Existing Customers Create New Customers

Companies spend a disproportionate amount of money on trying to acquire new customers. Let’s say a company wants to find just ten new customers. How much could they expect to spend?

The cost to gain 10 new customers via TV, Pay Per Click or Direct Mail

Let’s hope that company is selling something that has a margin of more than $80, or they won’t see any profit. If only they knew that keeping existing customers happy naturally creates new customers. And it costs very little.

More often, companies treat existing customers like chopped liver. They forget about—or worse, punish– someone as soon as he buys something from them.

If you are a satellite television customer, the cable company will be glad to give you three months of free cable to become their new customer. If you are an existing cable customer, you know to expect the onerous contracts with rate raises and dread calling the dismal customer service when your signal goes out.

Companies focus on acquiring new customers at the expense of maintaining existing customers for mainly two reasons:

  1. That’s what they’ve always done. When a product or company is brand new, there are no existing customers. All marketing efforts have to be focused on gaining new customers. This marketing inertia carries through well after a company has become established.
  2. Those evil competitors! We must act now to steal market share away from them! What companies don’t think about is that it costs more to steal a customer from a competitor than to keep an existing customer.

An existing customer who is loyal to your company will buy more products more often and will rave about you to their friends. We all nod appreciatively when we are told that word-of-mouth and referrals are the most powerful motivators to encourage customers to try a new product, but then we go on with our e-mail blasts and Val-Pak coupons. Instead, we should be creating that word-of-mouth by inspiring our existing customers to rave about us!

But how do you create raving customers? Anticipate what would delight them. Then, deliver it! Netflix recently sent me an email that because of their increased operational efficiencies, they would be lowering my monthly subscription fee. Oh, and by the way, now I can watch thousands more movies instantly, and they created a movie player that works on my Mac. All without me having to ask. I’m delighted! I’m loyal! And here I am telling you about Netflix.

But what if you don’t know what would delight your customers? Ask them. A part of my consulting work is finding out what a company’s favorite customers love about them and to help them do that for every customer.

Remember, if we have existing customers, that means prospective customers don’t even exist yet. Companies should only spend a proportionate amount of their marketing budget on customers who don’t exist yet. Don’t invest yourself too heavily in imaginary friends.

Instead, we should focus a higher proportion of our efforts on relationships with existing customers. If we delight them, they will reward us by buying more from us with higher frequency. And, as a benefit, they will create our new customers for us.

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