Saturday, January 8, 2011

What Does Customer Lifetime Value And A Hair Salon Have In Common? More Than You Know…

Sometimes business lessons can occur in the weirdest places and at the most unexpected times.

A few weeks ago, I went to my normal salon for hair coloring. I’ve been going to this place for over a year and consider myself a loyal customer. I have even referred friends and neighbors to this salon. The staff are usually friendly and attentive. And the atmosphere is comfortable yet sophisticated, similar to a New York hair salon, which originally had attracted me to them.

After showing my hair stylist (who’s also the owner) a picture of the color I wanted and reiterated the color should be in the same palette of 'bronze, copper, caramel, and amber', he proceeded to color my hair. Let me preface this by saying my natural hair color is light-medium auburn brown, but back in September my hair had gotten very blonde, so I wanted to go back to my natural color.

After touching up my roots then adding a ‘temporary’ wash color, he took the towel off my head and unveiled the results. You can see he was so proud of himself, which was very short lived. The expression on my face spoke a thousand words. “I hate it”, I said. “It’s not what I wanted…it’s not what was in my picture…it’s not bronze, amber or caramel”. My hair was almost plumb red. I mean, really, really red with no trace of a brownish color.

My stylist kept saying, “Let me blow it dry and you’ll love it.” The frown remained on my face and he finished blowing it dry. “Nope, I don’t like it”, I proclaimed. He then said, “Step outside with a mirror and see the real color in the sunlight, the lights in here are dim and making the color look darker.” So I walked outside with a mirror to the back alley behind the salon, looked at my hair, and the color was still plumb red ... just a brighter appearance with the sunlight above me.

I came back inside the salon and said, “Nope, it’s not what I wanted.” My stylist then added, “Well, it’s only a temporary wash in color, it will fade to the color you want in about 6 weeks.” To which I replied, “There’s no way in hell I’m walking around 6 weeks with a plumb red head.”

So he then said he could try and offset the redness and monotone color with some honey-blonde highlights (or 'foils').

Foils are done. Hair finally looked good. I was happy with the final result as the added highlights did reduce the drastic red color. And the highs and lows with the color looked beautiful.

Then I get the bill: Not only did my stylist charge me for the horrendous temporary ‘wash’ that he used which screwed up my hair, but he also charged me for the foils that were only needed to correct his initial botched up hair color job.

When I inquired about the charges, I was told that: (A) I actually got a discount on the foils because instead of getting charged for a ‘full foil’ I only got charged ‘per foil’ which turns out to be slightly cheaper and (B) that it was my option to get the foils as I could have just waited the 6 weeks and my desired color would have eventually shown through with oxidation and hair washings.

Needless to say that was the last time I went to this salon. In addition, I’m telling practically every person I know about this event and never referring business to them again.

But I left thinking, "Could this business owner be so short sighted that he couldn’t do the right thing and eat the cost of the foils? I mean, didn’t he ever hear of the saying, ‘the customer is always right’?"

And on top of that, doing the simple math and looking at the bottom line, is it really worth saving a few hundred dollars (the cost of the foils) in the short-term and losing a loyal customer as well as referral business – which will certainly impact my life time value (LTV) – in the long-term?

I could have easily spent thousands of dollars per year, every year, in this salon until who knows when.

What a dumb decision on his part.

As business owners it’s important to listen to your customers and do the right thing. Don’t be shortsighted. Don’t be penny wise and pound foolish. Think of the big picture and life time value of each customer as well as referral business. Extending a little ‘good will’ can go a long, long way.

Here’s a great article I wrote a few years ago while I was VP of Marketing at Early to Rise that validates this very point. Happy Reading!

The 5 Faces of Your Customer

By Wendy Montes de Oca
One of the most profound business books I ever read was Permission Marketing by Seth Godin.
The ideas in the book were very innovative at the time. The Internet and e-mail marketing were still young, and, like the Wild Wild West, most marketers and business owners were still trying to “wrangle it in” and figure out how to leverage the Web’s possibilities… and, more important, turn those possibilities into profits.

In a nutshell, the book explained “how to turn strangers into friends and friends into customers.” The principle behind this is to first understand the difference between cold (or interruption) marketing - like those annoying phone calls you always seem to get during dinner asking you to subscribe to the local newspaper… and permission marketing – where the prospect is actually giving you permission to contact them by “opting in” to receive your messages.

To help you get the most out of your Internet marketing, I have expanded on Mr. Godin’s “stranger/friend/customer” concept and added two key components: multi-buyer and advocate. And I’ll show you how you can leverage each of these segments to help grow your business.

