January 26 by Aaron Fulkerson
We are seeing a new trend in business, which has evolved due to not just innovation, but technology and big data. Commerce has come full circle, returning to a model of direct sales and more specifically, subscription-based models. It has become an imperative that companies understand their buyers and customers, and companies are responding by turning to models that strengthen customer relationships.
Prior to the Industrial Revolution, the customer went directly to the craftsman. The customer would explain what they were looking for, and the product was personalized, customized, and crafted specifically for the customer. Through that communication the two could form a relationship, and the craftsman was able to develop an understanding of the customer, ultimately resulting in superior products and customer experience.
Then came the middleman. Barriers between producer and customer were created because of the mass production ushered in by the Industrial Revolution. The customer became further and further removed from the manufacturer or service provider as distribution channels were introduced, and the customer experience suffered as a result. This lack of direct interaction rendered the craftsman unable to understand the customer and their unique needs and desires.
If you don’t have a subscription model in the next three to five years
you’ll be out of business in five to eight.
The demand that inspired mass production in the first place is still there, making it a requirement for companies to have a means of developing insights about their buyers and customers at scale. Today this is more possible than ever because we have new technologies that enable us to analyze and build insights. Why is it important to sell direct? Because selling through channels, you can’t understand your customers.
A Sea Change
Today the macro trend we are seeing is that direct relationships with the customer are forming to meet expectations and deliver a stellar customer experience. Brands that do this stand out in the marketplace. For example, Microsoft, Apple, Tesla all have brick-and-mortar retail stores. Why? Because by controlling the customer experience end-to-end, they’re able to develop invaluable understanding about the customer that fuels their innovation.
– Microsoft’s first store opened in October of 2009 in Scottsdale, Arizona. As of August 2016, there were more than 100 locations, mostly in the Western hemisphere but there are also stores in Australia and China.
– Apple wasn’t happy with the way it was being represented by third-party retailers, so it took back control of its brand message by opening retail stores. The first opened in May of 2001 in Tysons, Virginia, and Apple currently has more than 450 stores worldwide. Notably, Apple has the second-highest customer experience index score out of 25 top retailers at 84 out of 100, and is one of only two brand-specific companies that made the list.
– Tesla’s retail footprint is also worldwide, though concentrated in North America, Europe, Asia, and Australia. The company has really disrupted the status quo to say the least in insisting on personal interaction with the customer and the customization of their product. Despite the controversy in that industry surrounding Tesla’s business model, we see the direct sales approach as the way forward.
Creating a relationship with the customer entices them to stay loyal to the brand. This allows the company to build a profile about the customer, both macro and micro behaviors, that informs innovation. Specifically, these innovations are increasingly delivered in subscription-based models. One by one companies are transitioning to selling as a service, translating loyalty to a product into upsell and renewals. An ongoing relationship doesn’t just engage customers, it retains them: two crucial elements of survival for a business. If you don’t have a subscription model in the next three to five years you’ll be out of business in five to eight.
These principles apply to both business to business (B2C) and business to business (B2B) commerce, but it’s especially important for B2B companies to realize what the future holds in customer relationships because of the opportunity in the B2B space—B2B transactions statistically eclipse B2C in both overall revenue and deal size.
Increasingly, companies are seeking to set up direct sales channels. The smart ones are using e-commerce as a way to do this, taking back the customer relationship so that they can develop understanding of their customers. Of course many companies won’t abandon third parties altogether, rather they will be using that understanding to augment their distribution channels.
Gaining Understanding through Big Data
A direct relationship with the customer also brings with it the benefit of customer insights. Just as the craftsman would glean from the customer, communication with the customer yields important information on customer behavior, preferences, and expectations, not to mention feedback on the product itself. Gartner Research Director Augie Ray gave a prescription for 2017 recently and the first order of business on the list is “Listen to your customers.” This goes way beyond marketing: the entire organization should be focused on the customer experience. But companies today are using outdated, pre-internet technology that doesn’t provide those insights.
Imagine gaining insights into customer needs through a direct sales relationship, and then being able to provide customers exactly what they want through targeted self-service options on screen in their cars or on their appliances using smart content. The product content that companies already produce can increase customer engagement by providing a better customer experience, creating loyalty and a basis for strong customer relationships. This goes for any industry, whether manufacturing or software. Content is how you connect the omnichannel experience.
Tesla has the end-to-end experience nailed, using customer insights. They are downloading data on user activity and continuously updating their products, and as a result their reliability and customer satisfaction have gone up because they have listened to their customers. This is no doubt related to the brand retaining the number one ranking in Consumer Reports’ owner satisfaction survey in 2016 for the second year in a row. Ninety-one percent of respondents said they would definitely buy the same vehicle again. Of course, there are a variety of ways to engage customers—Elon Musk for example is famous for interacting with customers regularly on Twitter, and recently instituted a new company-wide policy six days after receiving a complaint from a customer. His reaction to that complaint made news, and companies are taking notice.
Big data advancements also contribute to customer retention through the advent of predictive analytics, resulting in benefits for the business like product improvements, more precise targeting of product upsells to customers based on their browsing and purchase activity, and better efficiency in marketing and supply chain. Tesla’s cars are built to order. In fact, reconfiguring production to customize for the customer is actually cheaper than having massive amounts of inventory. That’s simply not scalable, which has been said by Tesla’s general counsel.
Our driving vision at MindTouch is satori, or perfect understanding. We expect to deliver mastery and understanding of your buyers and customers by helping them create mastery and understanding of your products, especially throughout the e-commerce experience. It is understanding of the customer—particularly through a direct relationship with the customer that is made possible through e-commerce and subscription-based models—that will advance the brand and make a company successful. Otherwise, you’ll go out of business.