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Ivan Häuser

Address to Entrepreneurs at the Finodex Project’s FIWARE-Roadshow 2 September 2016 in Pamplona

Gaining and retaining customers

GETTING A CUSTOMER

Customers are the entrepreneurs’ most important persons. In the long run, it is the customers who must

pay for what you do. So let us first define what a customer is:

A customer is a person who has a need or a problem I can remedy with my solution which the customer is ready to pay a price for that will give me a profit.

Perhaps you have been in contact with customer prospect from start, and perhaps they have helped you developing your prototype. But very often, an entrepreneur invents a solution before he or she has a customer who will buy it. If so, there can be a long way from having no relation to a customer until you meet a customer face to face:

In order to get customers, you must generate leads. In retail, lead boxes are a popular instrument for doing

this. You’ll find them in supermarkets at the check-out where many people see them. There is a clear

message on the box about the offer (for instance “Do you want to lose 5 kilos in two weeks?”), and there

are slips of paper you can write your contact information on and post in the box. The posted slips are leads,

the lead box now contains the names of people who are interested in your offer, and you can contact them.

Instead of lead boxes, which are not relevant for most of you because of the nature of your solutions, you

should:

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Arouse curiosity with teasers and appetizers on email and/or social media

Get the prospects’ contact info

Build a customer database

Be aware that you need to contact customers every day

Set goals for number of leads per week/month. Follow up on all leads quickly – leads are

perishables (”fresh food”).

As a management consultant, whenever I was in the office, I spent at least an hour, for instance 9-10 am

on calling prospects or on following up on customers I had already had been in contact with.

Fig. Lead box

It can be burdensome to get meetings with customer prospects, and therefore perhaps tempting to let

someone else do the hard work for you. But don’t hire meeting bookers! Do it yourself. Meeting bookers

require approx. 100 euros per meeting they book for you. Furthermore, although they may have

understood your business and your product, don’t expect to turn more than 5% of these meetings into

contracts. Meeting bookers are good at persuading, so the customer prospects will often say yes to a

meeting, because he/she feels pressured, not because of genuine interest.

When you participate in fairs, make sure that your booth shows activity so that it attracts visitors. Perhaps

your prototype can be working, perhaps you can show a video. Attract people through activity.

Your website should also be interesting to visit, and there should be news every week. Make the website

interactive, e.g. communicate with your costumers on a blog. (See problogger.net for advice about how to

build a blog).

Make a strategy for getting customers, based on the nature of your solution, the strength of your

competitors and the behavior of your customers. Consider whether you compete on price or quality or

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both. Decide, whether your customers need a demonstration of your products, or whether referrals are

more relevant or just enogh.

Fig. Considerations about marketing and sales

Your first customer is your source of wisdom and a friend. He or she:

1. Shares her/his problems, fears, hopes, worries and pain with you

2. Makes you understand the value of your solution (time and money saved, new business opportunities)

3. Gives you feedback and so helps you develop your prototype

4. Becomes your first reference and ambassador

5. Reveals how he/she prefers to communicate with suppliers and customers (mail, website, social media,

personal)

6. Knows of other customer prospects and possible partners

7. Deserves reward in the form of a lot of attention, service, discounts.

Your target group is also the target group of others. In order to reduce marketing costs and to get deeper

insight in the target groups, you might consider teaming up with a partner:

Your product is not for all. Probably, you have a number of target groups, perhaps 2-3, not only one. Let me

give you an example: let us say, I want to sell a new app-based method through which all children can learn

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to read, including dyslectics. Children without reading difficulties will learn to read in half the normal time.

The children, however, are not my target group, because they are not going to pay. Their parents are.

These parents can be subdivided into three groups: 1) Ambitious parents, who want their child to excel and

read earlier than most others. 2) Parents of children with reading difficulties who want immediate action in

order to get their child on track and catch up. 3) Disappointed parents who, to begin with, have trusted the

primary schools to help the child and ask me to help now. The number of members (parents) in each group

can be calculated. You then can assume that 10% in each target group will buy. And knowing that parents

spend a lot of money on their children, you can set the price reasonably high, for instance 15 euro per app.

So, returning to your own business, define your three (or more) target groups:

Customer segment 1: Definition and number of members

Customer segment 2: Definition and number of members

Customer segment 3: Definition and number of members

Then quantify each segment and set a price, which reflects the value for the customer and makes you earn

a satisfactory profit. In a five-year perspective, you must have a revenue which can pay for your own work,

your employees’ work and for the further development of your product.

For each segment, answer the questions below:

One thing is to prepare a strategy for approaching customers, another is to overcome possible personal

psychological inhibitors. You may be your own enemy in this respect, if you avoid direct customer contact

under all kinds of pretexts:

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In the same vein, you should know not only yourself and your tendency to procrastinate and avoid action,

but also learn about some of the findings from the Psychology science which can be used in marketing:

Reciprocity or ”Foot-in-the-door” principle. Regan’s experiment (1971) is about creating gratitude, give for

instance a free e-book, a free consulting call. If people have committed themselves, they identify with this

commitment and feel obliged to buy. Find a way to make your customer grateful and committed. Give him or

her something, an element of your product or some relevant information for him/her. Then he or she will be

more inclined buy later.

