Why Customers Leave …
… And five ideas for turning them back
October 2007 By Arthur Middleton Hughes
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Most companies assume that their customers are highly price-sensitive. They design their marketing programs with this idea in mind. When they have sales, more people buy. When their products or services are not on sale, less people buy. What more proof of price sensitivity do you need?
Transaction vs. Relationship Buyers
Actually, you need a lot more proof, because the response to discounted sales is usually quite misleading. As Paul Wang, associate professor of integrated marketing communications at Northwestern University, points out, there are, in general, two types of customers: transaction buyers and relationship buyers. A transaction buyer is someone who is interested only in price. These buyers have no loyalty. You can keep your warehouse open on a Saturday afternoon to meet some special need they have. The following Tuesday, when they have another requirement, they will bid it out. These people will leave you for a penny’s difference in price. They have all the catalogs and know all the competitors’ prices. They spend hours on the Internet researching products before they buy. They can afford to wait. They take pride in getting the best deal.
The other type of buyers are relationship buyers. These are people who look for a supplier they can trust. They are seeking friendly companies with reliable products—people who recognize them, remember them, do favors for them, who build a relationship with them. Once they find such a supplier, they tend to give them all their business. They know they can save a buck here or there by shopping around, but they find the process wastes too much of their time and emotional energy. Relationship buyers, if properly cultivated, will stay with you for a lifetime.
The Truth About Discount Pricing
Brian Woolf, president of the Retail Strategy Center and author of “Customer Specific Marketing,” said this:
Transaction vs. Relationship Buyers
Actually, you need a lot more proof, because the response to discounted sales is usually quite misleading. As Paul Wang, associate professor of integrated marketing communications at Northwestern University, points out, there are, in general, two types of customers: transaction buyers and relationship buyers. A transaction buyer is someone who is interested only in price. These buyers have no loyalty. You can keep your warehouse open on a Saturday afternoon to meet some special need they have. The following Tuesday, when they have another requirement, they will bid it out. These people will leave you for a penny’s difference in price. They have all the catalogs and know all the competitors’ prices. They spend hours on the Internet researching products before they buy. They can afford to wait. They take pride in getting the best deal.
The other type of buyers are relationship buyers. These are people who look for a supplier they can trust. They are seeking friendly companies with reliable products—people who recognize them, remember them, do favors for them, who build a relationship with them. Once they find such a supplier, they tend to give them all their business. They know they can save a buck here or there by shopping around, but they find the process wastes too much of their time and emotional energy. Relationship buyers, if properly cultivated, will stay with you for a lifetime.
The Truth About Discount Pricing
Brian Woolf, president of the Retail Strategy Center and author of “Customer Specific Marketing,” said this:
For years, retailers have argued that having regularly advertised, deeply discounted prices brings price-oriented customers into their stores but that over time, these customers convert into regular, profitable customers.
Research at the Retail Strategy Center shows that this widely held belief is a myth. A handful of these customers do convert into “good” regular customers, but the majority actually defect within 12 months of their first shopping visit. I have yet to find a retailer anywhere in the world whose investment in this type of shopper has yielded an attractive return on investment.
Companies Mentioned:
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