CHAPTER
15

Use Existing Customers to Gain New Ones

I recently presented to a room filled with senior marketing executives. One executive who shall remain nameless, representing one of the large financial services/credit card companies, asked me this question: “What if we don't have enough customers? What if we are losing existing customers because of [insert some ridiculous excuse here] and therefore need to replace them with new [insert some ridiculous adjective here like younger, hipper, richer, poorer, blacker, whiter, thinner, fatter, you get the drift-er] ones?” In my head I was throttling this person, trying to shake some sense into that out-of-touch head. Outside of my head, I politely indicated I would ever-so-gently push back and challenge that assertion.

Any churn or attrition whatsoever is unacceptable. Industry averages and norms are nothing but numbers or percentages. We deal with human beings, and there should never be a reason to lose a single customer—not ever. I was once taught to treat every customer like my best customer—and my only customer.

Granted, the funnel (traditional or flipped) may sprout some leaks from time to time, but if you're questioning whether you have enough customers to begin with or are concerned they're not getting any younger, isn't the real issue at hand a failure to activate?

The central premise from Flip the Funnel is that retention becomes the new acquisition, and in doing so, companies can grow from the inside-out, acquiring NEW customers via EXISTING ones. Retention thus moves from an end unto itself to a means to an end. In other words, through (1) upselling, (2) cross-selling, (3) increased frequency, (4) increased recency, (5) content creation, (6) conversation, and (7) referrals, the funnel truly flips and, in the process, customer count, word-of-mouth, revenues, tenure, loyalty, and the bottom line increase.

I wonder how much of that was going on with the company in question.

Z.E.R.O. asserts that a brand does not need new customers via traditional acquisition channels led by paid media because there are enough existing customers who are able to deliver against objectives 1 through 7, which of course includes bringing in new customers in the process.

As a sidebar, this does not exclude companies launching completely new products or service lines (after all, there is already an installed base within the extended ecosystem) or even completely new companies launching from scratch (you don't have a Rolodex?) using an initial influencer open or closed beta test as the nucleus for future growth. Nor does it exclude smaller companies with smaller bases: everything and everyone has to begin somewhere. Come to think of it, wouldn't the plethora of success stories from the past decade or two (Skype, Amazon, Instagram, Facebook, Google, Zappos, and the list continues) all qualify under these “exclusions?”

Now here comes the call to action (as this is an action plan after all):

1. How many of pathways 1 through 7 are you currently executing against?
2. How well are you executing against them? Are we talking lip-service, superficial check-listing or something more substantial?
3. How much are you investing? Or put differently, are you investing enough?
4. And if the answer to question 3 is no, to what extent are you considering optimization scenarios to invest sufficiently?
5. And in the spirit of closing the loop, how well are you identifying and consequently tracking and plugging the leaks, that is, attrition, churn, defection (passive: to alternatives), switching (active: to competitors), and atrophy (just fading away with nary a fight or struggle to retain)?

To take a massive leap backward, it is time you consider a set of chasms so huge—virtually uncrossable—that it would make Jim Collins turn in his grave (and he's still alive!).

Chasm 1: Based on the percentage of total revenue that comes from your existing customers (repeat: returning customers), proportionately how much of your marketing budget do you currently invest in them?

Chasm 2: Of that same revenue contribution, proportionately how much of that marketing budget do you spend against your power users, the heavy buyers, the heavy talkers, the heavy buyers/talkers? Do you even know? And who and where they are?

Chasm 3: Of the percentage of new business generated via existing customers through referrals, reviews, and/or recommendations, to what extent are you recognizing and rewarding, formalizing, amplifying, or activating?

Perhaps I'm not making myself clear. Why on Earth are you wasting money on strangers and neglecting your most valuable customers, rather than taking advantage of those customers who are basically doing your job for you—better (efficiently, effectively, credibly) than you could ever do it?

How much business that comes from your existing customers are you falsely taking credit for, calling it ROI (return on your paid media investment) when it should be called ROA (return on nonpaid or nonmedia advocacy)?

Two-Way Street

Think about it: Every single time you ask your customers to tweet or share any nugget of content with their network, you are essentially asking for a freebie. And if you don't provide something back in return, this is tantamount to manipulation, coercion, greed, and shortsighted selfishness. On the flip side, why not offer a simple thank you, a retweet, a keychain? Or via universal currency, provide the ability to truly activate against the three-C model of content, conversation, and (re)commendations.

The Basics: Cross-Sell and Upsell

What six words added instant profits to McDonald's bottom line?

Would. You. Like. Fries. With. That?

This simple phrase is just that: simple. And yet, it is a lot more complicated to implement consistently across the board. Ultimately, it is a function of training, and it shouldn't be a stretch for a cashier to utter those indomitable six words (they used to be, “Would you like to supersize that?”) or even improvise with a repertoire with two to three key phrases. And yet it is.

