Introduction

All businesses crave sales growth – it is typically the quickest, cheapest and most sustainable way to increase the profitability and value of a business.

Few businesses are clear about the paths they will take to sales growth – or the order they will take them in. 

In our last article, we started to look at the ten runways to growth. We took a closer look at customer experience, using the example of Ritz-Carlton. This time, we will look at the next runway, Customer Penetration, selling more products to customers you already have.

Customer penetration

The best customer is the customer you already have. 

Winning new customers is expensive, difficult and uncertain. The costs are rising, especially in consumer-facing businesses. The battle for customer attention is high, and online advertising costs and increased understanding of customer profitability encourages companies to spend ever more on acquiring new business.  

It is easier to sell to existing customers. The probability of selling to an existing customer is 60% to 70% percent; the probability of selling to a new prospect is 5% to 20% percent. Existing customers (by definition) know you, trust you and are happy with you. 

Increasingly, businesses are taking more time to understand their customer acquisition costs (CAC), and are comparing this to their customer lifetime value (CLV). It is easier to calculate these numbers now than ever before. In the past, if a customer bought your product in the supermarket, you had no idea whether it was your advert, your brand awareness, your instore promotion or a competitor out of stock that drove the sale. Now, you can track each visitor to your website, and know the channel by which they arrived. 

However, whilst many businesses have clear sales plans (and large budgets) to win new business, there is often not a plan or a budget to retain existing customers or to sell more to them. 

It is also true that winning a customer (once) and keeping a customer buying from you (again and again) are two very different things. According to a Bain and Company Study, 60% to 80% of customers who describe themselves as satisfied do not go back to do more business with the company that initially satisfied them. This is a huge missed opportunity.

How to think about it

Selling more products to existing customers is a real win-win. You can simultaneously find additional growth opportunities at minimal acquisition cost, increase your customers’ loyalty, and prevent your competitors from stealing them away. And it is one of the least risky runways, because you are working with a customer you already have.

To do it effectively, you need:

1. An existing customer base
2. Sufficient understanding, insight and data about your customers
3. The organisational will, systems and resources to do it properly
4. A plan

In particular, you must understand what it was about you that first attracted the customer to you. If it was offering the lowest price, then you will not succeed in selling more to them unless you continue to do so. Assess the size of the opportunity – what proportion of your customer’s needs for your products are you fulfilling? 

Consider the right approach to take. Remember the old adage: businesses don’t buy from businesses, people buy from people. If you have a few very valuable customers, take a personalised approach. Understand their business issues and needs, but also their personal preferences. Create a plan: who will you contact when; what will you talk to them about? Even in the Covid era, face to face meetings are the best way of building human relationships. 

If you have a large number of low value customers (as in most consumer businesses), how can you replicate a personal approach? Use all your available data to group and segment your customers, and consider how best to create meaningful communications. The difference between an email deleted as spam and one that is opened and read is relevance. 

A comment we have often heard from businesses is that their oldest (and most loyal customers) know least about their business. New customers will have had the most up to date information on your offer. What don’t your old customers know about you? You may be surprised by the opportunities which surface. Just like marriages, relations between two companies can go stale unless they are worked on. What can you do to revitalise the relationship?

Let’s look at a company which did this well.

Case study: McDonalds

We love McDonalds, and not just because they have the best fries… The business provides such fertile ground for learning, even for those who don’t like burgers.

Background

It all started in 1952 when a fifty-two-year-old salesman walked into a hamburger stand in San Bernardino, California, to sell the two brothers who owned it a milkshake machine.

What he saw blew him away; he had never seen anything like it. Hamburgers were produced in a way he’d never seen before: quickly, effectively, and identically. Best of all, anyone could do it.

It became apparent to Ray Kroc that what the MacDonald brothers had created was not just another hamburger stand but a money machine. Soon after that first visit, Ray Kroc convinced Mac and Jim Macdonald to let him franchise their method. Twelve years and several million hamburgers later, he bought them out and went on to create the largest retail food distribution system in the world.

Nearly seventy years on, Ray Kroc’s McDonald’s has become a huge business, with 38,000 restaurants worldwide serving food to more than 69 million people every day in over 100 countries, and is the world’s second largest employer. 

