Texas A&M University: Center For Retailing Studies, Vol 12, No. 5 : September 2000

CREATING LIFETIME CUSTOMERS

About the author

At age 35, Christopher J. Zane is already a 19-year veteran of the retail bicycle industry. His story includes getting a state tax ID number at age 12, buying his first bike shop at age 16, and owning Zane’s Cycles, the largest bike shop in Connecticut, before he reached age 30. Today, with only one location, Zane’s Cycles is one of the top 10 largest retail bicycle stores in the nation.

Zane’s unique approach to marketing includes strategies such as continual learning, the lifetime value of a customer, guerrilla marketing, bootstrapping, community relations, cost-controlled customer service, and image branding. Since 1985, he has received numerous awards, such as the BBB Award of Recognition for Customer Service/ Outstanding Business Practices; New Haven Advocate Readers Poll, Best Bicycle Shop, New Haven County, 1993-1999; North America’s Best Bicycle Retailer, 1998 and 1999 North American Bicyclist Magazine; and the Mass Mutual Blue Chip Enterprise Initiative Award. He was voted one of “the 30 most influential people in the bicycle industry,” and, most recently, Chris was named the National Spokesperson for the Bicycle Council.

A frequent speaker at business conferences, Chris Zane has been featured in national media such as Inc. and Fortune magazines Zane’s Cycles is a bicycle retailer similar to the one just down the street from you. So why would you be interested in Zane’s Cycles and my style of doing business? Because I promise that if you implement any of our “points of difference” programs, your company and employees will grow and benefit in a way you never imagined. Everyone believes his or her organization offers great customer service and you probably do too. Ask yourself this: Do you know without a doubt that your customers won’t experience the “it’s not my problem” attitude that I just experienced in the lost baggage department at a major airline? I do. After you read this article and implement a new idea or two, your customers will return often and your employees will truly love working for your company.

Before I describe the specific points of difference and marketing strategies of my company, I offer the clearest and most concise example of what makes the Zane’s Cycles experience truly unique. The following exercise is best demonstrated in front of a large group of people, but you will recognize the lesson. The best way to describe the business you and I are in is to call it the “service business. ” I would love to show you the service we offer, but since I can’t and everyone knows service costs money, I will tell you how and why I give away money during my live presentations. As I walk through the audience with a large bowl of quarters, I invite attendees to help themselves to the money. Most people take a few quarters and some take a handful. This simple exercise demonstrates that it costs money to provide customer service. Sure, I know that’s obvious, but what I do next is what truly sets us apart from other organizations claiming to offer great customer service.

When allowed unlimited access to the quarters and offered more than seems reasonable, participants always self-regulate their desire and need. How does this analogy translate into the customer service I offer in my store? The quarters in the bowl represent how much money I am willing to spend on any one customer. Since I don’t explain that and I know that most customers are reasonable people, I am able to serve many people for the same amount that I am willing to spend on just one.

After demonstrating that most customers are reasonable and fair, I then proceed back to those attendees who took coins and I hand each a few more. Giving customers more service than they perceive as reasonable has made Zane’s Cycles an internationally recognized customer service leader.

I founded Zane’s Cycles in October 1981 as a junior in high school at the age of 16. I was working at a bike store in summer 1981, and the owner decided to liquidate the inventory because of high operating costs (the prime interest rate was 21 percent). This gave me the opportunity to purchase an operating business for the cost of the inventory. I first had to convince my parents that it was time for me to operate a storefront business. I figured I could persuade them because I also had been running Foxon Bike Shop, a bike repair business, from our garage since I was 12. Let me tell you, this took a lot of convincing. After agreeing to personally pay back a $20,000 loan with interest to my grandfather, regardless of the successor failure of the business, my parents endorsed my desire to become a small business retailer. First year’s sales—a respectable $56,000. This year’s sales—an even more respectable $4.5 million.

As I’m sure anyone in business knows, this growth was not without its bumps in the road, or, better stated, those huge, teeth-rattling, “am-I-going-to-come-out-alive?” potholes that suddenly appear from underneath a truck traveling in front of you on the highway. These experiences, however, have made Zane’s Cycles a unique and successful retail environment.