Conformity. Solomon Asch (1951) investigated conformity. The subject is one member of a group of people

who are asked to make judgments about various stimuli (e.g. which of two lines are longer). Unknown to the

subject, all other members of the group are stooges who deliberately agree that the erroneous answer is the

correct one. Such a circumstance allows for the assessment of the degree to which individuals succumb to

group pressure to conform or maintain independence in their judgment. Asch’s experiment showed that

individuals often follow the majority in the group. In sales and marketing, this finding can be used for

attracting new customers telling them that they will join (or be accepted by) a “group” who bought the same

item. The desire to belong to a group, or the fear of not belonging, is a strong sales factor. Therefore, use

customer testimonials when you promote your product. You can ask you first customers (your

“ambassadors”) to express their satisfaction with your product and use their testimonial in your promotion of

your product.

Fear. Burson & Gershoff (2015) have studied how consumers’ social identities stem from comparison

between themselves and others. These identities help determine consumption decisions. Unfortunately,

perceptions of comparative traits and characteristics are often biased, which can lead to similarly biased

consumption decisions. Translated into normal language, this means that people sometimes buy out of fear.

They want to match the social group they want to belong to. In business-to-business (which is relevant for

many entrepreneurs), the customers may buy, because they fear that they - without your product - will be

beaten by competitors. Thus, when promoting your product, point to the competitive advantages your

product will give the customer. In my own research (Ivan Häuser, 2011), I have confirmed the discovery that

the language contains many more pejorative expressions than positive ones. This is a manifestation of a

general phenomenon: language (and, apparently, human consciousness) differentiates evil more finely than

good, and the unpleasant more finely than the pleasant. Simply put, fear plays a colossal role in the way we

perceive the world and is a fundamental motive or cause of our behavior.

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Framing. Kahneman (1980) made an experiment, which showed that some ways of presenting a product are

more effective than others. The effect of a new pharmaceutical treatment was explained in alternative ways

to two groups: 1a) Treatment A, 200 people will be saved, 1b) Treatment B, ”1/3 probability of saving 600

lives”. 2a) Treatment A, “400 people will die”, 2b) Treatment B, ”1/3 probability that no one will die”. All four

versions of the offer contain the same message, but they are framed differently. The majority of customers in

the two groups chose, respectively, 1a) Treatment A and 2b) Treatment B. Clearly with regard to

pharmaceuticals, customers are attracted by hope and positively formulated results. Thus, be careful with

how you frame your presentation of your product. Think what is most attractive for your customer.

Scarcity. Adewole (1975) conducted an experiment, where people had to value (set the price of) cookies.

There were two cookies in one jar, and 10 in another, all cookies being the same. The Customers valued the

cookies in the jar with two higher. For you to remember: Customers want to be special!

Environment – Meredith & Wheeler (2008) tested, where it is better to test the product, for instance at the

producer’s or at the customer’s place. The arrived at the result that a test should be conducted where the

customer is going to use the product, that is in a real setting. However, I happen to know that yachts are

easier to sell at a fair in a showroom and not when they are rocking on the waves in a harbor. The person

who is supposed to do the cooking at sea may be repelled by the rocking.

In professional sales, i.e. B2B, you should use the SPIN selling method when you meet your customer face-

to-face. With this method, you link the customer’s problems with your solution. The task is to get on the

customer’s side of the table. Show you are interested and understand her/him, before you present and

extol your solution.

The SPIN Selling Method

Getting on the buyer’s side of the table

Situational questions (be prepared from home – but show curiosity asking these innocent questions)

How many people do you employ at this location? Who are your most demanding customers? Could you tell me how your system works?

Problem questions (Identify your customer’s problem)

What would you like to accomplish? What are your objectives? What is difficult? What prevents you from achieving these objectives? How satisfied are you with your present system? What problems are you experiencing in this area?

Impact

Having identified the customer’s problem, let the customer explain what this problem means to him/her, how much he/she suffers, how happy he would be, if the problem no longer exists. Let the buyer be emotional here. Question types: What effect do these problems have on your competitive situation? Could that lead to an increase in your costs? How will this problem affect your people’s productivity and job-satisfaction?

Need-payoff questions

Now, after the other questions and answers, you can relate your solution to the buyer’s problems. Questions: How

would it help, if you had this information online? How could a faster system help you? What would it mean to your

business, if you could offer our solution?

When your customer prospect signals interest, it’s time be both efficient and careful. There are certain

documents you need to prepare before closing a deal or starting a co-operation:

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Non disclosure agreement

Allows the potential customers to get the necessary insight into what they are going to buy and prevents them

from copying the product.

Letter of intent

Is used for indicating interest in the product. Can also be used in negotiations with investors.

Order confirmation

Is used for confirming an order.

