Imagine you have billions of dollars.
Everyone loves you.
It is always your turn to pay.
You pay, because you can. And it makes people around you happy.
Your mom tells you that your friends are using you.
One day, you stop paying to prove her wrong.
No more wine, parties, expensive trips in the private jet.
No more private concerts or shopping trips to Paris.
What happens to your so-called friends?
Most of them disappear with the end of the free ride.
Mom was right, as usual.
You know this.
Real friends like you for you, not for the perks your friendship gives them.
Customers and friendships are much the same.
As long as you give customers the cheapest possible product, they come in droves.
They use you until you are no longer the cheapest option.
Raise your prices and they find another sucker willing to give them a better deal.
We call them Transactional Customers.
The customers who buy from you because they like you, despite the cheaper perks are Relational Customers.
I bought a bankrupt restaurant in 2017.
The previous owners failed to realize that price was a function of cost.
The restaurant had annual sales of $1.6 million.
As costs grew, the owners refused to adjust their menu prices, thinking that customers wouldn’t accept the increase.
They feared customers would leave for a cheaper option.
Five years went by.
Costs increased by 15%.
Margins shrunk to 1%.
They had cash flow problems.
They hired a business consultant to fix the problem.
He recommended a 10% price increase.
One week later, a Transactional Customer displeased with the increase took a picture of his bill and posted it to Facebook.
More Transactional Customers voiced their displeasure.
The post was shared 7267 times.
Customer counts plummeted 20% for the next 3 months.
The loss in customers coupled with the lack of cash reserves forced the owners to pull the plug and walk away from a $1.3 million business.
I rescued the business in bankruptcy and retained the current employees.
One regular customer named Roger approached me at the hockey rink.
He told me how sad he was about the negative word of mouth.
Roger told me he loved it there and didn’t care about the prices.
He hoped I wouldn’t change the menu.
Roger sounded like a Relational Customer.
I spoke to more customers and heard similar stories.
We identified what made us special.
We told our story hoping to find more customers like Roger.
39 weeks later, our sales were back on track.
We regained the 20% loss.
In 2 years, we raised prices 3 more times.
We lost Transactional purchasers and replaced them with Relational purchasers.
Not a single negative word or Facebook post was heard about prices.
Not all customers are the same.
If a customer is buying from you based on your sales price, you have a fickle transactional customer.
Just like the friends that go to your neighbor’s party when the freebies are gone, these customers will mooch from you until there’s nothing left to give.
As mom would say, “They don’t like you for you. They like you for what they take from you”.
Say adios to the moochers, and look for relational customers who like you for you.
Moms are so smart.