Zane’s Cycles is more than a bicycle store, and I want to share specific examples of the rewards my customers enjoy. Again, please keep in mind that not every retailer needs to implement these specific programs, but the idea is to create something new, different, and exciting for your customers and staff.

Best offer in town

Removing the bar rather than raising it is good strategy, so let’s talk about some extremely successful programs. Any one of these programs is valuable; combining them under one roof guarantees customer loyalty.

Lifetime free service, lifetime part warranty, and 90-day price protection immediately differentiate Zane’s Cycles from our competition. While we use several strategies, these three are the most recognized. The typical new bicycle purchase includes the store’s offer of some short-term service warranty so they can build in profit from the maintenance and servicing of the products sold. But what happens if you offer lifetime free service and maintenance to guarantee future sales? Only 20 percent of the bicycles sold need service the first year. The need for service diminishes exponentially over the next 10 years, the life cycle of a typical bicycle. Manufacturers offer a one-year parts warranty on bicycles, parts, and accessories.

How about extending the offer to a lifetime warranty on everything you sell? Defects usually appear within the first month of use, which is within the warranty period. With a little persuading of the manufacturer, i.e., “If you credit me for a$20 out-of-warranty part, I will give you the$5,000 order for the commodity parts that I can purchase from one of 10 different sales people,” you can satisfy your customers with the cost being absorbed by the manufacturer.

Many of our customers at first assumed that all this service must mean that our products cost more than if buying from someone not offering these warranties. However, our 90-day price protection plan allows the customer to purchase immediately without worrying about the price. Our customers have 90 days to find the product for less, and we will gladly refund the difference plus 10 percent of the difference, guaranteeing that the lowest price is available to our customers.

If we’re willing to give customers 90 day to find the product for less, then we must be competitively priced. We promote Zane’s as an organization willing to accommodate its customers at all costs. We price our product to ensure that we are profitable. Sometimes, we’re less and other times, we’re not. We are not concerned with what our competitors charge because the percentage of customers who take advantage of this policy is minimal compared to what we are prepared to spend. Don’t forget the quarters—people are reasonable. When is the last time you really shopped for something after you made that purchase?

If we are offering lifetime free service and parts warranties, why would customers ever go into another bike shop anyway? The irony is that when we do give the occasional rebate, nine times out of 10, the customer immediately buys additional merchandise from Zane’s. This allows us to use the profit dollars from that new transaction to fund half the real cost of the program. We also have found that customers use this program only once. They are so impressed because we actually do live up to our promise that they stay out of our competitor’s store because of the service we provide. Since we were more expensive at first and it was so easy to get the rebate, you would think that they would price compare every future purchase, but they don’t. In fact, we have never given a rebate to the same person twice, and 90 percent of the customers who receive one make at least two additional purchases within a year of the rebate.

Coming back for more

Every time my customers walk into my store for their free service, they find hundreds of new items not in the store during their previous visit. I would love to see a computer company offer a lifetime warranty. Imagine it—a customer who purchases a Zany computer actually talks to a Zany Computer Company employee every time rather than to a third party service center. Each “service” call would open up new lines of communication with consumers and give Zany the opportunity to sell their latest upgrades, software, and peripherals—immediately. In the real world, however, by allowing the third party to provide service, the opportunity for added sales is lost.

What if a credit card company didn’t charge a late payment fee or actually called you directly to discuss a problem with your account instead of suspending the use of your card? Let me share a personal experience of what not to do. I had a certain credit card and had been a customer for more than 10 years. I charged a substantial amount of business expenses each month. Somehow a check, not mine, for $150 was posted to my account; it then bounced. At the same time, my payment was posted for the total balance on my statement. The bank suspended the use of my card. After calling, I was informed the account would not be reinstated for seven days. This was an inconvenience because several vendors had this card on file and charged my transactions daily. When a card declines, it raises a red flag about your financial situation. My vendors did not know that it was a mere bank error nor did they care. It did cause them to seriously question my future ability to pay.

Although I explained this to the customer service representative and then to her supervisor, the bank remained unwilling to reinstate my account. I continued to explain—and they agreed—that the account was completely paid in full, that for the past 10 years the total balance was paid every month on time, that the posting was their error, and that the checking account numbers on the bounced check were not mine, and seven days did seem quite long to resolve this error. Continuing up the supervisor ladder two more rungs, I was stonewalled. They were not going to reinstate my card until the seventh day.

