Why Businesses are Starting to Act Like Non-Profits

By sethmsparks

A business model is a framework for creating economic, social, and other forms of value.








Membership organizations are commonly built to help individuals support a cause they care about or a discipline they connect with. In business, marketing has evolved in include a satisfaction element to the consumer transaction, which has heightened the importance of branding. Branding led to the permeation of marketing into all other areas of business to ensure quality and customer satisfaction, which lead to additional future sales. As businesses start to manage the entire lifecycle/journey of a customer, businesses have begun treating customers like member organizations treat their communities. This impacts all industries large and small, and has even helped the adoption of new business models like media subscription services.

**I work on the Periphery of Insurance.**
I know it sounds like a ton of fun, but financial services aren’t always as exciting as they seem. Fortunately, eight years ago I ended up in a department of Nationwide that partners with external organizations to offer products to their members (commonly known as affinity programs). In my time in the department, we’ve come a long way in understanding these membership organizations, which better enables us to work with them.

Membership organizations are typically communities built around a cause that is deeply personal. As the member organization advances on it’s mission, it needs resources and support. To secure resources and support, the organization recruits new members, satisfies existing members, and retains as many of them as possible each and every year. And each year, members must decide if they are satisfied enough to renew.

**Historical Context on the Marketing Role and Branding in Business**
In the 1960s, advertisers started to adopt the acroynm AIDA (attention, interest, desire, action) as a methodological approach to getting people to buy goods (http://en.wikipedia.org/wiki/AIDA_(marketing)). The considerations for AIDA could be applied to a single advertisement, almost always in direct response, or could built into a campaign that carried multiple messages across a set of themed ads.

Somewhere around the end of my college career in 2005 I started noticing marketing pundits adding an S to the end of the AIDA framework, denoting the need for (S)atisfaction in a transaction. I was keen on the addition, which added considerations for both the operational and marketing functions of business. They now had to ensure their products delivered on the expectations of the buyer, hopefully resulting in positive brand association and future purchases. Before this addition, the sale was the end. Now, the sale was the means to a longer-term end.

Around that same time, another form of transaction modeling was taking shape. Spurred by the 2001 book The Cluetrain Manifesto, savvy marketers started to manage customer engagement. Customer Engagement took shape as an alternative to AIDAS because it forced brands to focus on the long-term approach to customer engagement, which could slow a businesses focus on right-now sales. It also forced them to consider the brand as an entity that should have a long-term relationship with customers.

Throughout the shift from transactional to relational marketing, the importance of brand became a dominant consideration for large and small businesses. And since branding is most often a marketing function baked out of communications and messaging, the role of marketing in businesses has slowly morphed into a foundational element of business, similar to technology, beyond the operational silo it used to be.

**When Customers Become Community**
The new reality is that a brand needs to be reinforced before, during, and after a transaction. Thus, marketing has become ingrained throughout organizations. Very few industries live only by selling their products to a customer a single time. The direct consumer relationship is built around the product purchase cycle, where the cycle dictates the need for a brand to resell its value to customers at some point of renewal.

For example, you don’t just buy a TV and expect it to last you for the rest of your life (anymore). You won’t likely replace a TV every year, but at some point short of a decade, you’ll likely need to move on to a new model. A business that sells to you and forgets you, has to rebuild all the much of the trust and credibility it lost between the time you made your original purchase, and when you start searching for the replacement. If their product has served the consumer well, there may be a little less struggle.

If a businesses used your original search and decision to purchase their product to build a relationship with you, however, the businesses objective looks very different. The transaction shifts from new sale, to a renewal. That hill is a shorter less-intense climb. But it requires business deliver value after the sale on the customer journey. It requires treatment of a customer as a member of a valuable community, rather than a traditional customer base.

**Relationships, Not Transactions**
So as businesses morph into entities that look at customers as communities and begin adding value not only during the sale but after the purchase (through the product itself, product support, and any other functional utility they can provide), businesses begin looking more and more like non-profits and membership organizations.

This stands out to me very clearly in the insurance world. Insurance companies operate extremely closely to how membership organizations do. Insurance companies spend time and money trying to acquire policyholders. Those policies last some specified period of time, after which the policyholder has to decide if they will renew. At that point, membership organizations would send notices to remind the individual that renewal is approaching and highlight the benefits of the relationship to retain them. Insurance companies do the same thing in advance of a renewal. They’ll send coverage reminders, and maybe schedule a check-up with an agent. The purchase and renewal becomes cyclical.

In truth, this is how a lot of businesses are starting to operate. They’re using big data to mine for triggers that tell them someone who bought before might be looking again. They’re using social media to talk about their products, and respond to customer service issues. They’re building community whether they intend to (hopefully they’re intentional about it) or not. Smart businesses started looking at lifetime value and managing communities accordingly a long time ago. Now, technology makes it a necessity, not a luxury.

One of the biggest trends today is the movement towards subscription based services. As younger individuals have a desire to experience more, they are relinquishing pure ownership of a few goods for subscriptions to inventories of unlimited goods. Millennials don’t want to own an Iron Man 3 Blu-Ray that takes up space on a shelf for $30. They want to pay for a $12 subscription to Netflix that gives them thousands of options of things to watch, of which at some point Iron Man 3 should be an option. There are shortfalls of the movement, but the current view is that the value of variety trumps the value of ownership.

The value of membership trumps the value of the single transaction. The movement from transactional to relational selling is evolving business models and making them work more like membership organizations.

**How Does a Businesses Change to Adapt**
Consumers are fans of brand relationships, but no more than they are with human relationships. They spend time with you when you’re interesting, show you care, add value, and create fun. If a business is going to start building relationships with customers and creating community, there are a variety of questions to consider:

  • Do you need a customer database to manage the community
  • Should you build a platform to organize, engage, communicate with the community
  • Can you create a support mindset that ensures every purchase lives up to expectations
  • Have you mapped the customer journey to identify touch-points and value adding activities from consideration to post-purchase
  • Do we have a culture that makes decisions based on the lifetime value of a consumer and not this weeks/months/years sales volumes

It’s not just the big businesses anymore that have to worry about creating community just like a membership organization. Small businesses that have been able to maintain relationships with customers by proximity now have another threat to their livelihood as larger businesses find ways to localize and build meaningful relationships with those same customers.

I’m fortunate to have spent time around these non-profit and membership organizations. It’s easy to see how their business model intersects with where brand and customer relationship marketing are going, and paints a good picture of what next generation marketing will look like.

** Some other thoughts **
1 – Jay Baer’s book Youtility talks about marketing so good people would pay for it. Businesses that are able to identify the need of a market and satisfy it in a useful way start building community before the transaction happens. Read the book if you can.

2 – Big data, membership management platforms, and social technologies are all converging. Businesses are starting to paint grander pictures of the customer journey and triggers associated with their audience. As a consumer, I’m trained to worry about my privacy but as Mitch Joel argues in Ctrl Alt Del, giving up some privacy allows for a whole lot more personalization. A businesses community is far more likely to accept relaxed privacy based on the trust that’s been earned. Relaxed privacy means more data, better analytics, and better retention/cross selling/up selling.

3- An article on trendwatcher.com recently talked about Demanding Brands, and how some companies (in becoming more sustainable and socially-responsible) are demanding more from the customers/community, making the transaction more painful to the customer in terms of time/energy/wallet, but earns the brand respect. A weak community combined with a businesses short-term sales mindset wouldn’t allow for that approach to be successful.