Ignore a Customer’s Lifetime Value at Your Own Risk
Too many businesses ignore the lifetime value of customers. Doing so will lead to failure.
You can measure the lifetime value of a customer in two ways:
- The total amount a customer will spend; and,
- The total amount other people will spend after being told about your business by a customer.
Without getting into precise dollar values, it should be obvious to anyone that the lifetime value of a customer for most businesses is significant.
A few weeks ago, my wife bought a pair of sandals for my son (the older one who is two and a half) at Panda, which specializes in children shoes. They cost $50.
After a day we realized there was a problem. His feet kept slipping out the back of the sandals, causing him to trip and fall, resulting in numerous scrapes and bumps on his knees.
We went back to the store to see what could be done. The store has a no-return policy once shoes are worn. The size was correct, verified by the store, but somehow the fit was wrong. Or perhaps something was wrong with the sandals themselves.
Either way, we asked the store what they could do about it. The answer, “Nothing.”
My wife pushed (kindly) for a better answer than that, but the store manager (or perhaps the owner; clearly she was in charge) started getting argumentative, always coming back to the same old line, “Sorry, we have a no-return policy once shoes are worn. We can’t resell them. You’re out of luck.”
We left the sandals there. We should have thrown them in the garbage and made more of a public display. But oh well…we’re nice people.
So now my son has no sandals and we’re out $50. (Last weekend we bought him sandals for $15 which are just fine…)
Panda committed a cardinal sin of business (and primarily of retail, where you see this sort of behavior TOO often) by not appeasing the customer in a smart and reasonable way. Panda completely ignored the lifetime value of the customer.
Let’s look at the facts:
- We’ve purchased goods at Panda before. Several times in fact. Probably a couple hundred dollars worth. They could have checked that in 5 seconds and realized we were good customers.
- My wife was pregnant, and they should have realized that meant one more pair of feet I’d be accommodating in the near future.
- Every frustrated customer (in any situation) goes out and voices their opinion very strongly. Disgruntled consumers are much louder than satisfied ones. Any business that doesn’t realize this has its head in the sand.
To toss your hands up, and tout policy over a $50 pair of shoes is foolish. I will never shop at Panda again. Not only that but I’ve just told many hundreds of people about the negative experience, and I’ll tell every parent I know as well. If one parent decides to stop shopping at Panda because of my experience, the store’s losing big time. That’s on top of the hundreds of dollars they won’t get from me, which I’ll spend elsewhere.
Too many businesses are shortsighted in their approach. Close a deal, take someone’s money and get ‘em out the door. That’s their way of doing business. And it’s just not good enough.
The power of choice and word of mouth means businesses need to be extra vigilant about keeping customers happy.
The lifetime value of the customer is more important than one sale.
Spot on Ben — I’ll never shop at Panda either.
You know, I actually play this card in customer service disputes quite often. I just lay out the numbers for them: “How old do you think I am? How many cars do you think I’ll rent over the course of my life? Are you willing to lose my business for the rest of my life, over this questionable $25 charge?” It usually works — what else can they do when you spell it out so plainly?
It would be nice though, if businesses just understood this “lifetime value” concept implicitly, as you advise.
I don’t understand how seemingly reputable businesses could behave like they’re running a yard sale.
Speaking of shoe shopping, I recently had a great purple cow experience purchasing a pair of runners on St-Denis’ Boutique Endurance, a store that specializes in running, walking, and cross training equipment, attire and accessories:
http://www.boutiqueendurance.ca/
The experience was like going to a very good doctor. I told the clerk what I was looking for: A good pair of shoes for some regular — but light — running.
He then proceed to get my foot measurements. For both feet. Twice. He then brought out 4 pairs of runners based on my feet dimensions and had me try them all. Each time I tried a pair, he’d have me run a little in the store’s mini indoor track. He’d watch my ankles to make sure it’s getting adequate support and to get my feedback.
I came out of the store with a pair of runners I’m still extremely happy with. Needless to say, I worked up a sweat trying out shoes, but the overall experience was impressive, worth coming back to, and worth sharing.
I had a similar experience with Gexa Energy:
http://trendwatcher.blogspot.com/2007/06/gexa-energy-is-failing-in-customer.html
Mat — Are you saying you agree with me? We should celebrate! *smile*
Francis — That’s a great story. And how many people did you tell about the place after that experience?