I closed my account. I then wrote a letter to the president, explained the situation, and asked him to call me to discuss a resolution. Two days later, his secretary called me and stated that the president would not be calling me and that I should not waste his time since the bank has a customer service center for complaints. It was the same call center that I dealt with originally. I was astonished that the president of this well-known bank seemed not to care about his customers and unwilling to recognize the value of each customer to the future success of his company. If the bank had recognized me as a lifetime customer rather than a transactional one, they would have realized that their unwillingness to address my problem would not only cost them a credit card customer but every other service they offered now or in the future would suffer as well. I have no banking relationship with them, no insurance relationship, no broker/trading relationship, nor do I now fly with their well-known airline miles partner. With the changes in banking and the expansion of information exchange, the unwillingness to provide service and make exceptions has cost the company more than they ever imagined—all because of a $150 mistake, admittedly caused by their error.

The bowl of quarters illustrates other important points. If the bowl of quarters represents the cost of acquiring a new customer and the bank had simply written off the $150 and applied it to advertising or promotion, they would have only given out the equivalent of 15 percent of the quarters. Secondly, they had no idea who I was (although they should have, but we’ll cover that later), and they should have known that I would tell this very story to thousands of people.

Give away the first dollar

I decided a long time ago to develop programs that are good for the customers first and then figure out how to make the long-term relationship profitable. I didn’t want to “nickel and dime” my customers. Many companies profit on the small parts and pieces that are hard to find. I, on the other hand, believe a retailer—for pennies—can secure even more profitable long-term customer relationships. At Zane’s Cycles, we don’t charge for anything under $1. Usually a customer comes in for a small part needed to solve a frustrating problem. The master link on his child’s bike has broken, and the child is upset because he can’t use his bike. Or, while changing a flat tire, a customer loses an axle nut. We give customers the small parts they need for free.

Why? Because when my master link customer comes in, he’s probably already been so mentally abused by his child that he can hardly think straight. By giving him the part for free (and an extra, just in case it happens again), he is so overwhelmed by the gesture that he will never go to anyone else’s bike shop again. He tells his child, who is in turn able to fix and ride his bike and we have just captured two lifetime customers for 25 cents. It cost 12.5 cents each for customer retention; I think that is pretty reasonable. Fast food restaurants capture customers early on with toy surprises and banks with lollypops and. dog treats. I just do it with master links, axle nuts, and ball bearings. By the way, this program costs less than $100 a year, the equivalent of one bad print advertisement that no one ever mentioned seeing.

The chance to give customers something extra may come unexpectedly. Back in April 1998, when the “new” VW Beetle first arrived on the streets, it generated considerable excitement. My first experience with this captivating insect happened during our annual “Big Wheel Sale”. This event is our single largest promotion. We spend half of our annual advertising budget to promote the event and attendance exceeds 3,000 people. With a store full of customers collectively participating in a feeding frenzy, a hush came over the store. Suddenly, I was alone, watching my customers and staff standing 10 deep, trying to get a look at the new Beetle. My first thought, “I have to get one!” Soon after the Beetle departed, the frenzy regenerated and the event was a huge success.

As for the Beetle idea, I frantically called in every favor I had in my arsenal, and a week later, we had a logoed yellow Beetle in front of the store. People drove from all over to see it. Marketing is fun when you’re the first one on the block with something that everyone wants to see.

Okay, you have finally eliminated your competition by introducing policies that no one can beat. What to do next? Get all those customers who are loyal to your competitor to become your loyal customer. Contact the yellow pages in your area and ask them about Directory Connect. Directory Connect is now available in most areas, even though your local yellow pages salesperson may not know about it. This service allows you to forward the phone number of your “out of business” competitor to your business. The cost is negotiable but usually runs about 50 percent of the cost of the advertisement until that current book expires. Each time we acquired a new number, the investment was paid for the first day of the month. At one point, we had three defunct competitors’ numbers forwarded to our business. This is the simplest and least expensive way to capture new customers guaranteed to be seeking your products and services.

A mahogany coffee bar in a bike shop?