Standard terms of delivery

This document can contain conditions regarding pre-payment, delivery time, insurance, responsibility, guarantee,

complaint instructions

Below, see a standard Letter of Intent:

Letter of Intent

<date> For: <Name of the entrepreneur> Issue: <Purchase of xxxxxxx> Reference: <Sales material, video, notes, etc.> The company <Name, address, VAT registration number> has had a dialogue with company <Name, address, VAT registration numer> about purchase of the product described under “Reference” above. This product is under development and is expected to enter the market <date>. Provided that the product meets the requirements with regard to specifications and delivery, we will buy ## pieces at a price of <## currency>. Signature <Name of company representative>

In order to convince evaluators or an investor, you certainly need to have a real customer who has genuine

interest in your product. Perhaps you only have a prototype and not yet product to sell. That’s where the

Letter of Intent is comes in as a way to show that your customer is serious. The Letter of Intent also

prepares the customer for the moment when the deal must be closed, and he or she will have to pay.

When we come to the price, this must serve multiple purposes:

Price

Before getting an order, you must be able to give the costumer a price. The price should reflect

• The customer’s perceived value (what is the solution worth for the customer?)

• The competition from similar products/solutions.

• Your costs for production and marketing

• Your profit

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You cannot set a price, if you haven’t calculated the costs. These may be:

Costs

1. Development (Payment of staff for the development of hardware, software and mechanics)

2. Equipment (Components, prototype printed circuit boards (PCB)

3. Tools for manufacturing (Formwork/mold, software licenses for development tools and third party

software)

4. Production of series 0 (the first production will often have to be repeated a couple of times before it is

right. This may be expensive)

5. External test (Often you need external tests for verifications of the product. This may be due to regulatory

requirements or there may be a need for a specialized laboratory.

6. Approval, cf. regulatory requirements (All products must be CE-marked in Europe. If a product does not

conform to regulatory requirements or is not possible to categorize, it cannot enter the market. The

entrepreneur must contact a test house (for instance FDS) about this.

7. User manual

8. Packaging

9. Design

10. Support of sales Year 1 (Typically, new products have failures. Furthermore, the users must get

accustomed to them. Therefore, costs must be expected for support in the sales phase and the guarantee

period)

11. Marketing

12. Sales costs

13. Distribution

14. Complaints / errors (How do you handle complaints and failures? What does this handling cost? What

does it cost to replace defective equipment?

15. Re-design and new production, based on complaints (Probably you will have update your product, based

on user experience. This update is necessary for staying in the market).

16. Product liability insurance (can be costly, depending on the product’s nature)

Some work the entrepreneur will not do by himself, but outsource. If so, get quotations and find out what the

cost will be.

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RETAINING CUSTOMERS

Then, when you finally have got customers, it’s not just about acquiring new ones, but also about keeping

those you have got. I’s like in a personal relation, e.g. a marriage. You must remain being interesting to your

partner.

My telecommunications service provider contacts me regularly with new offers, including price reductions.

In this way they anticipate their rivals. Likewise, some companies want their customers to give feedback in

surveys. This may be irritating to the customers, but it also gives them an opportunity to make themselves

heard, and it creates the impression that the company is interested in them and currently trying to improve

the service.

You have to create customer loyalty. Reward this loyalty. Insurance companies give discounts to people

who have had no car damages and accidents. A reward can also take the form of a workshop, where the

customers get interesting information (perhaps from an external specialist presenter) and some snacks and

drinks with an opportunity for networking.

CUSTOMER RETENTION

• Keep contact (newsletter, blog, mails, social media)

• Show recurrent, constant interest

• Follow up on cancellations (Why?)

• Add-on services

• Maintain image

• REWARD loyalty (e.g. offer a better subscription when applicable)

• Surveys

Your company’s product will inevitable have a life-cycle. At some point, you’ll need to update and enhance

it. The old customers should have favorable conditions for getting your new add-ons and products.

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Sometimes, there will be customers will complain. You must have a system for handling such complaints.

See these complaints as a source of wisdom, and take corrective action so that the cause of failure

disappears.

Whenever you can, try to turn a disaster into a victory. For instance, travel agencies sometimes offer a new

trip to customers who had a bad experience. A complaint, which is handled with care and creativity, can

even enhance customer loyalty!

In Service Management, we call such a turn-around a “beautiful exit”.

Summing up, getting customers requires your awareness, energy and commitment. And when you have

gained them, work systematically on retaining them!

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References

Burson, K. A., & Gershoff, A. D. (2015). Marketing actions that influence estimates of others also shape

identity. Journal of Consumer Psychology, 25(3), 495-503. doi:10.1016/j.jcps.2015.01.00

Handbook for Entrepreneurs (2014). www.finodex-project.eu

Häuser, Ivan (2011). Følelse og Sprog (Emotion and Language). Ph.d. School LIMAC. Ph.d. Serie 2.2011

Jansson, Toni (2007). Ingenjörsamfundet. Träningsprogram för entreprenörer. Steg 7. Marknadsplan – hur man skaffar

kunder

Rackham, Neil (1996), The SPIN Selling Fieldbook. McGraw-Hill

Racks, Amanda (2012), Customer Acquisition. Xlibris Corporation