportunity Fund makes loans to those with less than 80% of an
area’s median income, while Accion says most of its borrowers
are low- to moderate-income immigrants or minorities.
Source: www.businessweek.com
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Is your Google AdWords bidding
strategy optimized? One tool to help you find out is
Google’s new Bid Simulator. The feature allows advertisers to
simulate what could have happened had they bid differently on
the previous campaign week. The feature should enable
advertisers to make better judgments on which keywords to alter
spending on, giving a better picture of the trade-off between
cost and click-through volume.
Source: www.bizreport.com
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Are your sales goals too high?
Sales managers often think that it’s a good idea to set goals
just a little higher each time. However, arbitrarily setting
goals 10% or 20% higher than the last period can actually be
demotivating if they are unreachable. Good salespeople want to
reach their goals and can become depressed if they don’t. The
most effective sales goals are based on salespeople’s behaviors
and not on something tied to outside forces — like the economy —
that they can’t control. Make sure goals are customized to fit
the particulars of each salesperson’s situation. Goals should be
broken down into small bites or a series of steps so that reps
see a clear path to reach the larger goal.
Source: www.sellingpower.com
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If your company uses “robocalls”
(sending prerecorded messages to telephones) for lead
generation, beginning September 1, the FTC requires that you
obtain written permission to send prerecorded sales and
solicitation voice messages to consumers. Additionally,
telemarketers must provide dedicated toll-free, opt-out phone
numbers for all messages left on voice mails where automatic
opt-out functions are not applicable.
Source: www.targetmarketingmag.com
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Get publicity by finding out
what stories will be covered before they hit the newsstands
or get on the air? The secret is editorial calendars. These
calendars allow you to see what topics a media outlet will be
covering in the future and help your company to get some
much-needed exposure. Typically, editorial calendars can be
found in advertising sales kits. Look over each calendar and
determine which of their upcoming stories you may be able to
offer your knowledge as a source. Don’t wait to the last minute
to pitch your idea, however. A good rule of thumb is that they
will be looking for information about four months ahead of
publication.
Source: www.thepowerpublicist.com
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