Thursday, December 22, 2005

Why You Need to Attract and Retain New Customers Twenty Times Faster and Less Expensively

Good morning, Billion Dollar Business Creators!

Are you feeling motivated this morning? I certainly hope so. I know that I am!

Attracting new customers twenty times faster and less expensively: When I propose this objective, heads nod affirmatively.

That reaction always surprises me. Many of the most popular marketing books today focus on retaining customers for life . . . rather than adding new customers. You can even buy software to help you calculate the value of retaining your existing customers.

Some people have taken that financial analysis to mean that you can and should spend more to add customers. That's a questionable conclusion. You won't know what a customer is worth for a lifetime until their lifetime is over. My experience has been that most people are wildly optimistic about the "lifetime" value of a customer.

I was recruited into a network marketing company that offered a product I liked. Because I wanted to help others find out if the product would help them or not, I started spending money to promotions to attract new customers. People who were "experts" in this product assured me that their customers were worth over a $1,000 apiece. Within two years, these same people had almost no customers. They lost hundreds of dollars attracting each customer who didn't stay. Don't let that happen to you.

Obviously, it's better to attract customers who will stay. Let's put that subject aside for now.

But why spend more . . . if you can spend less? It makes no sense to me.

Despite the nodding heads, I've learned never to assume that everyone understands how important it is to attract and retain new customers twenty times faster and less expensively.

Clients and students regularly report to me their latest successes in accomplishing this acceleration customer acquisition and retention at such bargain basement costs.

What's the difference? These successful marketers are using the 2,000 percent solution process to create vastly new approaches while conventional marketers focus on tweaking their proven marketing strategies to yield just a little better result.

Why focus on attracting and retaining customers twenty times faster and cheaper?

I could provide hundreds of answers to that question that would all be helpful to you (and I will go into the point in more detail for
The Billionaire Entrepreneurs' Master Mind when it begins to operate in 2006). But for now, let me just hit a few high points:

Let's begin by looking at billion dollar businesses. There aren't very many of them. There are even fewer new ones. Since creating a billion dollar business is our goal, we should be sure to study what we are trying to achieve.

I've been studying this question of creating billion dollar businesses since 1972. Here are some things that I've learned in the process of meeting with the entrepreneurs who founded many of these businesses:

1. Most revenue gains came from adding customers who hadn't been participating in the market before.

Consider Paychex. That payroll and human resources data processor began serving small employers which had been doing their own payroll and human resources administration. Virtually none of the company's growth came at the expense of the industry leader Automatic Data Processing which was serving larger employers in similar ways.

Paychex found ways to profitably attract a client company with only five employees which had never considered outsourcing payroll and human resources administration.

Even though Paychex could serve such a small client profitably, if the cost of adding the client hadn't been very low . . . the opportunity to grow would have been modest. If the clients had all left after a year, Paychex also would have lost money. The cost of adding clients was and still is low and the clients have stayed. It's as simple as that. But the difference in being able to do this marketing effectively and efficiently . . . or not . . . is worth billions to Paychex shareholders today . . . and more billions in the future.

2. It's been easier to attract customers who aren't using anyone's offerings than it is to wrestle away customers from existing, competent suppliers.

Consider the airline industry in the United States. For decades companies followed one of two business models: Hub and spoke connections with full fare prices for business people and discount prices for individuals who booked in advance; or low prices for everyone with hub and spoke connections. The effect was for airlines to regularly go bankrupt as they competed brutally through price wars without reducing costs. Gaining market share by doing more of the same was a loser's game.

Southwest Airlines began to change all that with a third business model: Friendly service on frequent, short flights at rock bottom prices from low-cost airports while operating as simply and inexpensively as possible. When Southwest entered a new airport, it wasn't unusual for volume at that airport to expand by several hundred percent. Southwest liked its approach so much it didn't look elsewhere.

Who were these new customers? In many cases, they were people who normally drove or took the bus for these trips. Southwest was attracting the customers into a new form of transportation for these destinations. During slack periods, Southwest would often offer two-for-the-price-of-one specials to help make family travel more affordable. Having tasted pleasant, low-cost air travel, they wanted more. If Southwest added a new destination, the passengers would come even if the location wasn't ideal.

In Europe, Ryanair realized that the Southwest business model with some tweaks could be an even bigger success because flights in Europe cost a lot more per mile flown than those in the United States. Ryanair is now in the process of greatly expanding those local flight markets all over Europe.

On some routes, Ryanair charges as little as two pounds each way (before airport taxes) where competitors used to have costs of over fifty pounds.

But Ryanair didn't just slash costs, it also reinvested in customer service. After all, who wants to have a cheap flight that is a lousy flight? For several years, Ryanair has led all European airlines in punctuality, fewest cancellations and lost bags. Notice that these benefits save and make customers money by reducing the time they spend with their cars in airport parking, buying airport food and not being able to conduct their business meetings.

Ryanair also knew that it's hard to get people to try new things. Early experiments with low-priced specials convinced the company that people were hungry for lower fares in Europe. People stood in line for three days the first time, Ryanair offered such cut-rate deals.

Ryanair learned from this experience that if they make the flights available at a low, but profitable, price and do a good job, the customers will fill the planes. This point was established for all time when Ryanair launched its first continental European base in the then obscure Brussels Charleroi Airport. With imaginative marketing, low prices and great service, Ryanair was soon entrenched on the continent and ready for more bases there.

3. Continuing to focus on gaining market share and operating in traditional ways drains resources and attention needed to develop and expand innovations required to add customers more rapidly.

Growth is a difficult mistress. You have to run hard just to keep from having your offerings deteriorate in quality. An organization knows that if it can simply get its offerings into the market, they can sell all they want. Given the choice between squeezing out a little more growth of the old sort and doing some innovating, almost everyone will focus on the old business model.

You see this effect when old business model companies attempt to innovate by putting in place new business model operations alongside of the old business model. Pretty soon the new business model operations will either be shut down or converted to the old business model. As an example of the former, consider the fate of "low cost" airlines run by traditional airlines. As an example of the latter, consider how Saturn is now run as part of General Motors. Only the dealer network innovations seem to have stuck while design and production now pretty much follow the GM traditional model.

Those with 95% cost-advantaged business models combined with twenty times more effective marketing can simply continue to improve their models while sustaining high growth. For example, Ryanair has grown its passenger base by 27% a year for many years now as the firm regularly adds new routes.

If Southwest and Ryanair had never opened new routes with their advantaged business models, they might not still be in business. Larger competitors could simply have squashed them by permanently slashing prices below even Southwest's and Ryanair's low cost levels. For more information on this case, see

I hope you will share your questions about my suggested approach to helping you create a billion dollar business
by e-mail . I will create a FAQ section to answer those questions after I have a better sense of what aspects are of most interest.

Send your question by e-mail to and label it "I Have a Question about Building a Billion Dollar Business" in the subject line.

If you would like to learn more about how you can build a billion dollar business, send me an e-mail at and label it "I Want to Build a Billion Dollar Business" in the subject line. I offer a variety of services that can help.

Read the December 19, 2005 blog post to learn more about
The Billionaire Entrepreneurs' Master Mind.

May God bless you. Merry Christmas!

Donald W. Mitchell

Mitchell and Company

Copyright 2005 Donald W. Mitchell