The Secret's Out

The one marketing rule you absolutely must know for the new millenium.
Magazine Contributor
15+ min read

This story appears in the May 1998 issue of Entrepreneur. Subscribe »

Want to grow your small company with the brilliance of a marketer from Mensa? Want a business-building strategy that would have Bill Gates groveling at your feet? Want to pull it off without breaking a sweat or breaking the bank? No problem. Just reach out to your existing customer base--whether that's three customers or 3,000--as Entrepreneur's marketing experts have long recommended. As we begin a new era of more sophisticated company-to-customer interactivity, this approach becomes even more potent as a marketing tool . . . and, we felt, merited a special update to brief you on all the possibilities as we quickly approach the new millennium.

We've all seen and admired examples of marketing genius over the past few decades--like that of Walter E. Diemer, who died recently at age 93 and who sold us on a gooey pink substance called "Double Bubble" chewing gum. And let's not forget whoever talked us into potbellied pigs for pets. But in 2000 and beyond, the golden statuettes for marketing genius will be handed out to entrepreneurs of another sort: those who realize the smartest marketing move is to develop unbreakable relationships with their current customers.

Yes, start-up companies will always need to beat the bushes for new customers. But once you're up and running, selling more goods to fewer people is not only more efficient, it's also far more profitable. Plus, for many companies, old customers are often the best source of new customers. But more on that topic later.

The High Cost Of Prospecting

You've heard it before. It costs at least five times as much to get a new customer as it does to keep one you already have--or to reactivate an old one. Yet the majority of companies still spend a fortune chasing after new customers and concentrating on that first sale.

Add it up. You offer deep discounts to get new customers into your bakery. You create loss leaders to increase traffic in your minimart. You offer a duplicate item for just a penny or a dollar more. Or you start giving stuff away: free ice tongs to the adults and face painting for the kids. All this costs money, not to mention the expense of promoting it through advertising. And it's all done without an ounce of assurance that even one new customer is going to pledge allegiance to your business.

On the other hand, staying in touch with your satisfied customers and making them devotees costs you relatively little. The idea to keep in mind is that a happy customer is like a perennial in your garden: With proper care and feeding, you can usually count on it to bloom year after year. When a customer buys from you the first time, he or she is saying "I like you; you have my trust." This is an invitation not just for a sale, but for a relationship.

New Profits Right Under Your Nose

The revelation that it is often costlier to obtain new customers has caused many small-business owners to take a step back and look at their most priceless yet overlooked business builder--their current customer base. And from this enlightenment has sprung a whole new branch of marketing called relationship marketing. It's a field of vast profit opportunity for even the newest entrepreneur, and it's ultra-easy to implement. Best of all, there are a number of experts on the subject whose knowledge can help you maximize your use of relationship marketing.

Martha Rogers, Ph.D., co-author with Don Peppers of The One to One Future: Building Relationships One Customer at a Time (Currency/Doubleday), is one of those experts. Rogers, a founding partner of management consulting firm Marketing1to1/Peppers and Rogers Group in Stamford, Connecticut, believes your goal, rather than to increase your customer base, should be to ensure that each customer who buys your product or service buys more of your product or service, buys only your product or service, and is happy always choosing your company over others. In a word, loyalty. In four words, a customer for life.

In the future, says Rogers, more businesses will focus on the "lifetime value" of each customer rather than the short-term profits they can get from new customers. She says creating one-to-one relationships is key and will be helped by evolving interactive technologies that small businesses can take advantage of. Today's fax machines, cell phones and e-mail technology are just the tip of the interactive iceberg that you and your customers can use to stay chummy. And interactive television is just around the bend.

Remember When . . .

The key word to etch in your mind, insists Rogers, is "remember." Remember the dress that needs special handling for your regular dry cleaning customer without her having to remind you. (You can note this on your computer or on a 3-by-5 card you make for each customer.) Remember the occasion that prompted your flower shop customer to buy a bouquet so next year you can send a reminder that you'd be happy to send one again. Remember the rattle in the wheel well that your gas station customer was complaining about last time he or she was in, and ask about it the next time that customer comes in for a tune-up. Remember to ask your plumbing customer if that upstairs sink is still leaking and if he or she would like you to take a look at it.

Just as a doctor writes down details of a patient's health on his or her chart, so should you record information about your clients. Then the next time you connect with a client in person or by e-mail (you are routinely asking for their e-mail addresses, aren't you?), ask how the customer's daughter is doing in her first year of college, inquire about that nagging lower lumbar problem he or she previously mentioned, ask if he or she has been happy with that new sport utility vehicle . . . Well, you get the idea. In this increasingly impersonal world, every me-to-you query adds strength to a customer relationship that no amount of discounting from your competitor can weaken.

And They Told Two Friends, And So On...

Another relationship marketing enthusiast is Patrick Daly, who oversees the Customer Care Program for the huge international courier DHL Worldwide Express in Redwood City, California. "Most profits in most companies [are generated] through current customers; new customers cost money to develop," Daly says flatly. However, he points out, the monies come not just from the customers themselves but from others they steer your way.

