The most important thing is to increase the loyalty of your existing customers.”
You are probably aware that many people and marketing consulting firms say this. Major CRM vendors also continue to sell their CRM products by saying “existing customers should be valued” as if it were common knowledge in the industry. But what do you think? Have sales really increased by valuing existing customers? Or, to put it another way, did most of the increased sales come from existing customers? As far as I know, the firms that have increased their sales more significantly have grown because they have increased their sales more significantly from new customers rather than from existing customers. Conversely, firms that have experienced sales declines tend to have lost more sales from new customers.
Existing customers are certainly important. However, it is quite difficult to increase sales from existing customers. As mentioned in a previous article, it is financially and habitually impossible for many existing customers to increase their purchase frequency any more. For example, it would be ridiculous to expect them to increase the frequency of use of shampoo. Cross-selling, for example, is only possible if the customer’s attachment to the brand is very high. However, for most brands, there are few brands that customers do not love. It is realistic to assume that there is no such thing as a true enthusiast for a brand, and that your brand is probably one of them.
In such a situation, it is a bit strange to say that the most important thing is to increase the loyalty of existing customers. While so many companies are struggling to increase sales from existing customers, many of the companies that are growing in sales are doing so by acquiring more new customers. I have never heard of a company contributing significantly to overall sales by significantly increasing sales from existing customers. (Of course, they may have contributed a little, but only a tiny fraction of overall sales.)
However, the myth that “increasing the loyalty of existing customers is the most important thing” is still being shouted by CRM vendors and others, and some are even saying that CRM makes it possible to find customers who are similar to existing customers, which will further contribute to sales. Certainly, if you can find prospects that are similar to your existing customers, you are more likely to close a deal, and it seems cost-effective to do so. However, there is something a little strange about this story. The reason is that the amount of potential customers that are similar to existing customers is not considered. If the number of potential customers is similar to that of the existing customers, then the cost of the new business is not considered. If there is a large volume of potential customers similar to existing customers, such a measure is likely to be very effective. However, if the volume of similar prospects to existing customers is low, such a measure is almost certain to fail. Without considering this, it should not be possible to say that approaching prospects who are similar to existing customers will contribute to sales.
Let me explain in more detail. For example, let’s say that your company’s product or service has a 20% market share. The breakdown of the remaining 80% is as follows.
(0) 20% of customers purchase your product or service because they are attracted to your product or service.
1) 20% of customers who lost as a result of competing with other companies’ product services.
2) 20% of customers who were once covered but are not covered now
3) 20% of customers who have never been approached.
4) 20% of customers who have not even been reached
Waterfall Chart
In this situation, “measures to find prospective customers similar to existing customers” are unlikely to be effective. The issues for this company to increase sales now are 1) why are they losing out to the competition, 2) why are they not covering customers they have covered in the past, 3) why are there so many customers they have never approached, 4) why are they not reaching them, and 5) what are the reasons why they are not reaching them? The answer is. However, “measures to find prospective customers similar to existing customers” does not seem to fall under any of these issues. If it did, it would be in (0) and (2). However, if the answer to (0) is not found, it means that the advertising, sales, and promotional activities are being done inefficiently. It is difficult to believe that “measures to find prospective customers similar to existing customers” are the best measures. In addition, even for the customers who are not covered by the measures described in 2) above, it is difficult to understand why they are no longer covered by the measures. It is not possible to say that this measure is effective without investigating the cause of the failure. If “measures to find prospective customers similar to existing customers” are to be effective, it must be limited to cases where it is known that there are a significant number of prospective customers that are not being covered even after all advertising, sales, and promotional activities are conducted.
Thus, if you properly understand your company’s situation and sort out the issues, you will realize that “measures to find prospects similar to existing customers” are effective only under limited circumstances. But why do most companies not even analyze such basic marketing? Rather, I personally feel that companies that do this kind of analysis tend not to jump into CRM tools as easily as those that do. Conversely, companies that place excessive expectations on CRM tools tend to lack the ability to perform even basic analysis.
Is “measures to find prospective customers similar to existing customers” applicable to your company? First, I want you to “think” about that in your own mind. If you abandon thinking, you will have no choice but to follow anyone’s ideas. Thinking” is an essential part of business. There is no reason to have an outsider think about it for you.
Thinking about how to easily cross-sell to existing customers or how to increase the frequency of purchases.