In April 2013, the Wall Street Journal ran an article titled “McDonald's Tackles Repair of ‘Broken’ Service.” Amidst disappointing earnings, McDonald's is turning away from the paid media promise of “We love to see you smile” and toward the delivery on the promise of “If we don't smile ourselves, how on Earth do we expect you to?” In other words, it is returning to ground Z.E.R.O.—its stores, its people, its owned assets put to the retention test. Perhaps if McDonald's completed the framework by flexing its entrepreneurial muscles to work with a startup that allows customers to snap photos of smiling (or snarling) employees, it could fast-track a path to producing true zealots.

The real point here is to focus on existing customers as a source of incremental (new) revenue. Chapter 16 will focus on the holistic customer experience, which itself is built or spun around one absolutely critical truism: The most powerful moment for any given brand is the Point of Purchase (what I call P.O.P., which also stands for Place of Purchase and Proof of Purchase). It is the moment at which two worlds collide. In the form of the traditional and flipped funnels, aka the Marketing Bowtie. Instead of taking a shortsighted approach to making a quick buck from a sterile transaction, focus on maximizing that purchase potential and recognizing its influence in terms of how it affects future revenue—both direct (same person) and indirect (different people).

Apple of My Eye

Apple's retail stores are a modern-day miracle. At a time when brick-and-mortar stores are flailing and struggling to deal with the very real threat of eradication or extinction, Apple is expanding and conquering its rivals with premium real estate investment. Apple retail stores are marvels to behold, a blue ocean of blue shirts (as opposed to Best Buy's Blue Shirts) that almost outnumber customers. The store is completely fluid in that every single inch of retail space is available for consultative selling and, ultimately, transacting in the form of virtual cash registers (an iPhone app). Apple's Genius Bar offers a host of free services, but so help me, I've never walked into an Apple store for free advice and not walked out having purchased something.

Apple is the king of maximizing value from existing customers in the form of a vertically integrated masterpiece of an ecosystem that empowers consumers by making it simple to buy and simple to use. By creating products that not only do good but look good, Apple has also built in a very powerful referral network that lets the product do the talking.

Prime Time

Amazon is another company that truly understands the power of using existing customers to gain new ones in the form of increased frequency.

Free shipping is a practice this retailer has seemingly perfected; however, it did not sit back and wait for the market to duplicate or emulate based on incremental tweaks to the status quo—for example, lowering the threshold for basket size. Instead of scraping the bottom of the barrel, Amazon set its sights on the shipping companies that (very successfully I might add) set up an artificially created expectation that packages simply had to be delivered the very next day for an exorbitant cost. And while Barnes & Noble was experimenting with same-day delivery service—another cost premium for the customer—Amazon introduced Prime. With an annual fee of $79, Prime members enjoy unlimited two-day shipping for any purchase amount. Prime's genius was three-fold:

1. By lowering the minimum purchase, Amazon made it easier to transact as many times as required.
2. In doing so, Amazon gave itself the perfect opportunity—through a combination of big data goodness, personalization, customization, and customer service—to upsell its customer. (People like you who purchased X, also purchased Y.)
3. An upfront payment of $79 goes straight to Amazon's bank account to earn interest.

Prime has also become a platform through which to deliver a ton of digital content via Amazon's Kindle devices.

Inside-Out Marketing

We all know the data that show how much less it costs to retain an existing customer compared with the costs to acquire a new one. All things being equal, every transaction is not equal, especially if it comes from an existing customer versus a new one. Not only does it cost less, it most likely will yield more in terms of basket size or transaction value. There is no beginner's luck when it comes to converting a prospect into a customer when competing head-to-head with a loyalist or zealot. And yet, here we are neglecting ours in the form of underinvesting in their patronage.

What would you say if I told you that it also costs less to acquire new customers via an existing one compared with acquiring new ones via existing means (read: paid media)? What if I told you it costs one-third the amount you're currently throwing at strangers in the wind? To be perfectly honest, I haven't proven this definitively. It is anecdotal at best and wishful at worst, but in your gut you know this to be true, don't you?

For starters, the weapon of choice in the referral-based sale costs absolutely nothing—zero.

Second, consider the credibility of a referral that comes from a customer—a real customer, even if a customer with an incentive.

Whichever way you slice it, a customer-driven referral contains a healthy mix of authenticity, influence, credibility, and persuasiveness, more so than any equivalent recipe of Kim Kardashian, her cabal of paid celebrity spokespeople—or paid media.

Third, consider the fact that new customers via existing customers are almost never considered cold leads. They are warm to the touch, especially if initiated by the prospective buyer looking for assistance, help, advice, or even inspiration. Pull-based referrals—or supercharged inbound leads—are automatically opt-in ones. They are not based on the incumbent interruptive model. Rather, they are built on an incredibly solid and stable platform of permission-based “requests for proposal”—a need to know basis where prospective customers have the “need” and existing members of a customer-centric ecosystem or community have the “know” or “know how.”

