Journey from a transactional business to a customer-centric business

Thought piece by me originally published at Avaus Marketing Innovations

A lot of companies have been on a journey to change from a transactional business into a service business. Companies previously sold software licenses and now they sell subscription services. Where previously engines were sold, now lifecycle engine services are the buzzword.

The transactional business model works when the clients know their problem and the solution to their problems. This kind of business is easily copied and usually the competition is fierce and based specifically on price. What’s more important, the price/value comparison is extremely easy for the customer.

In the service business, the customers know their problem but not necessarily the solution. The actual value for the service is thus much higher than when the customer was buying a product that acted as the solution. Price comparison is significantly harder and the price is no longer a measurement of quality. A good service company is easily capable of up-selling its offering if it is related to the problem.

An example of both business models can be found at your home. Your pipe is leaking and you know that you need a wrench to tighten the pipe. You go to a hardware store and buy a wrench based on the price comparison on the shelf. Problem solved.

However, if you don’t know how to fix the leaking pipe, you won’t benefit from a wrench. You still know that the pipe is leaking and thus you call in a plumber to fix the pipe. The plumber has his wrenches and screwdrivers with him and he quickly solves the problem for you. While he’s fixing the pipe, he can install your washing machine for you at an additional cost.

The business model becomes interesting, when the client doesn’t even know the problem, just witnesses the symptoms. To be able to serve a customer, the business needs to truly to understand the customer and have significant experience from similar situations. Usually these kinds of services are very expensive and the expertise required can be very specific.

In my plumbing example, this would mean, that you just see water on the floor. You have no idea where the water comes form: it could be a leaky pipe, a leaky roof or your kid just keeps tripping nightly while sleepwalking and pours a glass of water on the same spot. The solution to each problem is different. While solving the client’s symptoms, the business is able to identify additional problems like mouldy walls or a sinking floor. I call this the customer centric-business model.

Many companies are just beginning the journey towards the customer-centric business model. Some companies are even in the situation that they are now facing the question whether they should skip the middle stage altogether. To make sure that sufficient information about the client is available, new tools, processes and ways of working are required.

Information is traditionally gathered through interactions with the customers. These interactions are happening more and more in the digital realm: Emails, blogs and social media are just some examples of the interaction channels. Being able to consolidate this information and predict customer needs based on online behaviour is something that modern business do. Utilizing deep analytical capabilities, prediction models and lead scoring systems, businesses can provide significantly more value to their customers as they can identify the problems their customers are facing.

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