What was the secret to this? After all, there is nothing special about burgers – anyone can make one. And Kroc didn’t have the cash to drive the expansion that he wanted. 

He realised that a franchise model could be the way forward. But he knew most small businesses failed. He had two key insights:

Firstly, he began to look at his business as the product, and at the franchisee at his most important customer. If McDonald’s was to fulfil his dream, he needed to make sure it worked better than any other business product around.

Secondly, for McDonald’s to be a predictable success, the business would have to work flawlessly, because the franchisee, if left to his own devices, would probably fail. 

Armed with this realisation, he set about the task of creating a foolproof predictable business: a systems-dependent business, not a people-dependent business. Unlike most small business owners before him, and since, Ray Kroc went to work ON his business, not IN it.

He began to think about McDonald’s just like Henry Ford must have thought about his production lines and the model T. He asked himself:

• How could the components of the business be constructed so that it could be assembled at very low cost with totally interchangeable parts?
• How could the components be constructed so that the resulting business systems could be successfully replicated over and over again.

The turnkey franchise was born.

We would encourage any business owner to look at his business this way. If you were to create a turnkey franchise out of your business, what changes would you have to make – so that someone else could pick up an instruction manual and replicate it perfectly? How could you take your processes and ways of working and whatever makes you special – and capture them?

 

Need for growth

But, despite its huge growth and success, by the early 2000s, the most famous chain in the world was beginning to show its age. To many it became a symbol of an unhealthy, hurried, over-refined way of mass-producing food, epitomised in Morgan Spurlock’s 2004 ‘Super Size Me’ documentary. McDonald’s staff had been trained to sell more to existing customers – by asking them to increase their order size. Could they find a better way?

Sales growth ground to a halt; McDonalds responded by divesting itself of Chipotle, Boston Market, and Donatos Pizza, and focusing on its core market of hamburgers and French fries.

It then devised a strategy of growth by expanding its product offering. Its goal became to sell more to existing customers whilst at the same time hoping to attract new ones. During this period, the menu swelled by 75%. The result: between 2013 and 2015, McDonald’s share price did not move and the company lost 500 million visits.

Choice overload is a well-known phenomenon, described in Lyengar and Lepper’s classic jam study and replicated many times since. In essence, study participants were much more likely to buy a jar of jam when they were given six flavours to choose from than 24. McDonald’s had also swamped its kitchens, franchisees and employees, resulting in a decline in Customer Experience. 

Ironically to turn this around McDonald’s decided to listen to its customers. The answer was the all-day breakfast, shrinking its menu and providing its customers with what they wanted all day.

Now comes the hard part. What had to change prior to rolling out the All-Day Breakfast Menu in 2015? McDonald’s focused on the sequence of steps required prior to launch. It scaled down the size of its menu to improve customer wait times and at the same time convinced more than three thousand owner-operators to upgrade and reorganise their kitchens to accommodate breakfast alongside burgers and fries.

McDonald’s rolled out its All-Day Breakfast in October 2015, ten years after it had first found itself in growth stall. In 2017 it started eleven consecutive quarters of comparable sales growth.

The answer on how best to resolve the systemic issue of slow to no growth had been staring McDonalds in the face since its inception. When Ray Kroc first saw the brothers working together, there was even in those early days a big difference between how the brothers ran things and the other few outlets at the time. The brothers kept the menu small and focused whilst the others kept on expanding what they sold; the latter didn’t work.

Customer Penetration is about selling more of your existing products to existing customers, but that doesn’t mean you have to continue to sell the same number of products.

Conclusion

The McDonald’s story is a perfect example of how to use combination and sequence effectively. The growth strategy to launch the All-Day Breakfast menu, which included products it already had (specifically, the Egg McMuffin) significantly reduced time to market. The growth runways taken were a combination of Customer Penetration, Customer Experience and Market Development (selling existing products to new markets). The sequence was also timed to ensure that each location would be able to update its kitchens to accommodate the new menu without negative impact to operational efficiency.

Does your business have an opportunity to sell more to your existing customers? What do you need to know to enable you to do this? What people, processes and investment will you need to target existing customers effectively? Who owns this runway? What steps do you need to take? What do you need to do first?

igesia Consulting helps businesses and the people in them to become peak performing. We understand what the very best organisations do, and work with companies like yours to give you the skills, plans and structures to do the same.