MANY PEOPLE think that the purpose of a business is simply to make a profit. The real purpose, however, as Peter Drucker explained, is to “create and keep a customer.” All the efforts of a successful business are aimed at creating customers in some way. Profits are the result of creating and keeping customers in a cost-effective way over time.
The cost of creating customers initially is very high. The cost of keeping them is far lower than the cost of creating them in the first place. If you study the companies that are the most efficient at marketing, you will find that their strategies are all aimed at creating customers and then holding on to them.
Perhaps the most profitable marketing strategy is that of developing your products or services to a high level of quality. Quality is the most powerful and effective of all marketing strategies. Fully 90 percent of your business success will be determined by the quality of what you produce in the first place. People will always buy from a quality supplier, pay higher prices, and return over and over again to a company that provides them with high-quality goods and services.
What is quality? This subject has been discussed and debated for years. Philip Crosby, founder of the Quality College, said that “quality is the degree to which your product does what you say it will do when you sell it, and continues to do it.”
Perhaps the best definition of a brand, which is your reputation in the marketplace, is “the promises you make and the promises you keep.” Your quality rating is determined by what percentage of the time your product or service delivers on the promises you made to attract your customer to buy in the first place.
The second fundamental strategy for successful marketing is quality service. According to PIMS (Profit Impact for Marketing Strategy), a study conducted over many years by Harvard University, the quality of a product is contained in two factors: the product itself, and the way the product is sold and serviced.
It is not only the product itself, but the way that you treat your customers, from the first contact through their entire time with you using your product or service. People will always come back to a quality supplier of goods and services, no matter what the price.
There is another critical factor in marketing success, and it has to do with relationships. More and more today we are finding that it is the quality of our business relationships that determines whether we create and keep a substantial number of customers.
Sometimes I ask my audiences, “What percentage of people’s decision making is emotional and what percentage is logical?”
After they have thrown out a few answers, I tell them, “People are 100 percent emotional.” They decide emotionally, and then they justify logically. It is how they feel, and especially how they believe they will feel after the purchase, that determines whether they make the purchase at all.
Jan Carlzon, the former president of SAS Airlines who made SAS one of the most profitable companies in Europe, wrote a book about his experiences called Moments of Truth. In this groundbreaking book, he pointed out that every customer contact is a “moment of truth” that has an effect and can largely determine whether or not that customer ever does business with you again. Since the cost of satisfying an existing customer is about one-tenth of the cost of marketing, advertising, promoting, and selling to a new customer, it is the companies that can create and keep customers by taking excellent care of them that are invariably the most profitable and fastest growing.
Each company is in the business of “buying customers.” All companies have a specific “cost of acquisition,” whether they know what it is or not. This is perhaps the single most important cost factor in the success of any business.
Your cost of acquisition is composed of all the monies that you pay to any person, and in any way, to buy a customer for the first time. A company stays in business if it can buy customers at a lower amount than the net profit that the customer will yield to the company in the course of the customer’s buying lifetime.
Whenever you read about companies that have sales in the millions or even billions of dollars, but still lose money, you are seeing an example of the old saying: “We lose money on every sale, but we hope to make it up on the volume.”
When companies lose money, it is primarily because the cost of acquisition to that company for an individual customer is greater than the total profit that the customer will yield to the company.
If your company can buy customers at a lower cost than the profit you can earn from that customer, you can spend almost any amount to buy more and more customers. This is one of the great secrets of business success, and it is a core requirement for effective marketing.