Monday, February 21, 2011

Customer Turnover

For those of you who listened to Simon Sinek speak from my last post  “Make me Believe” (and if you haven’t I strongly suggest you do, it’s one of the best presentations I’ve listened to) you would of heard about the Law of Diffusion of Innovation. Sinek said

“I love to ask businesses, what is your conversion, and they respond proudly 10%. Well you can trip over 10%. There’s always 10% who will just “get it”, in fact, that’s how we describe them.”

The Law of Diffusion of Innovation is broken down into 5 categories.


1. Innovators 2.5% – These are the inventers, the ground-breakers, the risk-takers, the creative and curious entrepreneurs and thinkers that by nature are meant to change the world.

2. Early Adopters 13.5%  - These are the emotionally driven consumers. The people that will buy out of belief for a product, the trend setters.

3. Early Majority 34% – These people will not buy a product until someone else has already purchased and tried it out – (the early adopters)

4. Late Majority 34% – These are the sceptics. They will not believe or purchase into a product until the vast majority accepts it. 

5. Laggards 16% – These people usually have no choice but the accept the product. Out of tradition or ignorance. In the words of Sinek, “the only reason these people buy touch-tone phones is that you cannot buy rotary phones anymore.”

So what does this mean? It means that in order for new innovative businesses to achieve mass market success they need to cater to the early adopters and innovators. They need to influence the “trend setters” so the early majority adopts the new products. As a new business you want to cross the chasm, the “tipping point” as Malcolm Gladwell puts it. And in order for this point to be reached there needs to be a  customer conversion rate of around 15-18%. You want market penetration into that early/late majority. 

How can you do this? Well it’s no easy task.

But you can start by.

1) Simplify. There’s always people that “get it” but you want the people who aren’t so adept to understand it. You don’t want them to avoid something because of its complexity. And if it’s some type of new technology you need to still create enough complexity and opportunity for those who “get it”. For example, the IPhone is simple but also complex and full of opportunities for those who can program.

2) Belief is infectious. You want to get those early adopters to believe in your product so strongly that they spread the word for you. How do you do this? Answer the why question.

3) Advertise. People love the word free, and using it properly can net more sales and attract more customers than stand alone discounts. 

4) Treat your regulars, your loyal customers the best. Loyalty goes far. Treat them well and they will spread the word for you.