On my travels, I explore unique and interesting retail stores. I usually don’t buy much because I’m too busy looking at lighting fixtures and counter displays. So, I’m in Lucerne, Switzerland, prior to the Barnes & Noble-Starbucks affiliation, and the local bicycle/ski store has a. coffee/espresso/cappuccino bar. Pretty cool. What are they thinking? After careful consideration, Zane’s Cycles now has a 14-ft. mahogany coffee bar. Everyone loves coffee, and why would we charge for coffee, if we don’t charge for bicycle service? If the coffee is good, the customer will spend more time in our store. Our employees don’t leave the store for coffee breaks, allowing them to be more accessible to waiting customers. It’s a place for customers to wait without becoming frustrated if we are a little too busy to offer immediate help. Plus, as I originally thought, it’s just cool.

The coffee bar is just one interesting feature of our very deliberate environment. A children’s play area provides fun, clean toys to entertain children while their parents buy Christmas and birthday presents right under the children’s noses. Clean dressing rooms? Now that’s one you don’t see very often. How many times do you go into a beautiful store, load your arms with merchandise, and walk into a dirty, messy, dark dressing room? At Zane’s, an outdoor neighborhood setting, which includes an inlaid black and yellow tile street with mail-boxes and a telephone pole, helps to create the attitude of enjoying the bike in the outdoors. These amenities show our way. of creating a unique environment and establishing the Zane’s Cycles “brand” in the mind of our customer—extremely difficult for my competitors to penetrate.

Form thriving partnership with your community

Giving back to the community that supports us is our responsibility. Zane’s Cycles has a very strong partnership with our community. We receive many requests for donations from non-profit organizations. We have implemented a successful strategy: sell merchandise and service to non-profits at our cost. Most requests for our products are for fund-raisers and auctions. By selling merchandise at our cost, we are able to offer our support without any out-of-pocket expense besides labor. However, we appear to be supporting at an extremely high level, giving the attendees the feeling that Zane’s Cycles has made a large donation to their favorite charity. We receive incredible feedback from the public about our generosity. This year, we will sell at cost more than 200 bicycles, which is a lot of labor, but we will be recognized as a major supporter of more than 200 non-profit events. As a result of such efforts, we receive many “thanks for supporting our favorite charity” comments even from new customers.

Since our out-of-pocket expense is so little and we have the opportunity to capture a huge potential audience in a single act, we award scholarships to the graduating students at our local high school awards night. It began with one $1,000 scholarship and has grown to five $1,000 awards. The Zane Foundation awards the scholarships to the top five graduating seniors who display character and goodwill within the community. Good, Zane’s supports the graduating class. Better, Zane’s displays its commitment to the community before 300 students, their families, and their friends. Best—and a little known fact—new bicycles are one of the 10 items most desired by a student going away to college.

What makes the Zane Foundation so interesting is that the funds for the scholarship are generated from the sale of M&M candies through 50 gumball-style candy machines we have placed throughout the market. The advertising value and goodwill towards the community generated by a “Zane Foundation” candy machine were the benefits we sought. Soon after awarding the first scholarship, we recognized a huge increase in our back-to-school business. Today, August is the second largest sales month of the year.

Know customers better than they know themselves

Back to the credit card bank example. Let’s pretend they recognized they were in the customer service business instead of the banking business. They would have immediately known me and recognized my value to their organization. Whether a huge corporation or a small single-owner business, a retailer can use information technology training and a customer-oriented culture to provide great service to their customers.

At Zane’s Cycles, you never need a receipt to return merchandise. We know our customers, and we know them well. We capture every transaction of every customer. For example, a customer came into my store looking for a “Trail-a-bike,” an accessory that would allow him to connect his daughter’s bike to his. During our conversation, he explained that he had purchased a $350 trailer a couple of years earlier but had never used it because his daughter didn’t like riding in it. I recalled his transaction, credited him the full amount of the purchase, and asked him to return the trailer when it was convenient. I knew I could easily resell the merchandise. Although I would need to discount the trailer, the difference would be covered by the profit on the $180 “Trail-a-bike”. Secondly, because he received a full credit for the trailer, he could now use that to purchase the “Trail-a-bike”, a new helmet for his growing daughter, and a few additional accessories.

