Can an argument be made that customer retention is more critical for small and medium-sized enterprises (SMEs) and entrepreneurs than for larger, more established businesses?
Considering how expensive it can be to find new customers and the limited marketing budgets most entrepreneurs have to work with, it's easy to see why retaining customers is more important to newly established businesses.
Given the importance of customer retention and the need to keep competitors at bay, how can SMEs and entrepreneurs increase customer loyalty so that they become their market's only option?
To answer this question, here are five easily implemented customer retention strategies for today's entrepreneurs to defend market share, increase sales, and position themselves as the first and only choice.
1. Compensation Programs: Rebates, Rewards, and Discounts
Do you want to create brand champions who never even consider buying from someone else? If so, then putting together a customer compensation plan is guaranteed to position your company as that all-important partner.
Structure your compensation plan on accrued rebates (6 – 12 months) where the rebate amounts can be applied to the customer's account or put towards future purchases at the end of the reward plan.
Provide customers with weekly and or monthly updates about their rebate totals. These account statements can be included in email marketing campaigns to increase click-through rates (CTR) or can be discussed with your customer in person.
Customers will notify you once they receive a lower competitor price because they'll want that price and not lose out on their compensation plan. This allows you to match the price reduction, match a portion, or remain steadfast on price. Regardless, you'll be in the driver's seat and receive real-time feedback on your competitors' pricing.
The above table outlining a reward plan is available as an Excel table. You can go here to download it.
2. Loss-Leader Pricing Strategies
It's much easier for an SME and entrepreneur to take advantage of loss-leader pricing strategies than for larger enterprises, which often handcuff their sales and marketing departments with stringent gross profit objectives and price constraints.
Find a low-margin ancillary support product that all customers need and give it to them at or near cost. Granted, you won't make much profit on these items, but it will allow you to position yourself as a valued supplier whose pricing can't be beaten. Loss-leader pricing strategies are an effective tool to increase sales of higher-margin items.
3. Freight/Delivery Included
Take advantage of your position within your local market by including free delivery on items with sufficiently healthy margins. This add-on is often something larger competitors can't or won't provide, and even if they do, it usually comes with several caveats and volume thresholds.
You'll make it easier for your customers to buy from you because you have no preconditions. Instead, you'll remove your customer's going concerns and simplify how and when they make purchases.
4. Flexible Payment Options and Terms
Take advantage of those periods where cash flow isn't a concern for your small business. Offer your customers multiple payment options and flexible payment terms. Provide 1 percent to 2 percent net-10-day invoice discounts for prompt payment. Offer even larger discounts for prepayment and be flexible on terms when possible.
Granted, cash flow is always a concern for smaller enterprises. However, offering multiple payment options is seen as value-added by customers, who are often inundated with calls from larger competitors' accounting departments when an invoice exceeds established terms.
5. Periodic Price Reductions, Consultations, and Bartering
Think about how often your customers must haggle with your competitors on pricing. Consider how often they must ask for a price reduction from a larger competitor whose primary focus is maintaining pricing and adhering to strict gross profit margins. Make your customer's jobs easy by working for them.
One of the benefits of being an SME is that it's often easier for your customers to see you as an extension of their own business. In essence, you become part of their negotiation team. As such, make it a point to offer periodic price reductions without them having to ask for them.
Yes, profit is critical, and yes, you need to protect margins. However, this practice doesn't mean you continually give reductions. Instead, it means wowing your customers with a discount without them pushing you for one.
This will make it easier to match competitive bids later because your customers will remember how upfront and transparent you were with pricing.
Finally, be willing to go above and beyond with your customer—barter services with them. Offer to help them with a business issue they've yet to resolve. The best relationships come from actively participating in your customers' businesses and helping them reach their objectives.
Getting to know customers means knowing their aspirations, how they want to grow, and how best to work with them when they need more than just a product or service.
Take what you appreciate about your best vendors and use those principles with your customers. Your best vendors make it easy to buy, easy to pay, and easy to see them as a trusted resource. Doing the same thing for your customers makes good business sense.