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Each week, Greg Selkoe, founder of streetwear retailer Karmaloop, and a handful of his employees gather in his office overlooking Boston Common to review new designs. The group votes on which, if any, of the T-shirts, jackets, and other clothing should be added to the line Karmaloop sells in its Newbury Street store and online. That may sound a lot like what goes on at most retailers, but what Karmaloop is doing is very different, and not just because the company's 32-year-old chief executive at times interrupts discussion to blast a tune through the camouflage-covered speakers attached to his PC. What's worth noting is that the designs are submitted by customers. Since October, 37 designs, out of about 1,000 that have been submitted, have been added to the 33-employee, $4 million company's offerings.
Selling clothing dreamt up by customers is just one facet of a business model that brings customers so far into Karmaloop's DNA that they have become, in effect, extensions of the company's sales, marketing, and product development teams. Karmaloop has an 8,000-strong army of customers who proselytize the brand and get discounts or cash when they, or someone they've referred, make a purchase. Members of this "street team," called reps, also upload images, photos, or artwork to Karmaloop's site to make company stickers or banners other reps can download. "The reps are evangelists for our site," says Selkoe. And they're doing their job: Fewer than 1% of Karmaloop's customers are reps, but their purchases and those they inspire account for 15% of sales.
CEOs have been talking about customer loyalty for years, but entrepreneurs such as Selkoe know that making people truly loyal to your company—to make them really, really like you—takes a lot more than a frequent buyer program. It means nothing less than getting people so jazzed about your brand that they become engaged contributors to your company's sales, marketing, and innovation efforts, and ultimately its success. How does that happen? By knocking down the walls between "you" and "them" and creating a larger, looser community that is inviting to both your customers and your employees.
Selkoe admits that building a community around a brand is a natural fit for his four-year-old company, which courts young, artistic, and Web-savvy consumers with the credo that Karmaloop was founded "to battle the evil forces of McFashion." But companies old and young, consumer and business-to-business, can employ similar tactics.
Indeed, not doing so may be the riskier course. Big competitors such as Starbucks and Costco have proven adept at cultivating extremely passionate customers, shrinking the advantage smaller companies traditionally have gleaned from their close relationships with their base. And if the economy slows, you'll want your customers to be loyal enough to stick around instead of bargain hunting. "My message to small companies is that big companies are coming after you with better customer service, so you better be paying attention," says Edward Reilly, president and CEO of the American Management Assn. Betsy Weber, who holds the title of chief evangelist at $16 million TechSmith, an Okemos (Mich.) software company, says her give-and-take with the company's 600 or so customer advisers is a competitive advantage. "People will say they sent a comment to a big company and never heard anything," says Weber. "So even though we are a small company in the Midwest, it helps us compete with anyone."
For many companies, transforming customers from passive buyers to active participants demands a seismic shift in thinking. You can't just slap up a blog and expect people to get excited. It requires an intense focus on customers that shapes everything you do, from how you hire and motivate employees to how you design products. Then it's a matter of spotting loyal customers and starting a real conversation with them. Customers should have multiple channels through which they can express their views, and employees should respond by addressing their concerns, enlisting their involvement, and collecting their suggestions to improve existing products and services and create new ones.
Certainly there are potential pitfalls. It's possible to get so much feedback that good ideas get buried, or you lose sight of your core mission. You don't want to give your own staff's innovations short shrift. Often, the most successful products are ones that people didn't realize they wanted. And the AMA's Reilly warns that offering discounts isn't enough. "Some frequent buyer programs create habitual customers, not loyal customers," he says. "A habitual customer will buy your product until something better comes along. A loyal customer will continue to buy it, look for reasons to buy it, and tell others to buy it. Loyal customers are built by experiences with the product and your company."
The benefits of courting customer advocates are clear. Research by Bain & Co. over the past decade has found that revenues of companies with the highest levels of customer loyalty grew more than twice as fast as those of their competitors. And University of Michigan researchers have seen a strong correlation between a company's ratings on its customer satisfaction index and its future stock market performance. Says Robert Schieffer, clinical associate professor of marketing at Northwestern's Kellogg School of Management: "Increasing customer satisfaction has a remarkable impact on profitability and stock market performance."PARTNER WITH YOUR PROSPECTS
As Selkoe did, Ntiedo Etuk is building an advocacy army from the ground up. The co-founder of Tabula Digita, an educational video game company in New York, began a partnership with the school administrators he wanted as clients even before any of Tabula's math games were on the market. Etuk and his team identified leading educators who tend to spark new trends in the field. "They are highly influential," he says. "They are the people who tend to speak at conferences, and [others] watch what they do." He invited them to join a partnership in which they would give his seven-employee startup comments on the early versions of its games. The partners get the product at a discount. Etuk hopes those educators will also serve as references when he pitches Tabula's products more widely.
While bringing in customers from the get-go is a great strategy, every company has loyal followers who may become advocates. It's simply a matter of finding them. One way to get into customers' heads is through surveys. Blog postings can also be revealing, which is why CEOs or top managers should regularly blog on a company Web site about products and issues of interest to customers and encourage customers to respond. It's also a good idea to see what is being said about your company on industry blogs. Ben McConnell, a Chicago marketing consultant, suggests hosting a party or reception, possibly with an educational or training component, and inviting a large number of customers. Those who show up may be good candidates to become advocates.
