Investing in Customers, during Recession
If, during economic growth you ‘reward’ customers for greater usage and spending, you ‘invest’ in them when there is an economic downturn.
The classic principles of Customer Loyalty seem to go haywire during an economic downturn. The loyal customer who was your advocate and evangelist seems to have switched his allegiance, the increasing profits customers were to provide as shown in your Customer Lifetime Value projections may show negative trends and all your attractive marketing offers designed to create the ‘wow’ is showing poor returns. Confusing times, indeed!
…But as it is said, ‘from confusion comes opportunity’
It has been displayed in the past that smart companies use recessionary times to consolidate their market share, by wooing customers defecting from their competitors, while being able to retain their existing customers. As it is oft quoted, ‘selling to a new customer is 5 times more expensive that to an existing customer’. So how do companies manage to retain customers during recessionary times? Put simply, They invest in them!
If, during economic growth you ‘reward’ customers for greater usage and spending, you ‘invest’ in them when there is an economic downturn. Investing in a customer is achieved by providing benefits, discounts which are not tied to usage, but those that directly address customer fears due to economic challenges. The results for these investments are the coming true of the profits the Customer Lifetime Value projections promised, notwithstanding the slight blip representing the economic downturn.It is tempting to conclude that the only way to retain customers during recession is by offering everyday low prices, especially if you observe how well a Walmart or McDonalds performs. While it is true that customers are price sensitive during recessionary times, a loyal customer always looks for better value per interaction. So if the customer feels that he is continually deriving more value by pledging his allegiance with your company, he might not go to the lengths of taking risks by being associated with a new company, in response to the need to save money.
It is also a fact that, paradoxically, luxury is considered recession proof, which hints at the customer’s aspiration for luxury during recessionary times. So a smart marketer would invest in pampering a customer during recession than any other time. The same applies to the B2B markets too. Some examples from our clients in the manufacturing industry- A complimentary free month of service contract coverage on 1 year support agreements on machinery analyzers.
- Free software updates even when customers are not covered under a service agreement.
So do not let recession be the elephant in the room, instead address it directly by planning on investing in your customer. Do not be instrumental in the premature death of your customer’s loyalty towards your company but instead build an even better breed of a loyal customer, by investing in them.
Have you been successful in retaining customers with recession-specific offers and customer relationship initiatives? If so, we would love to hear from you.
Comments
A nice one Sinoi.
My only concern here is: Are companies willing to look at investing in customers with long-term foresight where profit margins are the key to satisfying the stakeholders?
If yes, then what you suggest here would be a viable option.
P.S.: The profit margin is just one such factor. There might be more in the current scenario.
Posted by: Chandra Sekhar | June 8, 2009 04:29 AM
Thanks for your comments, Chandra Sekhar, and you raise a very valid question.
However, focus on long term vision as opposed to short term goals, has always been the hallmark of a ‘Built to Last’ company. While researching on this topic, I came across mentions of certain studies during the 1989-91 recessionary period showing that brands that continued their marketing and customer relationship initiatives saw remarkable sales growth such as Jif Peanut Butter (57%)and Kraft Salad Dressing (70%) Coors Light (15%) , Bud Light (16%), Pizza Hut (60%) { btw, I don't think this indicates that people resorted to junk food and alcohol during recession ;))
But as you suspected, many don't do this and many fail, as a result.
Posted by: Sinoi Daniel Mathai | June 8, 2009 06:48 AM