Ben — Short of blogging it (which I hope to do today), I told my friends, my dragonboat team, and my co-workers.
It was my fiancée who recommended this place. She talked about the experience and I scoffed at the idea and ridiculed her a bit — “Do they also serve sandwiches while they rotated your tires?”
I’ll never doubt her again :P.
I’ve had a problem with Walmart, like that. They couldn’t process my check through their telecheck system (even though the money was there). They said the problem was between me and my bank. I said that my bank had no problem cashing my checks. After going back and forth a bit with a manager who was NOT getting it. We haven’t been back to Walmart in almost 2 months.
Funny thing is, now that I don’t shop at walmart, I am a lot more content with the stuff I have. I probably save money in the long run.
It’s great.
I think the negative effect can also work the other way. In a parallel universe if the manager/sales person took a judgment call and said, ‘what the heck we’ll see what we could do’ and replaced the sandals or refunded they would’ve gotten a post of how great Panda is and would’ve got free marketing out of you.
When something is good people will tell their friends and folks about it they’ll do the same for bad things. I think you have to be especially careful especially online because it’s so easy to pass on.
[…] Yoskovitz’s recent sour experience with a shoe store is one that we’re all familiar with: businesses ignoring legitimate customer complaints. […]
This is a very generalized problem with what I call the “zero ownership” corporations in particular in the retail and service industries. This really is a plague and it is getting worst with the extinction of the smaller, independent, owner-managed retail stores or enterprises.
Employees or “associates†of the big retail stores don’t have any sense of ownership in the business they work for and simply do their job within the guidelines. Also, bigger corporations usually don’t have any core values that employees can relate to. In smaller independent stores you almost always get a better service and they will usually do what is required and some extra to please the customer in order to stay alive and grow their business.
I also have noticed the same problem with franchises, as with Panda, and this is a bit odd since franchises are actually independently owned. It is maybe related to the fact that franchise owners don’t actually work in their store but hire “managers†or maybe because lots of franchises are actually attached to big corporations that simply don’t have core values other than providing goods at the lowest price.
For me, given the choice, I will try to favor the (usually specialized) independent store where I will always get a better pre-sales experience & customer service, with help choosing the best product for my need with usually a competent salesperson.
Other than that, I do my homework choosing the right product, order it online at the lowest possible price and pray I won’t have to deal with customer service.
Colin.
[…] Ignore a Customer’s Lifetime Value at Your Own Risk by Ben Yoskovitz - “Too many businesses are shortsighted in their approach. Close a deal, take someone’s money and get ‘em out the door. That’s their way of doing business. And it’s just not good enough.” […]
[…] Ignore a Customer’s Lifetime Value at Your Own Risk by Ben Yoskovitz… Ben relates through personal experience how important a longtime customer can be, for better or worse. […]
[…] the ads, and it’s simply amazing how they ARE changing the face of recruitment. In his post, Ignore a Customer’s Lifetime Value at Your Own Risk Ben hits the nail on the head with his sandal buying experience at […]
“Disgruntled consumers are much louder than satisfied ones.”
Yeah, that’s one of the main reasons why “The customer is always right.”
“I also have noticed the same problem with franchises, as with Panda, and this is a bit odd since franchises are actually independently owned.”
That’s a common problem, independent franchisees putting their own profits ahead of the overall brand/reputation of the parent company.
i cannot help but nod in agreement everything you’ve said in this post! i’ve just recently purchased a pair of pants from mng (malaysia) in a sale, and a couple of hours after i changed my mind and i wanted a different colour of the pants.
i thought if i could speak to the manager she could use her discretion to allow me to do so, even if they have a non-exchangeable policy for sale. i mean, it was just a simple change of colours. she was adamant and pretty curt about upholding her company’s policy.
i faxed a complaint letter to the company and they didn’t even bother to reply. while they had done nothing wrong in this case, i’ve decided i rather patronise little boutiques where the manager is probably the owner and could be more accommodating to her customers than large retail boutiques who only care about their damn policies.
[…] Here are three stories that demonstrate how easily companies can take basic steps to keeping customers happy for life. […]