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Feb 1, 2007
Passionate customers are the independent retailer's most valuable weapon in winning competitive battles against big chains and others. Here are some examples of how to enlist customers' support.
Each week, Greg Selkoe, founder of Karmaloop, and a handful of his employees, gather in his office overlooking Boston Common to review new designs. Karmaloop sells street wear at a store on Boston's trendy Newbury Street and online.
The group votes on what T-shirts, jackets, and other clothing should be added to the Karmaloop merchandise mix. That may sound a lot like what goes on at most retail companies where the sales staff, which has direct interaction with customers, offers guidance.
But what Karmaloop is doing is very different. The designs that are under review have been submitted by customers. More than 35 designs, from the more than 1,000 that customers submitted, have been added to the company's offerings.
Karmaloop employs 33 people, and has annual sales of approximately $4 million. Selling clothing dreamed up by customers is just one facet of a business model that brings customers so far into Karmaloop's DNA that they have become, in effect, extensions of the company's sales, marketing, and product development teams.
Karmaloop has an army of about 8,000 customers who proselytize the brand and get discounts or cash when they, or someone they've referred, make a purchase. Members of this, "street team," called reps, also upload images, photos, or artwork to Karmaloop's site to make company stickers or banners that other reps can download.
"The reps are evangelists for our site," says Selkoe. And they're doing their job. Fewer than one percent of Karmaloop's customers are reps, but their purchases and those they inspire account for 15 percent of total sales, Selkoe reports.
Retail chief executives often talk about the importance of customer loyalty, but entrepreneurs like Selkoe know that making people truly loyal to your company, making them really like you, takes a lot more than a frequent buyer program. It calls for nothing less than getting people so excited about your brand that they become engaged contributors to your company's sales, marketing, and innovation efforts, and ultimately its success.
How does this happen? It comes from knocking down the walls between "you" and "them." Kicking down the walls creates a larger, looser community that is inviting to both the customers and the employees.
Building a community around a brand is a natural for Karmaloop, Selkoe acknowledges. His company, which was founded in 2002, targets young, artistic, and savvy online consumers under a credo that promised, "To battle the evil forces of McFashion."
Not all companies have such a primed clientele. But companies of all ages and sizes, in all markets and demographics can employ similar tactics. Not doing so may be riskier than giving it a try.
Giants, such as Starbucks and Costco, have proven adept at cultivating extremely passionate customers. In doing so, they have reduced the advantage smaller companies traditionally gleaned from their close relationships with their base.
Building such relationships among customers will become even more crucial if the economy slows. That's when customers must be loyal enough to stick around, instead of hunting elsewhere for bargains. "My message to small companies is that big companies are coming after you with better customer service, so you better be paying attention," says Edward Reilly, president and CEO of the American Management Association (AMA).
Creating Customer Conversations
For many companies, transforming customers from passive buyers to active participants demands a seismic shift in thinking. You can't just slap up a blog and expect people to get excited. It requires an intense focus on customers that shapes everything you do, from how you hire and motivate employees, to how you design products.
That done, the next step calls for spotting loyal customers and starting a real conversation with them. Develop multiple channels through which these prospective loyalists can express their views. Then make sure that employees and management responds by addressing their concerns, enlisting their involvement, and collecting their suggestions to improve existing products and services and create new ones.
Certainly there are potential pitfalls. It's possible to get so much feedback that good ideas get buried, or you lose sight of your core mission. You don't want to give your own staff's innovations short shrift. Often, the most successful products are ones that people didn't realize they wanted.
AMA's Reilly warns that offering discounts isn't enough. "Some frequent buyer programs create habitual customers, but not loyal customers," he says. "A habitual customer will buy your product until something better comes along. A loyal customer will continue to buy it, look for reasons to buy it, and tell others to buy it. Loyal customers are built by experiences with the product and your company."
The benefits of courting customer advocates are clear. Research by Bain & Co. over the past decade has found that revenues of companies with the highest levels of customer loyalty grew more than twice as fast as those of their competitors.
University of Michigan researchers have seen a strong correlation between a company's ratings on its customer satisfaction index and its future stock market performance. Robert Schieffer, clinical associate professor of marketing at Northwestern's Kellogg School of Management, says, "Increasing customer satisfaction has a remarkable impact on profitability."
Partnering with Prospects
Ntiedo Etuk is building an advocacy army from the ground up. The co-founder of Tabula Digita, an educational video game company in New York, began a partnership with the school administrators he wanted as clients, even before any of Tabula's math games were on the market.
Etuk and his team identified leading educators who tend to spark new trends in the field. "They are highly influential," he says. "They are the people who tend to speak at conferences, and others watch what they do."
He invited them to join a partnership with his startup company in which they would give his seven employees comments about the early versions of Tabula Digita's games. The partners get the product at a discount. Etuk hopes those educators will also serve as references when he pitches Tabula's products more widely.
Bringing customers into the fold from the very beginning is a great strategy. But every company, new or established, has loyal followers who may become advocates. It's simply a matter of identifying them. One way to connect with customers and find out what's on their minds is through surveys. Blog postings can also be revealing.
