This month, Harvard Business Review featured a compelling piece – “The Age of the Continuous Connection: When You Can Interact with Your Customers 24/7 You Need a New Business Model” – by Nicolaj Siggelkow and Christian Terwiesch, co-directors of Wharton’s Mack Institute for Innovation Management. The piece inspires some exciting new strategies to stay ahead of the competition. But we think it only scratches the surface of what is possible.
If you embrace a world in which you are continuously connected to your customers, and you rethink your business model, you will surge ahead. If you are slow to respond, you will fall behind.
Engaging in dialogue with our customers
In a nutshell, the authors argue that we are moving into a new era. We are moving away from a scenario in which you have periodic transactions with your customer into one in which you are continuously engaged in dialogue.
Think about Disney’s MagicBands. Each park visitor wears a radio-frequency identification band they can use to pay for food, check in to rides, and unlock their hotel rooms.
But these bands can do so much more. They enable Disney to continuously know where visitors are. Pair that with the Disney app, downloaded on each visitor’s smartphone, and Disney can do things like recommend rides nearby with shorter lines, or give Disney customer information so that cast members can personally address visitors (“Hey, Sophia! Happy 7th birthday!”).
Moving beyond the traditional mode of customer interaction
The authors suggest that such continuous connection allows companies to evolve beyond a traditional “buy what we have” approach to embrace four new models: respond to desire, curated offering, coach behavior, and automatic execution.
The authors use the scenario of a hypothetical customer who needs new toner for a printer to describe each of these models, so we’ll do the same. Let’s call our hypothetical customer “Frank”.
Buy what we have
In the traditional “buy what we have” approach, companies episodically interact with a customer only after that customer has recognized they have a need and has searched for products to meet that need.
For example, Frank is working, and discovers he’s low on toner. He looks up the nearest office supply store, gets in his car, drives there, and buys his toner. The company interacts only fleetingly with Frank – when he asks where the toner aisle is, and when a cashier checks him out – and otherwise has little connection with him.
This approach is time-consuming for Frank, and forces him to take on the bulk of the work and responsibility in shopping for the product that he needs. And the company hasn’t learned a thing about their customer, so can’t help him in the future with his needs.
Respond to desire
In a “respond to desire” approach, companies make the buying process as quick and effortless as possible. So Frank gets a notification that his printer is low on toner. He goes online to the office supply’s website, enters his printer number, and with a few clicks, finds the toner he needs, orders it with same-day delivery (his information is already stored in the system, so this only takes a minute), and a few hours later receives his toner in the mail.
In the “curated offering” approach, the company provides personalized recommendations after the customer has decided that they need something, but before they’ve decided exactly how to fill that need.
So Frank visits the office supply website, types in that he needs toner, and the company offers a tailored menu of options to Frank based on information they already have about him, such as previous purchases. Frank was willing to share some data with the seller in exchange for avoiding the effort of searching through a long list of options, and the company benefits by only offering products that it knows it can quickly provide to Frank at that time.
In the “coach behavior” model, the seller nudges a customer to act based on their understanding of the customer’s behavior and their ability to gather and interpret other data.
The office supply company might, for example, recognize that Frank purchased toner three months ago and also recently repurchased several reams of paper, so guesses that Frank’s toner might soon run low. So the seller sends Frank a message saying, “It’s time to order new toner, Frank!” Frank checks his printer, discovers indeed it’s low, and clicks one button to reorder.
In the “automatic execution” model, the seller fills the customer’s need without being asked. Amazon does this through its Subscribe & Save program. Companies like Stitch Fix or Blue Apron do this by sending customers periodic boxes of clothing or food respectively without waiting for customers to ask for it.
In Frank’s scenario, the office supply company, who Frank gave permission to monitor his ink level when he purchased his printer, recognizes Frank will soon need new toner, and automatically sends it to him. If they get it right, Frank is happy to have saved time. If they get it wrong, Frank might return it.
This is all made possible through the Internet of Things (IoT), when smart devices communicate with each other: the printer shares Frank’s low-toner alert with the seller who automatically sends Frank the toner he needs.
Taking continuous connection even further
Each of these possibilities is intriguing. If you are not thinking about how they would play out in your business, you should be doing so. Your competitors probably are. But we think these four models just scratch the surface of how continuous connection will impact your business model.
If you have attended one of our workshops, heard one of Kaihan’s speeches, or read one of our books, you know that we like to look at a business model across eight lenses (8Ps): positioning, product, promotion, pricing, placement, process, physical experience, and people.
The authors of the HBR article focus their attention exclusively on “promotion” – how a company communicates with or markets to customers. Exploring the implications of continuous connection across the other Ps offers at least four more potentially disruptive possibilities: smaller product units, service- or outcome-based pricing, new forms of delivery (placement), and restructured processes.
Smaller product units
If the frequency of customer communication grows, the increments of time between which companies can deliver their product shortens, making it possible to offer products in smaller chunks.
For example, Frank used to communicate with the seller every few months, when his toner ran out. So it made sense that printer toner was delivered in monthly quantities. Now his printer can communicate to the seller every minute. Frank prefers spending $5 per week rather than outlaying $60 every quarter, so the seller could offer smaller shipments of toner, sending him enough toner for a week. This opens up the possibility of implementing the next business model innovation: moving to a “service” pricing model.
Service- or outcome-based pricing
Offering smaller product units would naturally imply pricing in smaller increments, which opens the possibility of evolving into pricing as a service based on results. Frank might pay the seller a monthly fee just in exchange for the promise that he never runs out of toner.
Jet engine manufacturers are already selling engines by the mile flown. In digital products like software, we have long moved away from the product-pricing model in which a customer buys a license to a service model to one in which a customer pays for usage of access. Adobe, for example, in a dramatic move stopped selling software that costs hundreds of dollars to a “software as a service” model that gives users access for a few dollars per month.
New forms of delivery (placement)
As continuous communication expands the possibility of selling incremental products at incremental prices, it also enables us to rethink how we can deliver on a more continuous basis. Amazon is investing in its own distribution system in part to get closer to customers and lower delivery costs, making it economical to deliver smaller orders (e.g., delivering a week’s worth of toner rather than three months’ worth).
The company Frank bought his printer from could design a printer that stores a year’s worth of toner and delivers it automatically into Frank’s cartridges as Frank pays for it. Recognizing that even physical products have significant service elements (Frank doesn’t just pay for physical toner; he pays for toner quality, ease of replacement, troubleshooting a paper jam), which can be delivered by non-physical means, further expands the possibilities.
Dismantling the business model as we have so far with continuous communication, smaller increments of products, new pricing models, and new delivery paths requires us to rethink the processes by which we deliver our value proposition.
The seller that is able to give Frank the promise of an on-demand, as needed, continuous flow of toner will get even further ahead of the competition by turning its attention to its operations, rethinking not only its delivery processes (e.g., delivering toner on demand), but how it collects payments (pricing), sources supply, and manufactures products.
Innovating your processes is exciting because it takes so much effort that competitors, driven by repetition and continuous improvement of existing processes, often resist doing the work. This has the potential to give you an even more sustainable source of advantage.
So, certainly take Siggelkow’s and Terwiesch’s advice. Explore ways to evolve from a “buy what we have” model into a “respond to desire,” “curated offering,” “coach behavior,” or “automatic execution” model. But don’t stop there. Get your organization to ask:
- What would it look like to break your product down into smaller units that are delivered more frequently?
- How would you price smaller increments of your product? What would it look like to price as a service or based on an outcome?
- How could you rethink your product delivery model to deliver smaller increments of value?
- What processes should you redesign to deliver on a continuous basis?