The Secret To Growing Repeat Business & Word of Mouth Referrals

For entrepreneurial business owners, the most pressing immediate objective is to secure the next sale.

As you already know, winning the next sale is easier said than done, with a mix of art and science that ultimately produces that coveted next transaction. Digging one layer deeper, the business owner may recognize a perennial question: should they try to find a new customer to give them that sale, or should they focus their energy trying to gain another sale from an existing customer? The conventional wisdom has traditionally argued that it’s cheaper and easier to get another sale from the existing customer, but it’s fair to say that there’s debate about whether focus on customer retention vs customer acquisition is the better bet.

Over the last twenty years, the theory that I recall being shared as gospel was the notion that “it costs five times more to secure a new customer compared to having your existing customer buy again”. This conventional wisdom has been shared so much that it now does the rounds as being quantifiable fact, even though a moment’s reflection should tell us that this model is highly dependent on the type of business in question.

One thing is true, though: customers who have bought from you in the past, will have a different (and more favorable) attitude towards your business when they come back to buy from you in future. You can thank our wonderfully irrational brains for this, and the bias of post hoc rationalization.

Since Dan Ariely published Predictably Irrational in 2008, his findings challenging the theory that we make rational choices have increasingly found a home in business.

In a nutshell, this bias describes our tendency to find internal confirmations for our decisions after we’ve made them. So, if we excitedly drop $250 on a pair of sneakers when a $50 pair would objectively function just as well, we don’t enjoy feeling like a sucker who has made a foolish choice and so our brains quickly come to our rescue.

We consider all the reasons why the extra money was justified. It was the quality. It was the perfect fit. It was the scarcity of Yeezy’s that signaled our status to our friends. Whatever the positives about spending so much, we focus on those elements to internally support our choice and to avoid uncomfortable feelings.

This tendency has important implications for the entrepreneurial business owner. In the CORE Marketing Method, we emphasize the need to move the customer along a continuum I refer to as The Love Story.

This starts at the lowest-value end with a customer buying once, spontaneously and in auto-pilot, and with little thought. It’s what Daniel Khaneman would describe as fast thinking and what I refer to as a One Night Stand. As the customer returns to buy again, they continue to grow in confidence and trust with the business and their behaviors change accordingly, eventually becoming Married Soulmates with deep loyalty and mutual engagement.

Consider that most customers reflect on their purchase decision at two critical points: directly following the purchase, and when an external social trigger causes them to retrospectively focus on their choice (such as a when friend comments on their fancy new sneakers). These are the two moments that post hoc rationalization is most active. And as a business owner, this is where you want to act.

  • Directly Following Purchase

When your customer has just bought from you, they’ll feel the buzz of excitement of a purchase and will be focused on the reasons why their buying decision was a great idea (their post hoc rationalizations). Take this moment to ask the customer a single survey question:

What makes you most happy about your purchase today?”

As well as providing you a useful insight around their motivations, it will have the effect of encouraging further positive feelings, as described by Dr. Robert Cialdini in his masterful work Pre-Suasion.

Cialdini found proof that simply asking a survey question encouraged subjects to dwell on the emotion being focused upon, further increasing this emotion. In the case of your business, you will be asking “what makes you happy?” and in doing so, you will further cement that feeling of happiness and satisfaction in your customer. This can only help to fast-track their journey along The Love Story continuum.

We know that a customer who has moved along The Love Story will more readily buy from you again, and spend more. This should be reason enough to ask your survey question to help them focus on their reasons for being happy, and to move them along that path.

In other words, you’ll see more repeat business.

When you spent all that money on those sneakers, the smart retail owner should have asked you a question: “what makes you most happy about buying these awesome shoes?”. It will have focused your attention on positive reasons and increased the chances of you coming back to buy again.

  • During Social Triggers

When your customer meets someone in their tribe (that is, someone in their social circle who thinks and behaves in similar ways), you want them to offer a positive impression of your product to help build your credibility (this is the “C” in CORE).

For this reason, you need to offer (1) a mechanism for easy referrals and (2) a reward for doing so (the best referral mechanisms are ones that demand a small immediate commitment, and the best rewards are variable rewards that are exciting and intuitive).

Peer-to-peer recommendation is incredibly powerful in creating customer perceptions because the person hearing the review has little resistance to the message, unlike the skepticism that is often felt towards advertising and promotions. Likewise, the person who made the purchase wants to receive confirmation from their friend that their purchase was a good choice. They are still seeking pillars for their post hoc rationalization.

Imagine you’ve just turned up to meet your friend for lunch, and they notice your fancy new $250 sneakers. They’ll say something about them – because that’s what friends do – and this is a social trigger. At this moment you’ll again focus on the great reasons you had for making the purchase (recalling all of those post hoc rationalizations). You may also point out these justifications to your friend in an attempt to persuade them that it was worth the price tag. In the perfect scenario, your friend agrees, and you feel even better. You clearly made the right choice after all!

The sneaker store that sold to you were smart. They have a customer app that allows you to plug in a friend’s email right on the spot. If your friend opts in, and they choose their favorite color sneaker then and there (a small pre-commitment), they’ll get a nice discount emailed or texted to their phone. As the referring friend, you get a reward also. At first, it’s a 20% discount on your next purchase. But if you refer a second friend, you’ll also get a free pair of socks. And for a third friend, you’ll get tickets to an NBA game. These variable rewards get you hooked on the process and give you a nice hit of happiness.

At this point, you’ve edged further along The Love Story towards being Married Soulmates, more convinced than ever that this sneaker store is just right for you. Even better, you’ve just brought someone else into the picture who may become a customer too. This newly referred customer will likely have similar buying habits to you, and they’ll adopt some of those same perceptions as you (jumping into The Love Story some way along the continuum).

Think about the ways you can create a simple mechanism to help your customer offer referrals to their tribe. The devices in our hands provide easy access, so they should be the first place to consider. Then, spend some time inventing exciting, variable rewards that will get your customer hooked on being your best salesperson.

By now, you can probably imagine those moments when you’ve also engaged a bit of post hoc rationalization after buying something. Don’t feel bad, we’ve all done it. But as a business owner, you need to ensure that you bring your customer along The Love Story, bias and all.

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