In Praise of Old Business

John Lawn

Editor's Note: The series of columns on the "P's of Marketing" for foodservice directors that has appeared in the last several issues will continue next month.

In time management classes, you are always reminded that your best efforts are spent on "high payoff" activities. When time resources are limited, you shouldn't necessarily do what is urgent, or what is easy or comfortable.

Almost always, the high payoff tasks you should really focus on are those which are psychologically " slipping through the cracks." That's why so many time management systems stress setting priorities in ways that constantly remind you if you get off the priority track.

In the same way, a basic "high payoff" strategy in customer management is to realize that your existing customers are usually worth more to your foodservice operation than new customers are, and to treat them that way. That's a very good point to remember when so much of the pressure on many operators is to increase participation, and tap various other kinds of "new business" which may or may not prove profitable in the long run.

This willingness to extoll the value of the new, and to sometimes take the old for granted, also extends to motivational and people management acivities. Just as in many commercial businesses, the conventional wisdom sometimes tends to favor activities that go after the new while sometimes giving short shrift to the old.

Such recognition should never be allowed to de-value or overshadow those people, processes and activities that maintain one's core business relationships.

Think about how willing we are to applaud new ideas, new people, new promotions and new systems. The attention may be well deserved. The new activities may help a department reach assigned performance objectives or achieve efficiencies that did not exist before. But are we just as willing to reward people or celebrate their successes in the context of doing what they already do well?

Some years ago, Harvard Business School Professor Leonard Schlesinger initiated some seminal research of the credit card industry that explored the cost of replacing lost customers. He found that the cost of replacing a customer can easily cost a financial institution all of the profit the customer might represent for two years or more. The findings underscored his argument that while conventional wisdom tends to tie a company's profitability to building market share, a better case can often be made for how closely profitability may be tied to a company's ability to retain business relationships it already has.

An improvement in retention rates is almost always accompanied by an improvement in profitability, Schlesinger observed. It strengthens what is for most companies one of the most important sources of new business, referrals. Finally, strengthened customer relationships are often the determining factor in whether or not those customers view their business relationship with you as "value added" or simply "over-priced."

This latter point has special significance for onsite operators, who compete daily with commercial restaurants that regularly seem able to obtain higher price points for similar foodservices.

Schlesinger also made the case that the value of a customer should be established not by the value of the transaction at hand, but by the sum of all future transactions that might be expected if he or she remained a loyal customer.

In the onsite community, where new customers typically can come only from a limited pool, this advice makes even more sense.

The underlying message seems clear: if you want to build your sales in today's competitive environment, look first to the customers and business you already have, and how you can strengthen it.

In most cases, it is only after you've done your best to keep those customers satisfied as "regulars"— and to increase the frequency with which they use your services—that you should turn your attention to new customers and new business. And even then, you should make sure these activities should never be undertaken at the expense of customers you already have.