Successful companies such as Starbucks, Microsoft, Amex, and Netflix have a common theme when it comes to customer interaction: They strive to make their customers addicted to their products and services. These companies persuade customers to satisfy their strong urge with secure monthly deductions from a preferred credit card. This article is copyright 2004 The Best Customer Guide / Michael Fassnacht (President & CEO, Loyalty Matrix Inc.) / 49th.NET T/A The Best Customer Guide.

These companies have changed the rules of the customer retention game by shifting their business models from one-time, high-ticket transactions to a more predictable, steady customer revenue stream - even though this results in significantly lower dollar amounts per transaction. The goal of the approach is to persuade customers to use company products and services as often as possible - in the best case, daily - and have them pay by subscription. Similar approaches can be found across multiple industries.

Relationship vehicles
At Starbucks, customers no longer have to pay for their daily cappuccino with cash. Instead, they can pay with a Starbucks stored value card that is linked to their primary credit card. This credit card automatically reloads the Starbucks card when the balance dips under a predefined limit. More and more customer-centric companies, including Starbucks, are leveraging customer relationship vehicles, such as loyalty, stored value, offline membership cards and online credit cards.

These relationship vehicles allow companies to identify customers, and track their behaviour, which leads to opportunities to establish a subscription or subscription-like relationship with the most loyal customers.

Companies that secure subscription relationships with loyal customers become less dependent on disloyal and inconsistent customers who must be won over for each additional transaction. By focusing on loyal customers, companies are able to study and understand the intricacies required to provide ongoing value to their best customers.

Long-term and profitable
The subscription approach ensures long-term, secure, predictable and profitable customer relationships. The biggest challenge to securing subscription relationships is the difficulty in understanding the key drivers and triggers that create such a strong and addictive relationship between the customer and a company's products and services. Once a company knows why loyal customers continue to return, it can select, design and implement a relationship vehicle most likely to succeed - such as the Starbucks stored value card.

The shift from a transaction-based to a subscription-based business model is not a marketing fad. It is a fundamental change in how companies do business and how they use traditional marketing tools to increase revenue among existing customers.

Three lessons for the transition...
Companies that have succeeded in making this transition have learned three critical lessons that determine success or failure:

  1. At the heart of the transition is a deep understanding of customer behaviour on a quantitative and qualitative level, along with ongoing customer behaviour tracking. This is called Customer Intelligence, and it consists of the disciplined combination of marketing strategy, analytics, and technology. Only with a high degree of competence in each of these three areas can a company turn the resulting data and insights into practical marketing actions and programmes.
  2. The interplay of strategy, analytics and technology (internally or externally available) and resulting data has one goal: to increase the relevance and usage of a company's products and services. Customer Intelligence determines how companies should best market and communicate to different customer segments. Customer Intelligence also can improve how companies design and direct pricing, develop product and service strategies, and create channel contact strategies. This holistic view to leverage all available marketing drivers creates relevance in a very segment-specific way. Well-communicated, segment-specific relevance drives usage, which is the most important driver of a customer's long-term loyalty.
  3. Continuous monitoring of all customer data enables companies to shift to a subscription-based model and transform themselves into truly customer-focused organisations. Most companies do not have the strategic, technological and analytical expertise to make the transition on their own, and will need a partner to support the transition through marketing strategy and analytics.

Bringing its own proprietary technology to the mix, Loyalty Matrix is well placed to provide a thorough knowledge of both customers and data management systems to develop effective and insightful Customer Intelligence solutions.