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.