Michael Sherlock: Your best customer is the one you already have

I was at a lunch with about a dozen real estate and property syndication mates and we were discussing the demise of WOW retailing. Someone pointed out that you can’t avoid the application of sound business fundamentals that place successful businesses in dominant market positions.

In the tough economic times, retailers that are doing well in the bulky goods area both in bricks and clicks are the Super Retail Group, Fantastic Holdings and JB Hi-Fi. What they have in common is their emphasis on customer retention through price competitiveness, product knowledge, customer focus and an approach that signifies that they are not glossy with their marketing spend.

Research has shown that it costs six to seven times as much to find a new customer than it does to retain an existing one. Retailers are always focused on their marketing budget, which is primarily devoted to recruiting new customers. Insufficient resources are allocated to recognising, rewarding and retaining existing customers. Many people find it more exciting to focus on recruiting new customers than looking after the acres of diamonds you have by selling more to your existing base.

Customer relationship marketing (CRM) is the most important and effective marketing tool available to anyone. It is the cheapest and easiest to execute but is often neglected or ignored by businesses.

The principle of CRM is based on the fact that the best customer you will ever get is the one you already have. A satisfied customer becomes an advocate for the brand, is brand and store loyal and comes back time and time again for repeat purchases. They tell their families and friends about their experience; word-of-mouth advertising is the most effective and strongest form of marketing. On average, people change houses every five years, so while they are in a particular neighbourhood, they can be expected to shop locally over this period. Once a customer comes to your store and is satisfied, they will return time and time again, making it a habit, and part of their routine.

One of the most neglected aspects of CRM is complaint handling. If a customer comes into a store and complains, it’s important to recognise that 97 per cent will have a genuine complaint and only the remaining 3 per cent will be trying to cheat you.

Accept those odds and don’t treat all complainants as if they are trying to cheat you. It often takes a lot of courage and conviction for a customer to make a complaint. If a complaint is not handled properly, you can lose not only that customer but also numerous future customers due to reverse word-of-mouth advertising. If one dissatisfied customer tells 10 people about their negative experience, this can work dramatically against you.

If mistakes are handled properly, they present an opportunity to build customer loyalty as you are likely not only to retain the complaining customer but they may become even more loyal and become a customer advocate.

In my experience as a shopper and a retailer, complaints can be handled easily with the following four-step approach.

1.  Acknowledge and listen.

Most people handle complaints badly because they take it personally, become defensive and make excuses. When you receive a complaint, you should make things better, not worse. The first thing a customer wants is for you to acknowledge that you have let them down, so listen.

2.  Apologise.

Put yourself in their shoes and apologise for their inconvenience. Defuse the bomb.

3.  Put things right.

Trust customers and assume it is a genuine complaint. Apply a returns policy, which should be a full refund or exchange for something of similar value.

4.  Add something extra.

Take the opportunity to make up for the fact that they have been disappointed and inconvenienced. Give them a gift certificate or additional product where possible. Turn an unhappy customer into a raving fan.

If retailers want to survive the storm of online sales and tough economic times, they need to apply the basic CRM principles of great customer service by looking after those who have made the effort of going to the store.

Next week: Bell Partners founder Anthony Bell

• Tweet