One of the major factors which differentiate the market leader from the market follower is the size of the customer base present with the market leader. Having a large customer base shows that the company has proved its mettle over a period of time. Customer base does not expand just because of one or two successful strategies. You have to implement good strategies back to back, fight off your competitors and increase your customer value to have a large customer base. You also need to keep an eye on acquiring new customers time and time again. So how do you increase the size of your customer base? We discuss the same in the next four points.
1) By reducing the rate of customer defection
Acquiring a new customer is always more costly than retaining your existing customer. A defection rate is the rate at which a customer leaves a particular brand / company. Thus by decreasing your defection rate you are indirectly increasing your customer retention.
Companies should pay special attention to the way their employees interact with the customer as well as the whole ‘order to payment cycle’ such that the customer leaves with a positive mindset from the company. Once a customer has a positive interaction he will definitely visit the same company over and over again. Thus you are ensuring that the customer does not shift over to the competition by taking necessary measures which reduce your defection rate over time.
2) By increasing the longevity of customer relationship
If the customer involvement is more, the customer is likely to stay longer with the company rather than shifting over to a competitor. One of the best ways to increase customer loyalty and their involvement is to take feedback from customers. Many companies, especially the high end engineering companies, take feedback from their current customers so as to make them feel important and at the same time to implement features that are important to the customer.
This ensures that the customer is receiving a very high amount of attention and therefore increases the confidence in the customer. What this finally does is that the customer not only sticks with your company but even recommends your company to other contacts. Thus not only are you retaining one customer but you are also getting references because of positive feedback. This ultimately boosts your customer base.
3) Increasing the value of your existing customers
This method can be best observed in banks. Nowadays the same customer, a normal average customer, is highly valuable to the bank because he has at least 5 to 6 different products of the bank and he’s using each one of them regularly. The customer might have a bank account, a mutual fund, a credit card, a loan, insurance and might be thinking of several other financial products. The concept of increasing the value of one single customer is that your single customer is quite capable of buying different products from your product portfolio.
Thus if your portfolio has 20-30 different products you can be sure that if the customer buys a single product, you can cross promote the other products which are in your product portfolio. Thus the value of your customer base is increasing. For example if you visit any automobile showroom they will also have several accessories which can be bought by the customer. In fact the automobile showroom executive is given incentives on the number of accessories that he sells. Thus in this manner you are also increasing the value of your existing customer by cross selling your products.
4) Customer base and profitability
If you look at the above explanations, you’ll find that I have measured the customer base against profitability. This is absolutely important for any new company as well as for an existing company. Not only does your customer base need to be large but it also needs to be profitable. Having a very large customer base but having low profitability does not give you a sustainable competitive advantage.
Instead you should have a clear look at your current customer base. You might find that you could be better off targeting a smaller customer base which gives a higher profitability. Thus your customer base analysis should be spot on and should be done periodically. You can have a good customer base only if your cash flow is intact.