Selkoe believes his customers get involved with Karmaloop because they are looking for "stuff that expresses who they are." To become a rep, customers fill out extensive online questionnaires about themselves, their hobbies, and how they would promote the brand. While Karmaloop doesn't turn people down, Selkoe says the multiple-question survey weeds out people who aren't serious. Dennis Todisco, a 19-year-old rep and student at Bentley College, says he became a Karmaloop fan because it carries clothes that can't be found at the big retailers. He figures he earns about $200 in free clothes a month. While Todisco says he would talk up the company without the incentive, the financial reward makes him promote it more aggressively. "It's become really lucrative for me," says Todisco.
When looking for advocates, don't make the mistake of writing off customers who have complaints about your company. That group, which includes people who Kellogg's Scheiffer dubs "hostages," may be keeping their business with you only because they have few good alternatives, and will bolt if given the chance. Addressing their concerns may well convert them into your most fanatical followers. Says the AMA's Reilly: "If you have defects in a product, [the way in which you fix them] can create that emotional attachment that can move someone from being a habitual buyer to someone who is very loyal and will tell people at their country club about you." In a study of customers who had complaints with their banks, published in the Fall, 2002, Journal of Marketing, James Maxham III, an associate professor at the University of Virginia's McIntire School of Commerce, and Richard Netemeyer, a professor at the same school, found that if a single snafu was appropriately addressed, customers rated the firm higher on satisfaction, word-of-mouth recommendations, and repurchase intent.
TechSmith's Weber was such a fervent believer in the power of a customer community that three years ago she persuaded the company's president to create her chief evangelist position. She then built customer advisory panels by including customers so happy with products that they'd written "love letters" to the company over the years, as well as those she found on blogs and through customer referrals. But Weber didn't shy away from the company's critics. Among the panelists is Paul Pival, distance education librarian at the University of Calgary in Alberta, who had written on his personal blog that he found Camtasia Studio, a TechSmith product that records keystrokes and mouse movements made on a computer, slow and difficult to use. "I was surprised she sought me out," says Pival of Weber's overture. "It was a little bit gutsy, but ultimately successful." After getting involved with the company's customer panels, Pival says he realized the product had been improved. He now recommends it on his personal blog. While Weber doesn't directly track advisers' impact on sales, she is certain her efforts are paying off. Revenues jumped more than 20% in each of the last two years, and TechSmith has grown from 63 employees in 2003 to 114 this year.CREATING COMMUNITY
It's a lot less tangible than how often someone buys from you, but customers who see themselves mirrored in your brand are more likely to be loyal. You can develop that reflection by building a community in which customers can interact with your employees as well as their peers. "By bringing customers together you give them the chance to talk about their experience with your product or brand," says McConnell. "And if you invite [prospective customers], then existing customers often become the salespeople."
The Internet makes it easy: TechSmith has a private Yahoo! group where customer panel members can post messages. Karmaloop has a page on MySpace.com reps and is building its own online meeting place. And Selkoe extends community building to the real world by sponsoring events in line with his customers' interests. "Many people associated with Karmaloop are artists and musicians, and we use Karmaloop as a platform to promote them as well," says Selkoe. "We had a listening release party in our store for a group we like. It is not a one-way thing." Whenever possible, find ways to help your customers, even if it means pointing them to another company. Says Glen Urban, a professor at the Massachusetts Institute of Technology's Sloan School of Management: "It is hard to get people to advocate for you if you haven't done it for them."
Jay Lee, co-owner of On the Run, has turned his customers' interests into an opportunity to promote his five-employee, $500,000 athletic apparel store in Houston. Lee, himself a runner, asked other athletes he and his employees knew—and considered approachable—to be part of a running team. The store pays up to $200 a year in race entry fees and provides four pairs of running shoes to each of its 20 team members. In return, runners wear gear with the On the Run logo at races and volunteer at events such as pre-race pasta dinners. Lee thinks his grassroots marketing has been more powerful than the advertising he's done in the past. "Over the last year, our biggest increase [in sales] has come from customers who found us through word of mouth," he says.
Lee gets plenty of informal input on his products from team members, but having a system in place will help you mine customer communities for the best ideas. TechSmith's Weber feeds information she gets to product managers, who review all suggestions and decide on which ones to act. She also meets regularly with all the product managers to talk informally about customers' concerns.INTERNAL EVANGELISTS
Whenever possible, says McConnell, companies should create a post such as Weber's that is devoted to establishing a vibrant community. Be warned, however, that giving a salesperson the task may backfire. While salespeople have a lot of contact with customers, McConnell notes that they are concerned primarily with selling, not listening and advocating on behalf of customers.
Companies that don't have an employee dedicated to that task might want to enlist front-line customer service folks to compile information on customer problems and suggestions and pass it to a marketing team to assess. Marketing staff should work closely with product developers to make sure enhancements are made and good ideas pursued. Keep your customers engaged by sending follow-up e-mails and phone calls to fill them in on the actions you're taking as a result of their comments.
Visiting clients and seeing firsthand how they use your products can also trigger innovation. Kellogg's Schieffer suggests sending a team of marketing, product development, and technology executives on client visits so that any problems or suggestions that come up can be addressed quickly. TechSmith, like most small companies, doesn't have a huge budget for travel, so Weber tries to sneak in visits to nearby customers whenever she goes to another city for conferences or other meetings. At one such visit last year, she observed that after a customer set up Camtasia Studio, he hit the "finish" button but didn't realize he had to hit "record" to start capturing images. Weber relayed her observation to the product team, which made the program's steps more clear.
Once a month or so, Tabula's Etuk and his managers comb through a database of educators' suggestions and concerns about their products. Good ideas are quickly incorporated into the products, such as creating a feature that tells teachers how a student has performed. Etuk understands just how valuable the community he is building will be and intends to keep them involved. Says Etuk: "It's a constant conversation." By Amy Barrett