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The Greatest Marketing Myth In All of Contracting

September 29, 2010
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Just recently the Dow Jones dropped 260 points in one day, making it negative for the year. As doubts about an economic recovery send consumers into a selling frenzy, there’s a ray of light at the end of the tunnel if you’re an HVAC contractor.

There has never been a greater opportunity for you than right now. The fear alarm is sending competitors into hiding, or worse.

Need convincing?

Recently, a Business Week article noted factors being faced by small businesses. Between 2007 and 2009, there was a 13.3 percent decrease in the number of people forming new business establishments. And business bankruptcies have more than doubled between the first quarter of 2010 and the same period in 2007. So, not as many new businesses are being formed, and not as many are surviving.

For the ones who remain, their customer bases have never been more vulnerable, but sadly, neither has yours. But no matter how bad the Dow gets, people will not simply go without their home comfort. They will merely buy differently. Here’s where it gets interesting.

When your customer base is left wide open in a listing economy, you’re going to get robbed. Now, if you allow this to happen, all my sympathy and all that of your former customers won’t be enough to hire even a half-wit bankruptcy attorney.

So you’ve got a real choice here: You either choose to rally harder than ever around your customers and get extremely smart about acquisition of new customers, or you don’t.

In lean times, there’s no middle ground.

When times are good, we’re swept into believing they’ll stay that way. The pipeline seems to magically fill, with less effort, and the attitude of “so what if we lose a few customers?” creeps into the overly comfortable mindset.

In fact, most contractors’ customers don’t even know they’re customers because the reminders of this presumed status are either non-existent, infrequent, or merely a plea to buy more. So when a lean, aggressive contractor comes along with a great deal, or simply makes more noise than you do, the customer migrates.

They’d prefer loyalty, but you gave them no real reason to stay. No ties, no relationship, no loyalty. Not their fault, either.

Maybe you’ve been making too much money lately to care, but the aforementioned is becoming a daily occurrence in the face of a looming recession and a flood of competition.

I asked a national crowd of about 650 pretty enlightened contractors, “Who in here has an active Customer Retention program?” About 100 hands went up. The dozen or so whose faces I could make out are the movers, award winners, multi-millionaires or the up and coming.

That means about 85 percent were playing recession roulette with a bunch of hungry, aggressive, low-balling contractors loaded in the chamber. Bad odds.

I know I harp on this subject a lot (my calling, as it were), but our closest and most valuable clients have been paying for the same advice, piling in the leads and erecting walls around customers for months. Some for years, without relent. Result?

They are way more than prepared for the storm. They look like solid shelter to the migrating masses. In fact, a few rainmakers are saying “bring it on,” with good reason. I do not envy their retreating competition. In times of uncertainty, certainty is very attractive.

Retention has never been more necessary. Retention marketing keeps customers. A retention effort is not about pumping a sale in someone’s face with each contact. It is about maintaining credible, reliable, trustworthy relationships with your client base.

A strong retention program will out-pull, out-profit, and generally out-perform other forms of marketing - dollar for dollar - than any other marketing investment you can make.

The value move now is to increase the retention rate (the persistence) following the first sale. As very expensive, exhaustive studies in insurance, banking, and catalog retail have shown, when people own two (or more) products from a company, their loyalty and value increase.

Echoed by M.L. Kelly, V.P. of marketing for Ashford, “When customers return, their purchases are almost double (plus 84 percent) the size of their first purchase.” The identical outcome of repeat buyers comes from Dr. Frederick Reichheld in The Loyalty Effect who found that repeat customers spend 67 percent more than new customers. This higher value/transaction size, coupled with the fact that 80 percent of a company’s revenue comes from 20 percent of the customer base, generates an even more staggering statistic.

Just a 5 percent increase in retention yields profit increases of 25-100 percent.

Consider these gold nuggets from Leading on the Edge of Chaos by Emmett C. Murphy and Mark A. Murphy:

• Acquiring new customers can cost 5 times more than retaining current customers.

• A 2 percent increase in customer retention has the same effect on profits as cutting costs by 10 percent.

• The average company loses 10 percent of its customers each year.

• A 10 point reduction in customer loss rate can increase profits by 45 percent.

• The customer profitability rate tends to increase over the life of a retained customer.

The case for retention is more than warm fuzzies - it’s about your bottom line. So how do you make retention “happen”?

Here are six steps for retention: 1) Thank you cards, calls, e-mails; 2) Deal Sealer Cards, e-mails; 3) Newsletters (actually “your” own media); 4) Maintenance Agreements; 5) Reactivation letters; 6) Referral requests

Our top consulting clients do all six steps, but if you can only choose two, pick No. 1 (current transaction based) and No. 3 (long transaction based). The beauty of a newsletter is that you can also “sell” Maintenance Agreements, IAQ, and replacements in it, for a fraction of the costs of doing it separately, while you build customer relationships.

Sure, e-mail, Twitter, Facebook can all support the effort, but you’ve got to have a mailed component, since the house is rather important to the business case. Plus, anyone can blast e-mails, tweets and posts … scads are simultaneously deleted/disregarded because they look cheap. Newsletters differentiate, and support a higher image.

If you choose not to protect your customer base, please know than many will celebrate your inaction and collect accordingly. Yet you and your customers will celebrate if you remind them of your great value to each other during tighter times. And that is no myth.

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