Leveraging Your Customers Throughout Their Life Cycle

You may think that a customer is someone who buys from you – period. But that’s a very limited view. From the instant you “meet” your customer… until he’s become a VIP buyer who’s spent hundreds or thousands of dollars with your company… you should be interacting with him in different ways. Treating him properly every step of the way will create a true win/win situation. Your customer will continue to enjoy satisfying experiences with your company, and your company will enjoy the positive effect this relationship will have on its bottom line.

Here are the five stages a customer can go through during his life cycle, and how you can make the most of each one…

Stage 1: Stranger
The stranger or “prospect” doesn’t know you. Your job is to get her attention. You have only a few seconds to get her to react – whether it’s by asking her to click on your ad or open your e-mail message. Which means that your copy for the ad headline or e-mail subject line is critical.
Once you’ve captured her attention, your #1 goal is to have this stranger “opt in” to receive your messages, giving you a chance to continue to bond with her. This is also the time to start to build trust. Show your creditability. And explain what you can do for her (fill a desire, answer a need).

Stage 2: Friend
The friend has demonstrated an interest in your initial promotion and has opted in to receive more information from you. This gives you an outstanding opportunity to introduce him to your philosophy, your company, and your mission, and to re-enforce how you can help him.
During this stage, it’s best to send a series of introduction e-mails (anywhere from 5 to 7) and withhold your new friends from your general mailing list. You don’t want them (the newest names on your list) to start receiving promotional messages BEFORE they receive some of your editorial messages.

I recomment to my clients to sent introductory e-mails (autoresponders) to subscribers. Each e-mail should be comprised of articles that present the core philosophies of the client. This gives subscribers a chance to “warm up” to the 'guru', expert contributors, as well as the format of the newsletter, and the topics typically addressed. Only after they are warmed up should you start sending promotional e-mails.

Stage 3: Customer/Client
The customer (or client) is someone who has bought into your philosophy and purchased a product (or service) from you. Many companies make the mistake of ending the customer relationship at this point. But after reading this article, you’ll know better… you’ll know that getting the customer is only the beginning. Keeping him is another story. You don’t want to put all your eggs into one acquisition basket while having few or no retention efforts. Good retention strategies entail ongoing communication (both promotional and editorial), outstanding customer service, quality products, and fulfilling your promises. Of course there will always be things outside of your control (like losing customers to market conditions). But the idea is to be proactive and not reactive. Keep the “80/20 rule” in mind – which states that 80 percent of your sales come from 20 percent of your customers.

Stage 4: Multi-Buyer
The multi-buyer is a customer who is tied into your brand and demonstrates product loyalty with your company. Multi-buyers have purchased several products from you, and are not afraid to spend money. These folks are your best list to roll out new products to or test higher price points. If you are thinking about creating a “VIP” or “Lifetime” product, you’re going to want to advertise to this list. Multi-buyers will have a high lifetime value (LTV) for you, and will likely purchase cross-channel. In other words, they will buy from you no matter how you contact them – whether via banner ads, e-mail marketing, direct mail, or telemarketing.

Stage 5: Advocate
This segment of your customer database is your holy grail. Your list of advocates is made up of the most satisfied and loyal of your customers – and contains your best “unpaid” employees. Advocates will do your advertising for you by telling friends, family, colleagues, and acquaintances about your products and services. And in today’s Net-based environment, advocates are a major force in getting your name in the blogsphere and social communities… and spreading your marketing message virally.

So how do you create advocates? Well, advocates are not created, they’re cultivated over time. The advocate must, of course, believe in your products and services. But for this special group, the customer experience goes deeper… to an emotional level. The advocate feels personally touched by your service, product, or guru. Because of you, her life is changed – and she’s busting at the seams to help others as she has been helped.

Your advocates are people you want testimonials from. People you can invite to be in BETA test or focus groups. And people to get feedback from to help develop future products. Even better, this group can help you make more money in the future. Some of my best JV (joint venture) partnerships have been with my clients' advocates – people who understand their core values, respect their business, and have a company or product that’s synergistic to my clients.

You want to treat these folks like the VIPs they are and invite them to special events or let them be the first to receive discounted offers. You may even consider creating affiliate marketing or referral programs to “formalize” this group’s verbal recommendations.

Always keep in mind that the effort does not stop at the sale. Since it costs more to obtain new leads than to retain existing customers – now, more than ever – you have to know how to optimize the five stages of the customer life cycle.

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