This blog post was written by Robbie Kellman Baxter, founder of Peninsula Strategies, LLC, and a bestselling author. She is an expert on membership and subscription-based business models. Her clients have included start-ups and mid-sized venture-backed companies as well as industry leaders such as Netflix, Oracle, Electronic Arts, and eBay.
It’s hard to be a manufacturer today. The challenges are daunting. There’s pressure to keep costs down and move toward more of a “lean” approach. Consumer expectations are increasing in light of buzzword trends like Internet of Things and Artificial Intelligence. CIOs are being asked to modernize factories, incorporating new software and optimizing ecommerce, without compromising day-to-day productivity. And competition is coming from all sides, with new entrants building “smart products” in “smart factories” without the burden of legacy assets and customers.
Many manufacturers have already trimmed all they can on cost. They leave suppliers over pennies. But these biggest challenges manufacturers face can’t be resolved through cost alone. Innovation and value creation provide much more opportunity for competitive differentiation. These challenges demand a new model, and a new way of thinking.
The Membership Economy has already transformed many industries, and manufacturing may be next. The membership model can offer a “win-win” for both organizations and customers. Executives and investors like the model because it reduces uncertainty in their revenue streams. When done correctly, memberships appeal to customers too, both corporate and consumer. They appreciate the stability and convenience of the relationship.
Today, the promise of membership is even greater. The advent of the consumer internet and other recent changes in technology have dramatically enhanced the ability of a broad range of industries to take advantage of membership models. Software, news, music, retail—and more recently, consumer products—have all seen massive disruption by the Membership Economy. LinkedIn, Amazon, Spotify and Dollar Shave Club are just a few examples of organizations leading the transformation by emphasizing access over ownership, known relationships over anonymous transactions, and small recurring payments rather than a single big windfall.
The Membership Model Hits Home
We have seen some experimentation and early success with new approaches to manufacturing in the Membership Economy. For example:
- Rolls Royce made waves with their influential concept or power-by-the-hour, recognizing that many customers wanted access to engine time without the burdens that come with ownership like maintenance, capital expenses, and risks of obsolescence.
- More recently many companies are providing subscription-based aftermarket support.
- Organizations like Tesla and Peloton are rebuilding products from the ground up to incorporate data tracking and analytics into the product usage through embedded software, effectively improving the products with each use.
- Everyone from shoe manufacturers to medical device companies are leveraging 3d printing technology, through partners like Carbon3d, which allows them to customize their products for each individual customer, with “just-in-time” development, providing a better result for customers even as they reduce inventory costs.
But the disruptive change is just beginning. With the arrival of The Membership Economy comes risks: the risk of being left behind as one's competitors embrace membership; the risk of trying to change what may be a perfectly profitable (and comfortable) old business model, which can be hard to do while overseeing day-to-day operations of the organization; the risky temptation to use membership on the margins as an excuse to raise prices, and hope customers don't notice or don't care. But most importantly, there is opportunity. When organizations get closer to the customer, and structure offerings around the customer’s higher-order needs, “better-faster-cheaper” is a natural byproduct.
So What Does Membership Mean for Your Customers?
If you’re a manufacturer, a good place to start is by taking a step back and looking at the forever promise you are making to your customers. Are they really buying tractors, or medical devices or sporting goods? Or are they hoping for something different—ploughed fields with minimal risk, better outcomes from medical procedures at lower cost, or more fun on the slopes? From there, you can look at some of the new technologies at your disposal: digital community, data analytics, new manufacturing techniques and changing distribution channels.
For example, you might want to remove some of the aftermarket stressors of your customers: how can you remove the risk of maintenance or replacement costs? How can you collaborate with your dealers to better control unpredictable costs? What can you do to make sure your products are perfectly customized for each customer over time?
Can you ensure that your customers are using your products in the best ways possible, to extract the most value without leaving any value “stored” and underutilized? Can you build community around your best customers, so they can learn from one another and problem solve together—not just relating specifically to your products, but to the bigger objectives they have?
Manufacturers need to be open to rethinking, redesigning and maybe repackaging offerings to better align products to the value customers most care about. The focus should be on building forever transactions through true innovation both of products and of business models, and not just on incremental change and cutting costs.
This membership-based approach could be the secret to maintaining a competitive edge in a global market. Companies that aggressively rethink how they serve customers can transform their relationships, before, during and after the transaction, and ultimately reap big rewards.
Maintain a Competitive Advantage by Building Forever Transactions with your Customers
Mize is hosting a Webinar with Robbie Kellman Baxter, bestselling author and founder of Peninsula Strategic, LLC, on April 23rd, 2020, at 1 PM EST/12 PM CST. All qualified participants will receive a complimentary Kindle version of her new book, The Forever Transaction: How to Build a Subscription Model So Compelling Your Customers Will Never Want to Leave