"Many businesses, such as contractors and other home-service providers, find that referrals from loyal customers account for up to 80 percent of their new business," says Daly. "[Plus,] the `close rate'--turning a prospect into a client--from loyal-customer referrals is far higher than from new customer leads from advertising." However, Daly warns that just getting a satisfied customer into the fold is not enough to ensure loyalty.

"Studies show that even customers receiving good service and good value can't be counted on to stay loyal," Daly says. "Earning loyalty requires the relationship to reach a whole new level of involvement."

Daly recounts that his first lessons in relationship marketing started with his father, Dennis, the owner of a printing company in Sacramento, California. "He was thinking of buying an expensive new press," Daly says, "and he invited his most loyal customers to a luncheon to discuss the pros and cons of buying the equipment. By the end of the lunch, his customers not only reassured him he was making the right decision but gave him enough unsolicited orders to book the press six months in advance."

The Simple Things

Daly offers the following four commandments to develop truly loyal customers:

1. Naming names. In today's detached, "just-give-me-your-account-number" world, nothing is more well-received than individual, personalized attention. Even though you may already be courteous and friendly to customers, greeting them by name is valued 10 times more on the worthy-of-loyalty scale.

2. Custom care. Customers pretty much know what they do and don't want from your company. If you always ask and remember what they want on an individual basis--even if it's something as simple as knowing a dry cleaning customer likes light starch in his collars--then you have in place one of the key elements of a strong loyalty program.

3. Keeping in touch. You can't communicate enough on a me-to-you basis with your customers. And don't just connect to make a pitch. Clip out a newspaper or magazine article that pertains to a customer's business and send it to him or her with an attached note saying "FYI--thought you'd be interested." When customers know you take time to think about them, they don't forget it.

4. "Boo-boo research." Part of any customer loyalty program is taking the time to reach out to lost customers to learn why they went elsewhere. In many cases, just the contact and showing you really care about getting their business will win them back--along with their contribution to your profits.

According to Robbin Gehrke, senior vice president, executive creative director at Russ Reid Co., a Pasadena, California, advertising agency that employs relationship marketing and fundraising, relationship marketing has become the battle cry for a growing number of companies. Gehrke says the activities of her agency are aimed at making clients' customers feel a sense of increasing equity in the company, getting them to believe there was something at risk in abandoning their relationship or changing their loyalty.

Buy Five Pizzas, Get The Sixth Free?

Should frequency rewards--giving extra stuff for getting more business--be the basis for cementing relationships? On a small scale, it can be worth it, says Gehrke, but she warns that such programs can be hazardous. "They're expensive if you don't know what you're doing; they're also high maintenance, and you can get into financial liability that you can't possibly manage." In addition, she adds, "They can be easily matched by a competitor, and then you're left with no advantage."

The more important aspects of a loyalty program are preferential, personal service, Gehrke says, adding that the most powerful secret in relationship marketing is unanticipated rewards.

The idea, according to Gehrke, is to give regular customers some benefit they weren't expecting, whether it's a gift certificate, flowers or some other kind gesture. "Customers remember such thoughtfulness for a long time," she says.

Experts in this field stress the importance of making your relationship marketing endeavors systematic. Make it one of your weekly routines so it becomes second nature to make regular contact with your loyal customers. And don't ever forget the two most meaningful words you can utter to a current customer that, surprisingly, often get left out. Those magic words: "Thank you."

If Einstein Had Been In Marketing...

A few brainy ideas businesses can use to generate new income.

Business: Auto repair and maintenance
Problem: You get very little drive-by business, and current customers don't come in unless there's a major problem. The small ads you run in local papers don't draw customers.
Solution: Send notes to current customers saying you're going to start making oil-change house calls to make it more convenient for them to service their cars. For an extra $15, they can get the oil and lube service for which they normally can't find time. Of course, some will say no. But many others will appreciate the new convenience and not be concerned with the extra fee.
Extra benefit: If the car owners are having any mechanical problems, the house call can double as a diagnostic visit and mean extra profits.

Business: Beauty salon
Problem: You're booking fewer appointments and find you don't get an increase in business unless you heavily discount. What added value can you offer current customers so they'll come in more regularly?
Solution: Invite customers to a low-cost series of lectures at the shop on "sane weight control" conducted by a local doctor. You get to schmooze and win back inactive customers, and the doctor may get a few new patients.
Extra benefit: Customers tell others about your unique new offering, and you'll book more appointments.

Business: Pizzeria
Problem: Your pizzeria has to go up against the big franchises, and even though you started offering delivery and frequency discounts, they still have the edge in name recognition.
Solution: Start attaching an unexpected reward to each pizza box. Maybe it's an offer for an extra can of soda or a house salad. Any thoughtful surprise gets indelibly etched in the customer's mind. Also, make up a 3-by-5 card about each customer that lists their favorite toppings, so you can say "the usual?" when the customer places an order.
Extra benefit: Again, your generosity gets talked about, and you're recommended by current customers.

