Home: http://www.Daxle.net
Date: March 13, 2011
Book: Reinventing the Wheel
Speakers: Brian Oates & Chris Zane
Source: http://www.daxle.net/imprint/media/Imprint_086_Zane.mp3
Permalink: http://www.daxle.net/archive/reinventing-the-wheel

Brian: Welcome to Imprint: Business Author Interviews from Daxle.net. Today's book is Reinventing the Wheel: The Science of Creating Lifetime Customers. Chris Zane, founder and book author, joins me today. Hey, Chris. Thanks for hanging out with me today.

Chris: Oh, yeah. I appreciate you having me, thanks.

Brian: Well, I came across you from Jeannie Bliss's book. In I Love You More Than My Dog she talks about you and if I came into your store and I see a $3000 bike and I want to take that thing out for a spin, you just give it to me and I just take it out and I can ride it around. You don't ask for an ID, you don't ask for a blood sample, nothing. Is this a marketing stunt or what goes into this kind of a thought?

Chris: Well, it's really not a marketing stunt. What it is, it's the opportunity for me to start building a relationship with the customer and we know our market and we know the people who interact with us on a regular basis and occasionally somebody will come in who wants to take advantage of our situation and disappear on a bike, but all in all, at the end of the day, we sell 4000 bikes a year. So of those 4000 bikes 3995 of them come back and there's never an issue and the customer never even thinks about the fact that we didn't ask them for an ID or keys or what car they're driving or take their license plate down. We're just kind of like, "Here, go ahead. Have a good time," and it shows that we're in a relationship that we want to have long-term and we want to have a trusting relationship. If we can trust you then you should be able to trust us. That's given us the opportunity to grow our business.

Now, like I said, occasionally somebody will hop on a bike and ride off. Unfortunately for the, or fortunately for us, it seems like they never take the really expensive ones. They take the $300 bike or the $275 bike because they don't think that we're just going to let them take off on a bike and so they don't ask for the expensive one. At the end of the day we know our customer relationships are going to grow and prosper and of course if I had 20 bikes a year get stolen I would have a very different attitude about it, but as the total cost of business, starting out the relationship with the customer kind of walking up and going, "You're just going to let me take this?" Yeah, go ahead. Have fun, enjoy yourself. That's a positive for us.

Brian: Yeah, I can see that. Now this is many years ahead but obviously there was a day in your past life when…I'm assuming that you didn't wake up at 16 and say, "I'm going to grow a company and we're going to have fantastic customer service and we're going to be talked about all over the country," so is there a journey that took place in your mind where you started to transform and actually view the customer differently? Which is a sad way to phrase it, but you did, right?

Chris: Yeah, I really did and that's why I titled the book Reinventing the Wheel, because we really came, it was a hot moment, a revelation. Five years after I started the company, I had been growing the company, I started in 1981 at 16 years old, like you said. I bought the store from the previous owner with a loan from my grandfather and we grew. Our first year's sales were $56,000 and the next year's sales were $75,000 and the next year's sales were $100,000 and finally by the fifth year we were doing $150,000 in sales and doing a ton of volume. It was time for us to expand and I opened a second store in a mall in New Haven, right downtown and thought we could capitalize on the relationship with the Yale students and grow this business into the next level.

After about two weeks in this mall in New Haven I realized that we were going to lose our shirts. There was no traffic, the mall was dead. The only time there was any volume was on Wednesdays because Macy's had their Wednesday sales and even at that it wasn't enough to generate any volume for us in the mall. So I had this 10-week lease from October 15th through the end of the year, to take advantage of the Christmas season and recognize that there wasn't going to be any real volume. So I started pull in my wings and figure out how to reduce my losses. At the end of 10 weeks I lost $100,000 from this 10-week test when our business was about $175,000 so every penny of equity that I had built, every dollar of profit that I hadn't received from the previous five years, all of that completely just vanished and even more than that because I was in debt with vendors and owed them for stuff that was sitting on my shelves that I couldn't sell and it was just a nightmare.

So, at that point, when I came back to the original store, which was doing fine and sales were still doing well and growing, I realized that doing what I wanted to do for our business was less important than giving the customers what they wanted and not actually being focused enough to interview people or do some market research and just open the second store. I realized that I had done what was good for me but not what was good for the market and what was good for the customers at large. It was the time when I realized that we needed to change our mission from selling bikes to servicing customers who want to ride bikes and that's a very different feeling when you think about the interaction. I'm not standing in the store every day now, 25 years later, trying to jam bikes down people's throats. What I'm doing is standing there waiting for people to come in who are involved in the sport, or interested in the sport, or want to get involved with the sport, and I'm there to service them with all of the things that they need; information, knowledge, expertise; and maybe they'll buy a bike if I provide all of that service and all of those things.

Fortunately, that's happened and that's when we started to build into these long-term, service-focused attitudes, like lifetime free service on the stuff that we sell, and lifetime parts warranties, unconditional return policies, 90-day price protection. We just built an environment in our store that was better than anywhere else you could be and trusted that the customers wanted to have us succeed, so they wouldn't take advantage of those offerings, like hopping on a bike and riding away when we say, "Go try it and see if you like it."

Brian: Yeah, so since the change in mindset have there been some things that you've tried that didn't really work out well?