Chief executives and/or top managers should regularly blog on a company website about products and issues of interest to customers and encourage customers to respond.
It's also a good idea to see what is being said about your company on industry blogs. Ben McConnell, a Chicago marketing consultant, suggests hosting a party or reception, possibly with an educational or training component, and inviting a large number of customers. Those who show up may be good candidates to become advocates.
Selkoe believes his customers get involved with Karmaloop because they are looking for, "Stuff that expresses who they are." To become a rep, customers fill out extensive online questionnaires about themselves, their hobbies, and how they would promote the brand. While Karmaloop doesn't turn people down, Selkoe says the multiple question survey weeds out people who aren't serious.
Dennis Todisco, a 19 year old rep and student at Bentley College, says he became a Karmaloop fan because it carries clothes that can't be found at the big retailers. He figures he earns about $200 in free clothes a month. While Todisco says he would talk up the company without the incentive, the financial reward makes him promote it more aggressively. "It's become really lucrative for me," says Todisco.
When looking for advocates, don't make the mistake of writing off customers who have complaints about your company. That group, which includes people who Kellogg's Scheiffer dubs, "hostages," may be keeping their business with you only because they have few good alternatives, and will bolt if given the chance.
Addressing their concerns may well convert them into your most fanatical followers. AMA's Reilly says that if you have defects in a product or service, the way you address the complaint can help create an emotional attachment that can move someone from being a habitual buyer to someone who is very loyal and will tell people about your company, its products and its service.
In a study of customers who had complaints with their banks, professors at the University of Virginia's McIntire School of Commerce found that if a single snafu was appropriately addressed, customers rated the firm higher on satisfaction. They also gave word of mouth recommendations and became consistent customers.
One test of loyalty is how often someone buys from you. But while that is a tangible benefit, it's not the only test. Customers who see themselves mirrored in your brand are even more likely to be loyal.
You can develop that reflection by building a community in which customers can interact with your employees as well as their peers. "By bringing customers together, you give them the chance to talk about their experience with your product or brand," says one Chicago consultant. "And if you invite prospective customers to do this, existing customers often join in the dialog to become salespeople."
The Internet makes it easy. Some businesses create a private Yahoo! group where customer panel members can post messages. Karmaloop has a page on MySpace.com, and is building its own online meeting place.
And Selkoe extends community building to the real world by sponsoring events in line with his customers' interests. "Many people associated with Karmaloop are artists and musicians, and we use Karmaloop as a platform to promote them as well," he says. "We had a listening release party in our store for a musical group we like. It is not a one way thing."
Whenever possible, find ways to help your customers, even if it means pointing them to another company, advises Glen Urban, a professor at the Massachusetts Institute of Technology's Sloan School of Management. "It is hard to get people to advocate for you if you haven't done it for them," he reasons.
Jay Lee, coowner of, On the Run, an athletic apparel store in Houston, TX, has turned his customers' interests into an opportunity to promote his store, which now has five employees and annual sales of about $500,000. Lee, himself a runner, asked other athletes he and his employees knew, and considered approachable, to be part of a running team.
The store pays up to $200 a year in race entry fees and provides four pairs of running shoes to each of its 20 team members. In return, runners wear gear with the On the Run logo at races, and volunteer at events such as pre race pasta dinners.
Lee thinks his grassroots marketing has been more powerful than the advertising he's done in the past. "Over the last year, our biggest increase in sales has come from customers who found us through word of mouth," he says.
Lee gets plenty of informal input on his products from team members. Having a system for feedback and customer input in place helps a retailer mine customer communities for the best ideas. At some stores, these ideas are fed to product managers, who review all suggestions and decide which ones to act on.
Whenever possible, companies should create an, "internal evangelist" position, held by someone who is responsible for, and devoted to establishing, a vibrant customer community. Be warned, however, that giving a salesperson the task may backfire. While salespeople have a lot of contact with customers, some experts note that they may be concerned primarily with selling, not listening and advocating on behalf of customers.
Companies that don't have an employee dedicated to that task might want to enlist frontline customer service employees to compile information on customer problems and suggestions and pass them to a marketing team to assess. Marketing staff should work closely with product developers to make sure enhancements are made and good ideas are pursued.
Meanwhile, keep your customers engaged by sending follow up emails and phone calls to let them know what actions are being taken as a result of their comments.
Visiting with customers and seeing firsthand how they use your products can also trigger innovation. Kellogg's Schieffer suggests sending a team of marketing, product development, and technology people on client visits so that any problems or suggestions that come up can be addressed quickly.
Once a month or so, Tabula's Etuk and his managers comb through a database of educators' suggestions and concerns about their products. Good ideas are quickly incorporated into the products, such as creating a feature that tells teachers how a student has performed. Etuk understands just how valuable the community he is building will be and intends to keep them involved. "It's a constant conversation," he says.This article was edited from a story in Business Week Small Business.
Topic: Business Strategies
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