To a large corporation, this negotiation may seem quite extreme, but because I know my customers, I know that he has three daughters all under the age of seven. Since the initial trailer transaction, he has made four purchases, and in three years as a customer, he has never asked for a discount, even during a multiple-bike transaction. Even if the trailer had been un-sellable, the cost of the trailer was minimal compared to the profit we had already recognized from his previous purchases. To complete the story, we actually sold the trailer at a discount to a valuable customer within a week of having it returned.

Families who inquire about trailers have children, customers who purchase trailers like to buy expensive toys for their children, children need several bikes as they grow and parents need bikes to ride with their children. Comparatively, customers who spend thousands of dollars a month in credit card transactions, who pay the balance in full, and have only one current banking relationship are potentially as valuable to the bank as my trailer customers are to me.

Capturing customer data captures future high profit opportunities. Because we capture all customer transactions, we can offer attractive savings. When we have the opportunity to purchase discounted inventory from manufacturers, for instance, we can create a promotion with that inventory by focusing on only those customers who potentially need that product. For example, I can often get clothing in one particular size at a discount. We then run a transaction search of everyone who has previously purchased that size. We send a postcard or e-mail, informing targeted customers about the discounted merchandise. Because I know their size, I don’t have to promote my offer as limited to specific sizes.

Although the information is captured and utilized, the customers don’t necessarily need to know that they are recognized at so detailed a level. I carefully manage our list after having heard the following story. A national retailer known for selling extremely expensive merchandise decided to extend a special offering to its high-end jewelry customers. They mailed a beautifully produced, oversized postcard stating, “As a high priced jewelry customer, we would like to make you this special offer”. This was the single greatest marketing error to date for this retailer. Apparently, not all the high-priced jewelry was purchased for the spouses who happened across this too specific mailer.

Because my former credit card bank apparently did not capture my purchase patterns and preferences, they eliminated potential profit by not knowing what I might have purchased in the future. I now have a relationship with another company, and they do have the opportunity to offer me products and services, as they become available, which can satisfy my needs and certainly allow them to recognize a profit as well.

Employees make it happen

First and foremost, employees—most of all frontline people—need to understand and want to spend time in this customer-friendly environment. Once they see the results, they help make the place even better and even more distinctive. How do you inspire the people difference? Zane’s Cycles offers employees the tools, systems, and programs that will excite them, and they are motivated to create a one-of-a-kind environment. I pay them well, thank them a lot (or have their managers thank them a lot), and, most importantly, let them have fun.

Pay: easy. Thanks: easy. Fun: not so easy. It takes a great management team to ensure fun. About five years ago, Tom Girard, my awesome general manager, explained that the staff was getting burned out. He informed me that on July 14th we would be closing the store a couple of hours early to go to an amusement park. “Let’s see,” I thought, “July is one of our busiest months and you want to close early? Are you nuts?” It was either that or we were going to be looking for new staff because the fun was starting to diminish.

What about the customers who would be inconvenienced by our little field trip? We put a note on the door explaining that in observance of Bastille Day (no significance except that was printed on the calendar of the day he picked when everyone could attend), we were closing early. The note also explained that in consideration for customers’ inconveniences, we would give them 10 percent off their next purchase if they mentioned the note. The result: no loss of employees and the greatest increase in morale and profit we have seen to date. The customers, happy to take advantage of the discount, failed to mention any inconvenience. Today, the staff eagerly anticipates our annual trip.

Speaking of fun and staff retention, why not offer the cool new Beetle to a different staff member each week? Every week we drew names out of a hat to determine the order of use. My staff was beside themselves and could not believe what I was offering them. We logged 15,000 miles during the Beetle’s adventures and again conducted business for a whole summer without losing one employee—not to mention the free advertisement in several cities surrounding our market.

I know you may be thinking that my suggestions are unconventional, but they are true and their results are true as well. I encourage every retailer to implement unique programs and staff retention techniques. Not only will your organization benefit but also the lives of your staff might improve if only just a little. Nothing is more fulfilling or rewarding than knowing it was your innovative approach to improving the lives of others that made a difference. As my very good friend, Len Berry, says, “Great service not only improves business, it improves the quality of life”.

Readers who wish to contact Chris Zane may do so at cz@zanes.com.