By Dusty Weis, Association of Equipment Manufacturers

Before she became a strategy consultant to Netflix, Robbie Kellman Baxter says she was already a member—and a really big fan.

This was before the company pioneered streaming media and became one of the largest producers of original programming in the world. Back then, Netflix just sent DVDs to subscribers in the mail—but Baxter says there’s an important lesson for equipment manufacturers in their business model.

“They were focused on doing one thing really well for their customers, and they were focused on doing it forever,” Baxter says.

In her book, The Membership Economy, Baxter explains how other companies can use “forever promises” to move from an ownership business model to a membership model. She was a speaker at AEM’s recent Thinking Forward event at Purdue University and will also lead a breakout session on the membership economy at this year's AEM Annual Conference.

Those in attendance at the Purdue event were afforded an opportunity to have Baxter help them chart their own paths to the benefits of the membership economy. For equipment manufacturers, this can mean shifting from one-time sales revenue to recurring revenue, from a one-time transaction to an ongoing relationship with the customer, and from one-way communication to a constant stream of community feedback.

But the key to a forever promise is to focus on the value you provide to your customers, Baxter says, not the manner in which you deliver that value. Netflix isn’t a DVD service, after all, but rather, an entertainment service.

“They’ve changed how they deliver on their promise, but they have not changed the promise,” Baxter says.

In her talk, Baxter shared with AEM members seven techniques for adapting their businesses to the membership economy:

1. Organization

Creating a membership business model starts with the organization of your company itself, Baxter says. While the focus may have traditionally been on selling a product, she says the most successful manufacturers will structure their companies around optimizing the customer experience.

This not only means tearing down organizational silos that inhibit information sharing, but it also means tracking, emphasizing and incentivizing indicators like customer engagement, retention and net promoter scores.

“Those kinds of metrics start to matter as much as, if not more than, acquisition of new customers,” Baxter says, “because it’s cheaper to keep a customer and expand that customer than to bring in a new one.”

2. The Funnel

In the traditional “sales funnel,” marketing casts a wide net to build awareness of a product or service, and the efforts narrow in specificity and intensity the further along the customer gets in the sales process.  

But if marketing is all about the top of the funnel, Baxter says membership is all about the bottom of the funnel, after the sale is finalized. And that’s where she says companies need to focus their efforts in order to foster a membership mentality.

“What’s going to happen when the product becomes too old and they need to get a new one?” Baxter asks. “Are they going to come back to you? If the answer is no, work your way back up the chain and figure out why, and optimize for that long-term relationship.”

Baxter says companies should make sure that the customer recognizes immediate value upon the conclusion of the sale. The company needs to keep customers increasingly engaged with the product, and provide them the informative support they need to get the most out of their investment.

3. Pricing

When you’re trying to incorporate a membership mindset among your customer base, Baxter says it’s important to build a pricing model that offers them the flexibility of different payment options.

“Thinking about different ways of pricing your value to make it easier for your buyer to buy is a great technique to explore new business models,” Baxter says.

This could mean offering alternatives to the standard purchase contract, like a subscription-style service approach. While the heavy equipment industry has been cautious about incorporating such business models, Baxter says it’s becoming more popular in other industries because it lowers the barriers that prevent many customers from committing to a purchase.

“Buying something like a bulldozer is a big one-time decision,” Baxter says. “It’s probably a once or twice in a career purchase. But if you can give customers access to a bulldozer, as opposed to all the responsibilities and the cost of ownership, you might get into new accounts more easily.”

4. Freemium

There’s an important question Baxter says manufacturers should be asking themselves about the membership economy: Is there anything in your business model that you can make available for free?

These so-called “freemium” services are different from a one-time free trial, though trials can be a useful recruitment tool as well. Instead, Baxter says freemium is something that provides value to your customers, at no cost to them, on an ongoing basis.

“I’m working with a machinery company that has an innovative way of doing manufacturing,” Baxter says. “One of the things they’ve found is that they can bring customers in for an informative talk about innovation, for free. It’s a great value for the paying customers, but also a good way to bring new customers in.”

Baxter says thought leadership services, like conferences and networking events, are a great way to build a sense of community around your brand and facilitate a membership mentality. But freemium can be any form of service or support that helps customers get value out of, and even depend on, your product.

“Many companies help people find jobs using the machinery they sell, becoming kind of a broker to help people find their next opportunity,” Baxter says. “Often, employers are looking for people who know how to use specific types of equipment, so it’s a value to them as well.”

5. Onboarding

Unlike traditional business models where the sale is the finish line, Baxter says manufacturers should look at it as the starting line instead. Once that line is crossed, the focus needs to shift from courting the buyer to onboarding the end user.

“It’s likely you have a buyer in one part of the organization, but the people who have to use the product every day are out in the field,” Baxter says. “When they get the piece of equipment, they might not like the expensive new features and push back against it.”

In order to get customers to buy in as members, and not just users, Baxter says it’s critical for manufacturers to provide instructive support to new users from day one.

“Understand that process and choreograph the onboarding experience that same way you would choreograph the experience of a new employee,” Baxter says. “Make sure they understand why the purchase is going to be good for them and that they start getting value right away.”

6. Customer Success

“Customer success is the long-term version of onboarding,” Baxter says. “It’s a different mindset about how you support your customers.”

In the traditional approach to customer service, companies wait for customers to call them with a problem and then help them fix it. But Baxter says the customer success mindset is a more proactive approach to service, where a manufacturer offers customers continuing support to maximize the value they get from a product.

For example, a company that captures data off a machine in the field can analyze how it’s operated and offer the customer tips and recommendations to make it more efficient. If a company builds a network of such customers, it creates a deeper pool of data, and the opportunity to offer individual customers insights that are benchmarked against their competitors.

“It’s not just about upselling, it’s about making sure they’re getting value out of what they’re already paying for,” Baxter says.

7. Technology

Technology is the final piece of the membership puzzle, Baxter says, because Internet of Things connectivity and Big Data analysis are what enable manufacturers to offer their customers comprehensive insights as a continuing service. You need look no further than the big, disruptive Silicon Valley powers like Google and Amazon to understand how technology should be part of your entire organization’s approach.

“These disruptors are thinking about who’s the end user, what problems do they have, what kind of info can we provide them, how do we aggregate that info, and how do we use analytics to make it really easy for them to make decisions,” Baxter says.

In today’s industry, the imperative is to “disrupt or be disrupted.” But Baxter says that approach must cut across every facet of your organization.

“It’s sort of like writing,” she notes. “We may not all have the word ‘writer’ in our titles, but we should all know how to write a memo. It should be the same with technology.”

“Every part of the organization should be technologically sophisticated.”

 

AEM members learned about this and other topics at a Thinking Forward event at Purdue University on October 16. Subscribe to the AEM Industry Advisor for regular updates about this and other cutting edge topics.