Chris: Oh, sure. It's a constantly moving and breathing thing that needs to be fed and try new things. So I can remember years ago when we thought, "If we offer pickup and delivery service and people's homes then we could add one more component to the relationship and be even more valuable to them," and what we found was that people would have us pick up their bikes and then have us deliver them and if they weren't home we would have to come back and then they weren't coming into the store, and we weren't charging for service, because they get lifetime free service. So it really was detrimental to the success of the business because we were actually making it easier for our customers not to come in than to come in. So we abandoned that process, that service offering, but one of the things that we did, which I think a lot of business people don't get is that if you offer a service offering and then you realize it's not a perfect offering and then you change it or remove it, if you're able to have a database of information where you know what customers you promised that service to we still to this day offer pick up and delivery to the people that we sold product to with the promise that we would do pickup service and drop-off. We just don't offer it anymore to the people who come in because it doesn't work.

People say to me all of the time, "You've got these great customer service focuses. You just looked over the cliff and jumped?" I said, "Well, it takes a lot of time. You have to figure out what works. You have to tweak it," but all you have to do is make sure that the people that you promise it to, you deliver it to them. Even if it's a negative or it isn't positive for your potential profit for your company, those few people that have it, of course you're going to live up to your promise and you continue to deliver it to them, being that one to one model where you individually recognize that each customer has a value and is an individual and not just, "Oh my god! Now I have to continue to keep delivering bikes because we promoted them," we did it. Just turn it off and it's the same. If I promised to keep doing I will, and if I didn't then I won't.

It's like a coupon, I guess. When a coupon expires it expires and we're not trying to create a relationship where things expire but we certainly can say, "Mr. A, you'll always have lifetime service and you'll have pickup and drop-off. Mr. B, you'll have lifetime free service but we're not continuing to offer pickup and drop-off."

Brian: Unlike the annual terms of service that our credit card companies send us, you're saying, "You're grandfathered in."

Chris: Exactly, "You're grandfathered in," that's exactly our attitude. Actually, when we started the process of implementing free services, we started with one year and then we went to two years and then we went to lifetime, because my competitors were following suit and we needed to continue to up the ante when we had lots of competitors in our market. In that particular instance, we grandfathered our previous customers into the new service offering. So if you bought a bike from us with one year of free service, then we said, "Hey, by the way, we've raised the bar a little bit and you get to take advantage of it," because, again, it all wraps around and I think the single most important point of everything that we do is that we know that every customer who comes in our store has a lifetime value of $12,500 and you say, "Well, that's a big number." You get your first bike from us, and you get your bike when your 8 and you get a bike when your 12 and then 15 and then when you graduate high school, and then when you graduate college and then mid-life crisis bike, and then retirement bike and so on, then you'll spend, with accessories and helmet and clothing and all of that kind of stuff, $12,500. So that's a $5600 profit. Am I prepared to diminish my service offering to a customer who is going to drive $5600 of profit into my business? So that changes the attitude that my staff and I have with the people that we interact with.

I challenge people all the time. They're like, "Oh, we're all into lifetime value of a customer," and I say to them, "What's the number? We say lifetime value of the customer but what's the physical number that, if you get all of the share of wallet for all of the transactions for all of your customers, what does that mean to you, per customer? They're like, "I don't know," and I'm like, "Well, then you're really not into the lifetime value of the customer. You're into saying that you want to continue to service your customers but you don't know what that number is, which subsequently gives you a lot of confidence in the fact that if somebody rides off on a $300 bike, but every customer who comes in and buys from me is worth $12,500 the liability is still pretty low and I'm not taking that much of a beating.

Brian: Yeah, and someone could fake you anyway, right, if they wanted to steal a bike?

Chris: What's that?

Brian: If someone wanted a bike they would fake you with a fake ID so you might not get them anyway.

Chris: That's exactly what I'm saying. Negative intentions, you can't beat them at that, you just have to buck-up and take the hit.

Brian: Why write this book? What's in there? What would help someone if they picked it up and read it?

Chris: Well, the thing that's interesting about the book, I wrote it because you see all of these great opportunities or all of these great businesses that have grown; the Facebook empire, and the Apple thing; and the success that I've had has been as wild as theirs, it's just not as big, but it's attainable. So I started with a company that did $56,000 a year the first year that I started and now we do $15 million in revenue and I've got 75 employees and we pumped in about $20 million in payroll into the marketplace over the last 29 years, and it's really a case study for how you go from being a product-driven company to being a service-focused company and what the opportunities are to grow and how you can really take advantage of the fact that your point of difference can be as simple a thing as being nice to the customer, understanding them when they come into the store to buy something or when they interact with your business they're there because they choose to be there and all they want to do is have a good time, rather than jump through all of these hoops and have all of these hurdles and have to deal with all of this stuff. That's really what the book is designed to do. It's an easy read for somebody to pick up and say, "I have my business. It's completely unrelated to his business, but he did this and this and this is just the thought process behind every one of his moves. If I implement one little thing and I implement my own thought process, maybe I can continue to drive the train down the service track instead of being in the product, I sell stuff, track [inaudible 0:12:34].

Brian: More about the book and Chris at chriszane.com and for more business author interviews visit Daxle.net.