How Netflix and Amazon Earn Customers For Life

Ease of use, reinforced by an electronic ecosystem based on familiarity that makes the mental and financial cost of leaving harder than that of staying. JL

Lisa Solomon reports in Singularity Hub:

They’re always thinking about how to make it as easy as possible for customers to get exactly what they need when they need it, without them having to put in a lot of effort. What we want is to have things that will make our lives better and easier. They turned the model on its head. Instead of saying “we’re going to be an online retailer that sells transactions” they said “we’re going solve the problem for our members.”
Robbie Baxter helps companies reinvent their businesses by shifting relationships with customers from transactional to long-term membership. Leaders in this approach, like Amazon and Netflix, are successful and resilient because they clearly identify a problem customers want solved and promise to continuously solve it over the long haul. Though the exact solution may change, the promise stays the same.
“There’s a lot of pressure, especially from Wall Street, on the short term,” Baxter says. “But the best companies are asking, ‘What can we do for our customers forever?’”
We caught up with Baxter to talk about her latest book, The Membership Economy, and learn more about how the “forever promise” is transforming the way we do business.
Lisa Kay Solomon: You help companies craft strategies to create customers for life by delivering on what you call a “forever promise.”  Can you describe what this is?
Robbie Baxter: I got the idea when I was working with Netflix. At the time, they were disrupting the video rental industry by offering their members professionally-created video content delivered in the most efficient way possible. This was a relentless focus for them. I realized that this was their “forever promise” of value to their customers. Over time, the vehicle of delivery has changed—they don’t mail DVDs anymore, you can stream content directly—but their promise to their members has remained the same. The forever promise has to justify the forever transaction.
And as I bet you can imagine, they get all kinds of inquiries all the time. “What if you did video games or music, or user-generated content?” And they say, “No. We do this and we do it really well.” So that focus is one thing they do differently.
They  have a clear understanding of the matrix that drives success, and that allows them to provide their employees with tremendous freedom to innovate within those constraints. As long as you come up with new ideas that fit with their core principles, you’re allowed to try almost anything.
LKS:  How is technology helping organizations build new relationships with their customers?
RB: Building trusted relationships with customers is the holy grail of unlocking sustainable value. We all want to feel connected, feel recognized, treated as the special individuals we are. And new technologies are enabling organizations to build those kinds of relationships with their customers at scale. They end up thinking of their customers more like lifelong members and less like one-off transactions.
LKS: Can you give us an example?
RB: Amazon has invested heavily in the idea of customers as members. They built a technology that learns about our preferences and behaviors, and they created a “forever promise” for their members, which is basically, “as long as you need to buy things we will make it as easy and pain-free as possible.”
They do that with Amazon Prime, their annual membership for shipping, which takes away the pain of paying for shipping. They do it by making recommendations for you about the kinds of products and services you might want, given what you’ve done in the past.  They give you the opportunity to subscribe and save, which is a new offering they have where you can actually replenish certain products on a regular schedule without having to reorder.
They’re always thinking about how to make it as easy as possible for customers to get exactly what they need when they need it, without them having to put in a lot of effort.
Fundamentally, what Amazon realized is that nobody wants to go into a store and buy things. What we want is to have things that will make our lives better and easier. They turned the model on its head. Instead of saying “we’re going to be an online retailer that sells transactions” they said “we’re going solve the problem for our members.”
LKS: In studying membership models, are there some consistent themes you’ve seen from leaders who get it right?
RB: The best leaders focus on the long-term relationship with the customer. There’s a lot of pressure, especially from Wall Street, on the short term. But the best companies are asking, “What can we do for our customers forever?” And they’re willing to evolve their offerings over time to continue to meet a customer’s needs, even as the environment changes around them.
So new technology emerges that probably has implications for what we can do for our customer. New players emerge and that has implications for what our customers’ expectations are going to be. So those leaders that are really doing great things, like Jeff Bezos, are focusing on the long term. They’re focusing on the customer needs as opposed to their products, processes, or even the specific people they have on their team.
LKS: A lot of companies are building relationships with customers by giving away their services for free to build loyalty before adding revenue-generating services, also known as the “freemium” business model. What is your advice regarding creating sustainable business models using a membership orientation?
RB: I think of free as a tactic, not a strategy. Organizations say, “We’re going to give it away for free and then we’re going to make lots of money, like Facebook, right?” But in order for free to work, it has to fit into the overarching business model. It has to play a role. What is free doing for the organization? There are really three things that free can do.
Free can change behavior. For example, the New York Times wants to move people to digital, so they give away ten articles a month and then you have to start paying. What they’re doing is changing your behavior. If you’re reading more online, you’re willing to pay for a subscription.
Another reason to offer something for free is for viral effect, which basically means that the customer serves as a marketing channel. You send me a survey because I’m in the club.
The third reason is network effect, where members of the community are part of the value. Each new person that joins for free creates a value for the people willing to pay. An example is LinkedIn, where the vast majority of people pay nothing, but a few people are willing to pay a high premium to access the free content.