Ticking Off Your Customers
2. Increase your share of the customer's wallet—figure out ways to get existing customers to spend more money with you.
As a direct marketer, I have always operated on the rule of thumb that it's five times more costly to acquire a new customer and make a sale than to sell something to an existing customer.
Now, I think a five-to-one ratio is low—perhaps very low. With the hundreds of sales pitches consumers and business folks face in print and broadcast media, the Internet, the mailbox, billboards and skywriting, finding a new customer is a tough, very expensive and chancy proposition.
While customer acquisition—with its high-octane creative and manipulation of data—is very sexy, getting existing customers to spend more is what puts money in the bank.
The Visa Debacle
Every Christmas, my wife, Peggy, and I give my stepmother a gift card for merchandise at the Lord & Taylor department store. She can buy what she wants and if the amount on the card runs out, she can pay cash—or use a credit card—for the balance.
Plastic gift cards are slated to be a $110 billion business by the end of the decade, which is a lip-smacking statistic for the financial services crowd.
But a serious problem exists with non-store, prepaid gift cards. Let's say you give a $100 Visa gift card and the recipient spends $87, leaving $13 on the card. If the card owner tries to make another purchase using a combination of the $13 on the card plus cash, the transaction is refused by Visa for insufficient funds.
As Caroline E. Mayer writes in The Washington Post:
Lisa T. Winston of Forestville had the same problem with her $50 American Express gift card. The government employee has about $2.39 left on the card and is not sure when she will be able to use it: "Unless I buy some gum at CVS ... I guess it will just go to waste." Next time, she said, "just give me the cash."