Implementing a New Business Model That Creates Customer Stickiness
Reed Deshler | October 12, 2016
Businesses work hard to create and market products and services that solve customer problems and fill customer needs. But, what creates the kind of customer loyalty that brands like Amazon or Apple enjoy? What is it that makes us repeatedly choose one company over another? What choices can organizations make that will lead to customer “stickiness”?
Companies that have successfully captured the loyalty of customers haven’t done so by accident. Instead, they make a series of conscious design choices and implement a business model that delivers tremendous value for customers, is distinctive compared to other offerings in the marketplace, and is difficult for competition to replicate. Let’s look at a few examples to tease out principles that can increase customer “stickiness.”
Apple has long been a leader in innovation and redefining customer needs. They have great products that in of themselves are appealing, but more importantly they have become masters at creating an ecosystem that brings increased value to customers through the services and interconnections that are facilitated between and among their devices. This ecosystem is what makes it difficult for customers to defect to competitors’ products. Essentially, Apple has created a business model that utilizes the connective tissue between or among their devices and other services/products such as music, videos, home entertainment, payment, and other uses to deliver value to their customers. For an Apple user to replace an iPhone, for example, with a non-IOS device, they would not only have to learn how to use a new device and user interface but also would have to find a new music repository and player, home entertainment applications, new video chat capabilities, re-purchase favorite apps, register for new payment services, shift cloud storage and completely relearn their user experience.
The force that undergirds this business model is a platform. When customers purchase an Apple device, they are actually accepting much more—they are accepting the Apple platform, which brings much more value than a new device would on its own. Even if customers purchase support products (like headphones, a case, an adapter, etc.) outside of Apple, they are often looking for Apple licensed products to ensure compatibility which still provides connectivity (and revenue) back to Apple. In essence, this robust platform is much more cumbersome to alter or even straddle and as a result creates a strong incentive for customers to stay loyal and a high barrier for competitors to penetrate.
We can see additional ways to create customer stickiness in companies like Amazon. Beyond providing a similar platform as Apple, their business model also mastered the ability to facilitate the buyer experience and anticipate (and even create) customer needs. For example, Amazon has long offered their “Prime” membership service that charges a flat, yearly fee in exchange for free 2-day shipping and video, book, and music streaming capabilities. This service facilitates shopping and provides quick shipping for every purchase. However, they have also added features they call “dash buttons.” If I buy dish soap from Amazon, I can place a dash button with my dish soap and when I start to run out, I can reorder dish soap by merely clicking the button. No need to get on their website or log-in to my computer, and in two days my dish soap shows up at my door. By having such innovative products and solutions to make the buying process easier, it is difficult to persuade customers to adopt a different and most likely more involved buying experience.
A final example comes from an outdoor gear and clothing retailer called REI. The retailer started in 1938 and was founded by a young couple and their mountaineering buddies looking to improve outdoor gear. The company has grown considerably in the last 75 years and maintains a very loyal following.
Their customer stickiness comes from a very different business model than Amazon or Apple. REI was founded as a Co-Op and remains one today. As such, they pride themselves as the best customer-focused company in their industry, period. They feel that they only carry quality gear that true outdoor enthusiasts will love and appreciate. As a result, if you have a problem with a product even years after purchasing it, they replace it or refund your money with no questions asked. If you need advice or replacement gear half-way into a major excursion, REI accommodates your request even if it is at a financial loss.
This extreme focus on customers stems from the fact that customers have a vital role in the company as Co-Op members and REI makes sure that their members are taken care of first and foremost. The result of REI’s highly differentiated customer experience, focus on the best gear, and Co-Op structure is amazing customer loyalty (“stickiness”) and the ability to retain customers through generations.
In each one of these examples, we see businesses models that utilize platforms with innovative products, distinctive services, and unique structures that make it compelling for customers and very difficult to copy. For these companies, building and refining these unique, customer-sticky business models wasn’t just luck—it was intentional. They made a series of strategic and design decisions that created a business model that was relevant, differentiated, and sticky to customers.
The charge for organizations in a world where platform business models are becoming increasingly powerful, distinctive, and profitable is to figure out how to design a business model that will draw customers in and keep them. Just like at Apple, Amazon, and REI, with the right business model, customers will be reluctant to change because they don’t want to give up the ease, the value, and the affiliation they receive. Their business models and methods may differ, but in the end these company’s business models created the same effect: strong customer stickiness.