How can you possibly hold a candle to this path compared with any legacy system of haste, waste, and sketchy snake oil pitchmen?

Silent versus Violent

Perhaps the biggest misnomer as it relates to the power of existing customers is that a loyal customer is a customer for life. Lifetime value of the customer is about as commonplace as a sighting of the yeti. It's an aspirational high ground that would make some sense if any of us actually cared to the take the high ground, ever. The faux pas doesn't stop there. We ignore our best customers in favor of wooing strangers. You would be surprised how many times I'm told by senior marketers that there's no value in doing anything explicit, overt, or formal to engage the 20 percent of customers responsible for 80 percent of the revenues. Or in more cases than not, that number is way south—maybe 10 percent or 5 percent of a customer base commanding the lion's share of revenue.

“Why should we do anything with these customers? We have their business already. It's not as if they're going to spend more with us?”

Maybe not. But if you neglect or upset them, they could go away—quickly—and make it their business to ruin you, literally. Remember the chapter on zealots? There's a fine line between giving someone space and letting them fall into gross neglect. Likewise, there's a fine line between listening and monitoring our customers' conversations and stalking them.

But there's a third perspective worth pointing out here. It draws from the thinking that most customers fall into what's called the silent majority, and it is only the vocal minority that tends to monopolize the share of customer sentiment. Nowadays, I think you could make a very compelling argument that this has been flipped on its head, but perhaps not. A 2013 Pew Research Center study found that “postings on [the] social site Twitter may be a misleading barometer of the opinions of the public at large”—in other words, outrage exists in a bubble or pockets of bubbles.

A 2012 IBM study¹ found that shoppers referred from social networks such as Facebook, LinkedIn, and YouTube generated only 0.34 percent of online sales on Black Friday, a decrease of more than 35 percent from the year before. Twitter literally contributed nothing (0 percent) to the revenue. (As an aside, this once again emphasizes the point and differences between paid media and nonmedia and a media versus asset suite upon which to own and build.)

So let's focus on the silent majority for a moment and recognize their influence. Recognize every single impression created when an existing customer is in contact with a prospective customer—be it serendipitously (“Hey, is that thing any good?”), prospect-generated (“Anyone know any good plumbers in the Westport area?”), or fan-generated (“I am loving the new American Airlines Boeing 77W business-class seats” as per Figure 15.1).

Why wouldn't we figure out how to harness, scale, formalize, activate, and/or monetize this? That's rhetorical. We would. We should. We must.

At the end of the 2010 tax season, tax giant Intuit did something incredibly simple and cheap (as in zero cheap): It embedded a Facebook like button into its award-winning and best-selling tax preparation software, TurboTax. And so when a presumably happy customer had completed his or her taxes and—hopefully—was well on the way to receiving a refund from the government, he or she had the ability to like that experience and thereby share the good news with his or her, on average, 150 friends. More than 100,000 chose to do just that, which translated into 15 million earned media impressions. Of those humans (we sometimes forget who is on the other end of the tin can), 500,000 clicked and 100,000 became new TurboTax consumers. A 1 percent click-through rate, which in and of itself is miraculous, generated 100,000 new customers via existing ones. For pretty much zero money spent, an owned asset innovation focused on customer-centric advocacy activation. Actually, Z.E.R.O. is much more succinct!

Figure 15.1 The new business-class seats on American Airlines' Boeing 77W

Are You Lazy, Stupid? Pick Two.

I recently went on my first cruise with my family. I am now technically known as a cruiser (not really sure how I feel about that). We ended up choosing Royal Caribbean's Liberty of the Seas and, for purposes of this anecdote, let's give credit to my wife, Sarah, who did a great consultative sell. I wanted to share the news with my kids and get them excited for the vacation ahead. Royal Caribbean's website was horrid in terms of educating or motivating. Very few video and interactive experiences were available, so I turned to YouTube. There I found an equally horrible experience with poorly tagged, poorly produced, and fairly boring videos. Nothing official from the liner as far as I could see. I ended up producing a 3-minute clip using a very cool app called Montaj! (And with full disclosure, I am now an advisor and investor.) This video—in my opinion—obliterated anything created before. I even used Flo-Rider's “Good Feelin',” which is the same track Royal Caribbean uses in its commercials. Take a look for yourself and see if you agree: http://www.youtube.com/watch?v=WDa4JyhIad4.

So was Royal Caribbean listening? I couldn't tell you. If they were and chose to do nothing about it, they're lazy. And if they weren't even aware this was created at all, they're incredibly stupid.

You're welcome!

These situations are really the norm, rather than the exception, although the moments of truth to actually do something about them are somewhat time-sensitive and therefore fleeting. I'm certainly not saying Royal Caribbean should have approached me with an offer to purchase my content, but a simple thank you would have been nice. Perhaps a small discount for my friends, fans, and followers?

Do I need to make the point again? I hope not.