Business and Finance

 by: Dave Free

Do you feel like you have the “pedal to the metal,” spending all you can on advertising but still can’t get the growth of your business into the fast lane? The fact is, if your customers aren’t engaged, it may not matter how much you spend on advertising. Just like a car in neutral isn’t going anywhere (no matter how much gas you give it) until the transmission is engaged, your business isn’t going anywhere until your customers are engaged.

What does engage mean? Here are three definitions you might find in a dictionary:

1. To attract someone’s attention

2. To establish a meaningful contact

3. To move into position so as to come into operation

Combine the three of them and it provides a pretty good working definition for engaging your customers:

Attract your customers’ attention with the intent to establish a meaningful relationship and move them into position to help your business grow.

Without worrying too much right now about how to engage your customers (we’ll get to that) let me propose multiple levels of possible customer engagement as represented by this pyramid model.

At the base of the pyramid is your total available market. That is, all of the potential customers in the world. They have potential, but at least at this point no level of engagement with you or your company.

The next level derives its name from a term we have all used when asked by a sales man if we need help, “No, just looking.” The fact that we are looking means we are more engaged than the masses, but we’ve yet to make any great commitment.

Just beyond Just Looking is Just Buying. For most companies this is the height of their ambition. Get a sale, book the profit and move on to the next customer.

Above just buying is buying again. This is a level that in general assumes that the customer was pleased enough with their first purchase to be willing to come back and purchase again. I say in general, because it is possible that they have no other options and therefore they have no choice. For you as the business owner, this is a very good level. Serving a repeat customer costs less because you don’t have to pay to acquire them and they are less expensive to serve in most cases because they are already familiar with you and your operation. The more customers you can get to Buying Again , the more profitable you will be.

But there are customer engagement levels even higher than Buying Again. The first is Giving Feedback. This refers to customers that are willing to invest more of themselves in your company than just their money. They do this by making the effort to tell you how you can improve your offerings. In effect, they go beyond the typical definition of customers and become co-producers, helping to ensure that your offering is exactly what the market wants and needs. Two great things happen in the process: 1) As your offering improves so will your sales and, 2) As the customer invests their ideas in your company they will become even more loyal and move to the next level.

At the top of the pyramid is Telling Others. At this level your customers are so pleased with your offerings they can’t be stopped from telling others. They become co-promoters, a very powerful sales force willing to tell perfect strangers and best friends how wonderful your company is. As consumers in general become ever more jaded and less trusting of traditional advertising, the growth of your company will be largely dependent on how many of your customers become promoters.

Having described the model, let me hasten to add that I know it is oversimplified. Not all customers will move through each level. Some will become promoters without ever providing feedback. Some will provide feedback and then go away and never return. Despite its simplicity, I believe the model can be helpful in understanding the concept that customers can become much more valuable to a business than just the value of the purchases that they make. Consider the following:

This chart attempts to show in relative terms how much a business benefits financially from a customer at each level of possible engagement. At the far left, Just Looking, expenses associated with a customer typically exceed income from that customer. For example, you spend money on advertising and attract the attention of a customer willing to take a look. At that point you have paid out (for advertising) more money than you have brought in ($0 purchased by the customer).

For those customers that take the step and buy your offering, chances are you will cross over into positive returns. If the customer returns to buy again and again your profit from that customer will increase. Note that the slope of the line becomes steeper in the buying again phase. That is due to the fact that it is less expensive to sell to returning customers than it is acquire new customers. In fact for most businesses it costs five to ten times more to acquire a new customer than it does to sell more to current customers. The obvious difference is the acquisition cost associated with attracting new customers. The less obvious reason is that a regular customer already knows how your product or service works and doesn’t require as much “hand holding” throughout the process.

As the curve continues into the higher levels of engagement, Giving Feedback and Telling others, its slope becomes even steeper indicating that significantly higher returns are possible. Two reasons for this: 1) The additional costs required to move customers into these levels is relatively small and 2) The potential returns have a built in multiplier effect—that is, one customer’s actions can influence many other customers.

For example, feedback from one customer that helps you improve your offering not only benefits that one customer and brings them back again but benefits all your customers and increases the likelihood that they will return more often. Even more obvious, a customer who begins telling others about your business brings not only her purchases but the purchases of several new customers to your business.

In conclusion, engaged customers will help you improve your offering, they’ll actively promote your product, they will improve your bottom line, and, to a large extent, they will determine how fast your business will grow. As you consider the growth of your business, look not only at how many “Just Looking” customers you can bring in and move to “Just Buying,” but also consider how you can get your “Just Buying” customers fully engaged in your business.