What are new customers worth? What are loyal, repeat, customers worth? These are the questions cogently raised by Rocky Agrawal’s dissection of the Groupon Business Model.
I’ve either built, or played a key role in building, three successful business ventures. And I’m in the process of making another one. I learned early on that a customer I already have is worth WAY more than one I don’t. have yet. An easy reminder of that is the $7K just sent me via electronic purchase order by a long time customer. By my rough gauge that is 1 of 5 orders given me today from folks I’ve done business with for years. Combined with a couple orders from new customers it was a good day. And just another pleasant reminder that that hard work we did for them 5 years ago is still paying off.
Bootstrapping a startup that lacks loyal customers is hard, frustrating and thirsty work. In the beginning, all customers are new (and expensive to acquire). My approach is to find strategic customers and make them partners. I give them a great deal, free in most cases, in exchange for feedback and their assistance and referrals. Will it work? Time will tell. If it were easy, everybody would do it!
One thing I won’t be doing is randomly letting price focused customers exploit my offerings without a loyalty / feedback relationship. That’s what Groupon provides. Groupon customers remind me of the folks who visit yard sales before the stated opening times. They want bargains but it is better to wait the day out and work with those who arrive when you are packing it in, or to give a great deal on an item that isn’t selling to somebody who just bought your big screen TV and agreed to haul it off for you.
This lack of loyalty is also why I delayed and delayed and regretted putting in a Yellow Page ad for a successful photo business I had through much of the last decade. It was a part-time venture, but it ended up being among the largest (and likely most profitable) photo businesses in my region. Why? I spent time pleasing customers and making money, not answering phone calls from people asking about pricing. 90% of my business was referral based from customers who would think of using no other photographer for their family, wedding, or business.
That’s why when I decided to start a mobile software company my concept focused around customer loyalty apps. I wanted to provide a way to help businesses foster, keep, and expand a reciprocal relationship with customers that are loyal to them. Oh… and keep to my other simple formula – value, value, value, and the best support they have ever received ever period. Simple!
We are 5 months into the project, and perhaps a month or so off from the launch of about 20 apps for companies I’m loyal to, or that I think are strategic for feedback, market exposure, and yes… more feedback!
I wish Groupon the best. But I’m pretty sure it will fade as folks realize that the grass isn’t always greener on the other side of the fence, and that they really should be nice to the girl that accompanied them to the dance.