Business: Carpet cleaning (or any other home service)
Problem: You're a new franchisee of a carpet-cleaning company that is sending out fliers the franchisor recommended, but you're not booking much business. With few current customers, how can you use relationship marketing?
Solution: Personally visit carpet sellers and make the following proposal: "You'll sell more carpet by offering the first cleaning free, and that's what I can provide. In return, I get that base of customers to cultivate on my own." Start relationships with customers by offering an every-six-months cleaning for a lower cost.
Extra benefit: "Upsell" by calling ahead to ask if customers would like their windows cleaned while you're there.

Business: Chiropractor
Problem: Your practice is not getting a lot of repeat business, and ads are ineffectual unless, by luck, they happen to appear when someone is having a problem.
Solution: A phone call--as simple as it sounds--can work magic. Have your assistant call previous customers to say "Dr. O'Connor asked me to find out how your neck is feeling and if there are any other problems or concerns he can help you with."
Extra benefit: Some customers will respond with a need, plus the call can be an excuse to inform the customer about a new treatment or service.

Business: Catalog sales
Problem: You don't get enough repeat orders, even though your catalog is sent out quarterly to remind customers of special values.
Solution: Think about how many of your customers would consider stocking up on a product of yours they use throughout the year if they could save some money. Research shows a good number of people would be interested.
Extra benefit: You don't lose future sales from people "stocking up." Instead, all your wares are perceived in the same positive light as the great volume discount you gave.

What's The Buzz

By G. David Doran

Just because you run a small business doesn't mean you can't use some of the cutting-edge marketing techniques employed by larger companies. We asked Bradley Johnson, technology editor and columnist for Advertising Age, a weekly magazine covering the advertising industry, to clue us in on some of the strategies--aside from relationship marketing--the industry giants use to snare the attention of media-savvy consumers.

  • Unbundling media. In the past, companies used large, established ad agencies to both create the ads and buy the media that would get the message out to consumers. Now advertisers can choose to use smaller, more creative agencies that don't have media-purchasing capabilities; these firms will create the ads, then link up with a media-buying firm to complete the process. The result is often hipper, smarter, more youthful ads that are more likely to take risks to sell the product. "Not surprisingly, the larger ad agencies don't like this idea," says Johnson. "They want to sell the full services of their agency."
  • Branding. Brand messages tell you something about what the brand stands for but nothing about a product, like Apple Computer's iconoclastic "Think Different" TV and print ad campaign, which uses great thinkers (and noncomputer users) like Albert Einstein to suggest that the company designs its products for users who think out of the box. This type of ad works best when the company name is already familiar to the public.

Product messages, on the other hand, tell you about a product and give little or no information about the advertiser. Dell Computer's print ads, which offer nothing but product specifications and a toll-free number, are a good example. In this case, Dell, a direct marketer of PCs, doesn't have the name recognition of Apple, so it must sell the product instead of the name. The ideal ad, according to Johnson, is one that blends both brand and product messages. In general, only larger companies have the budget to produce separate brand and product ads.

  • Integrated marketing. Sending consumers a coherent advertising message requires a unified approach to all your communications. TV and print ads and direct mail should all look like they came from the same company, even if you work with different agencies. All three types of ads should refer customers to the company's Web site, where they will see similar messages with the same logo and graphics. Integrated marketing is becoming increasingly necessary to reach consumers who are bombarded with media messages.

On the Internet:

  • Direct response banners. Banner ads are supposed to attract customers to a company's Web site, but the relatively low response rate indicates that people are reluctant to click on them. Why? Because clicking through a banner ad takes customers out of the Web site they were looking at, forcing them to backtrack to their point of origin. Direct response banners, on the other hand, allow customers to learn about a company without leaving the Web page they're viewing. These banners also allow customers to fill out forms for e-commerce, contests and requests for more information. According to Johnson, this concept is relatively new, so there isn't a lot of data on its attractiveness to consumers, but it seems to address the low-response problem of current banner ads.
  • Product placement on the Web. Nearly every movie made in the United States in the past 10 years has used a brand-name product as "set dressing," and now this subtle marketing technique has reached the Internet. In 1997, Oldsmobile made a deal with NBC to feature its Intrigue model on the network's Web site, which was promoting a show called "The Pretender." By linking their product to the content of NBC's Web site, Oldsmobile received just as much (or possibly more) attention as it would have if it had paid for commercial airtime during the show, at a much lower cost.

Contact Sources

Advertising Age,,

Marketing1to1/Peppers and Rogers Group,

Pat Daly, c/o DHL Worldwide Express, (415) 802-4789,

More from Entrepreneur
Our Franchise Advisors are here to help you throughout the entire process of building your franchise organization!
  1. Schedule a FREE one-on-one session with a Franchise Advisor
  2. Choose one of our programs that matches your needs, budget, and timeline
  3. Launch your new franchise organization
Make sure you’re covered if an employee gets injured at work by
  • Providing us with basic information about your business
  • Verifying details about your business with one of our specialists
  • Speaking with an agent who is specifically suited to insure your business
Make sure you’re covered for physical injuries or property damage at work by
  • Providing us with basic information about your business
  • Verifying details about your business with one of our specialists
  • Speaking with an agent who is specifically suited to insure your business

Latest on Entrepreneur