Building A Great Product Vs. Growth
Two Choices: Great Products & Growth:
New companies have two things to consider when they are building up and growing into bigger businesses. It’s a balancing act for most businesses to maintain both, but what should be more important to a new business? Well, in the case of a new startup the quality of products is the first priority someone should have.
For example, have you ever been out shopping and found a great pair of new pants or a great suit you can’t wait to go home and wear to a big event? You buy the item and go home and put it on! It looks great! It’s your favorite outfit, and you wear it a few times. Naturally, you wash it every so many times wearing it. After 2–3 washes, you notice the colors starting to already fade out. The strings in the seams start to come undone. The garment begins looking frayed, worn, and cheap even though you have only used it a few times.
Do you remember the disappointment that left you with? You paid your good, hard-earned money for something and it turned out to be a snub! You are not happy. You go to return it to the store, or have to go out of your way to get your money back. Then you have to find a new outfit for special events. You likely feel disappointed and know which companies you are not shopping with again any time soon. The same thing goes for you when you are going to make your own startup. Remember that disappointing feeling, and avoid the mistake that company likely made. They decided it didn’t matter how “good” their product was, but they saw that making a cheaper product allowed them to say make 3 garments for the price of 1 otherwise. They could still sell them at the same price They could put more products in more stores and grow their business faster. But in the end, if their products are made that way they are still likely to fail.
Lack of Customer Retention:
That company very well may find an initial “boom” of business as they are able to churn out more garments and are able to get their product in more consumers’ hands. However, that is unlikely to last very long. Customers may very well buy the product rather eagerly at first, but will head home to put it on and realize that the product is of poor quality. When the colors begin to fade after a few washes, strings begin coming undone (literally), and the garment looks cheap and worn many people are likely to join the “Return Lines” at the store. The company then has to refund the customer’s money and now has garments returned they cannot resell again.
Sure, that garment may cost $8.00 to make at their current manufacturer versus $24.00 at their old manufacturer, but the quality is suffering for it. They may be able to make 3 suits to the 1 they were able to make before. They may think it’s a “get-rich quick” scheme, and at first it may be. But their bad reputation and poor quality of product will catch back up with them. Moreover, consumers will do anything they can do tell other people about how bad their experience was, and warn others against making the same mistake they made in the first place. In the end, that’s not a recipe for retaining too many customers
The Power of The Internet:
Living in the 21st century means we have the power of the internet at our fingertips. The internet is closing in on TV for being the most powerful on the planet through which to reach people. A bad reputation on the internet can ruin a company. For example, someone like this clothing company that is producing poor quality products may find their business suffering due to what is on the internet. Consumers are not afraid to share their opinions in the 21st century, and will make it crystal clear what they think of the products a company is putting out.
How can consumers bring down a company on the internet? It turns out that can be done in more ways than any startup may ever realize. Consumers can go online and leave poor reviews of products, make negative comments about the product on social media, and post negative things about bad experiences they have had as well. It can be devastating to a company’s online sales as well as their sales in brick-and-mortar stores as well. Consumers opinions can drive what other people buy in the future, and enough negativity surrounding a brand or product can turn away future consumers from buying that product. Even despite the initial “boom” in business as the product is available in more places the downfall later can be what costs a company with poor products its future.
Focus on Customer Retention:
Now, flipping this example of the poor-quality garments made by, let’s call them, Company A there is Company B that goes above and beyond to ensure that customers receive quality products. While Company A with poor quality garments may be able to brag that they are in 2500 retailers across the US and Company B with quality garments may only be in 200 stores across the US, the future of Company B is likely to be even brighter than that of Company A. Why is that? Simple.
Company B is focusing on quality garments, and satisfying the customers they already have. Say that Company A is able to initially sell 25,000 garments in year one versus the 250 that Company B can sell. Each company charges $25.00 for a garment. Company A is initially making $625,000.00 and Company B is making $6,250.00. But say the companies are in business 10 years. In 10 years Company A watches its business plummet by 50% due to the poor customer reviews and satisfaction. They are now making $312,500.00 a year. Company B however is retaining the customers they have. Just the 250 people that each bought one garment in year one, but those customers are SO blown away by the great quality of the brand and the great service they receive when there is a problem that those customers exclusively shop for garments at Company B. They are now purchasing 50 garments a year per person. That company is now raking in $312,500 just like Company A without ever gaining more customers.
There is not a “secret” to the success! It’s simply retaining the customers you had and making them loyal ones. Any growth Company B does on top of that is adding additional revenue and surpassing Company A in revenue. Even if Company A was bigger to start with, they shrink due to their poor service, where Company B focuses on the clients they already have and is able to make them loyal clients that provide them more business.
Loyal Customers Reward Companies:
Loyal customers will end up “rewarding companies” with higher sales and revenue over time. The same people coming back to your business again and again not only generates more revenue than sacrificing quality for a few more customers, but they are also going to be loyal to your company. Loyalty ensures that these happy customers are likely to continue shopping with your company long into the future. In the end, keeping the same customers loyal will create a huge payout that keeps your company secure for years to come. Those customers are also likely to stand by the company through any issues or controversies that may arise in the future.
When it comes to customer loyalty versus growing the business you have never sacrifice the loyal customers you have to try to just grow “big as you can”. Like the example above you are unlikely to succeed in the long run no matter how many new customers you are able to attract if you can’t keep them loyal customers in the future. While it may seem backwards keeping loyal customers into the future is the key to being able to ensure that your company has steady income well into the future. That’s a huge plus when it comes to helping pay the bills or ensure that your employees and you get a paycheck each week!