Customer value optimization is one of the most overlooked marketing strategies. It’s an opportunity that far too many businesses are missing — and they don’t even know it.
Not focusing on customer value is a mistake that’s critical to avoid because it can really impact your sales, and your advertising costs in a big way.
To put this in context, I want to relate to you a story that I just recently read this in a book that was recommended to me by Dan Kennedy, called What a Way to Live and Make a Living. It’s the story of Lyman Wood, a serial entrepreneur, copywriter, and marketing consultant, who had a lot of very interesting business adventures.
The state of Vermont actually proclaimed a day in his honor — Lyman Wood Day. In the official proclamation, they dubbed him “the ‘silent giant’ who has helped foster a $500 million a year industry”. A very interesting guy, to say the least — and the book is a must read for anyone interested in direct marketing.
At one point in his career, he was consulting for the J. Walter Thompson Advertising Agency. They were trying to win the Ford Motor Company account from another agency. One of the big problems that Ford faced at the time, obviously, was how to sell more cars. But they tended to prefer “conquesting”. And what that means is they would rather spend money to go out and steal customers from their competitors, than get their own customers. They found it very satisfying, but not an efficient use of ad spend.
They were spending millions of dollars on ads that were getting no results
The ad agency they’d hired at the time was doing some direct mail, which can be extremely cost effective if done right. But there was a problem. They were mailing to everybody within a geographic zone. They would go out and get all the addresses and just send these mass mailings to everybody on the block.
Lyman found out that Ford had really accurate records of when people tended to buy their cars. So he said let’s look at when a Ford owner tends to come back and purchase another vehicle, and let’s mail to just that list. It turned out it was just about two years after owning a Ford car, they would come back to buy another one.
Well, Ford Motor Company liked the idea, but they said, “Well, no, let’s go out and raid the Chevy owners.” So Lyman wrote a letter, several letters actually, and they mailed these letters out to Chevy owners, who had owned for about two years. And that’s when all hell broke loose. They were blown away with the number of people that were all of a sudden calling in. The salesmen at the dealers loved the leads, of course.
It went so well that the marketers at Ford decided, “Well, all right, we’ll go ahead and mail to our own customers as well.” And that got them another flood of sales. Marketing history was made with that one campaign. And, with Lyman’s help, J. Walter Thompson ended up winning the Ford Account.
So how can you benefit from all this?
Well, as business owners, it’s so easy to miss one little thing that can make a huge difference. And it’s this…
We tend to think that what we need to grow our businesses is to get new customers, right? When sales are down we say, “Let’s go out and round up some new customers! Let’s spend all this money on Facebook and Google ads and get us some new customers!! That’s what we need, right?”
Well, here’s a little something to think about: How much does it cost to acquire a new customer?
If you look at what Lyman Wood helped Ford Motor Company discover, what you’ll find is that the cost of building value with an existing customer turns out to be a fraction of what it costs to go out and get new ones.
Not as exciting maybe… but way less costly.
At Lyman’s recommendation, Ford ran a tiny targeted mailing to a tight little group of prospects. Compare that to all the millions of dollars that they were spending on television and that was getting hardly any results. And that’s even more true today with ad costs going up the way they are.
So here’s something to consider: What could you do with your current customers that you aren’t already doing? And how could that turn into more business for you at a fraction of the cost?
You might even consider something like an 80/20 strategy, where 80% of your effort, ad spend and time goes into taking care of the customers that you’ve already got. How else you could provide value for them? And what could that do to increase your revenues with products and services that you could offer them?
There are at least a good half dozen marketing strategies and tactics you can incorporate, including a reactivation campaign and other strategies.
Rather than cut your ad budget and get fewer customers, grow your customer value.
With customer acquisition, like so much else in life, you get what you pay for. Might as well pay the price for a good customer, and grow their value into GREAT customers.
In the long run, it’s a lot less expensive and a lot more fun.