Companies such as AAA are being overtaken by technology. But they still have huge customer bases. The challenge: offer customers a new, differentiated product before that connection fades.
BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH INVESTORS@TULLMAN
The only survival path in the new digital age for many older
firms with huge customer bases such as cable television, local newspapers, and
the home alarm companies like ADT is for them to continually add new features
and functionality to their basic bundle of services. They need to do this
immediately, before millions of their customers -- who are accustomed to paying
fees that automatically renew monthly or annually-- figure out that they're
paying too much for what little value and utility they're actually getting from
their provider given the existence of so many largely "free"
alternatives.
These companies have a huge advantage in that they already
communicate with their customers on a regular basis through reports, billings,
newsletters, and email blasts so they have effectively zero incremental costs
of customer acquisition in terms of promoting new offerings. But, of course, these
kinds of tactical upgrades don't happen by themselves. And simply adding
"me-too" products that don't make a demonstrable difference to
customers doesn't help anyone's cause.
For many traditional product and service providers, the risks of
rejection are rapidly rising, because the mobile and digital world has moved
beyond the historical offerings of these companies and either improved upon or
entirely obviated any need for their products. In many cases, the mistakes
these companies made in failing to recognize, adapt, and move promptly to keep
up with the changing times are unrecoverable. Too many have simply been greedy
for too long - unwilling to impair today's cash flows to prepare for tomorrow. Kodak
"moments" are no longer captured on film, long distance charges are
history, bank checks and credit card scanners are quickly being
phased out, and it's far easier to catch Covid these days than a cab
at the corner. It's brutal to realize that you're a buggy whip.
Cutting the cord won't simply be a cable TV phenomenon for much
longer, even if cable is the all-time leading grudge buy and the current league
leader in getting dumped. Streaming packages like Netflix aren't too far behind. Nobody needs four
different streaming services. These days every consumer is looking to save
money, eliminate old and useless bundles, and free themselves from
"ghost" subscriptions. There's even an app called Truebill that
helps people tap and toss these unused and un-useful artifacts.
Interestingly enough, the likelihood that buyers in any given
market will wake up one day and drop a certain product or service is highly
variable and depends on a number of key factors. The key determinants include:
(a) how often purchases are made, (b) how frequently the consumer otherwise
interacts with the service, (c) how significant (emotionally or dollar-wise) the
amount of the purchase is, (d) how different or costly the service is compared
with other available offerings, and (e) how easy it is to switch. This is why
the cable providers were fat and happy for so many years since it was harder -
especially given exclusionary territorial protections - to dump your cable
service than to divorce your spouse. Life insurance is another one of these
areas where the insurers' basic philosophy is - no pun intended - to let
sleeping dogs lie until they die.
For other players, there are still opportunities to react and
respond to the oncoming changes in their particular marketplaces if they're
mentally prepared to take the necessary steps and make the required changes.
But the moves they make can't simply be more of the same. Sadly, our view of the future is too often limited in
perspective and limited as well in considered alternatives by our existing
reference points. Adding commoditized offerings readily available elsewhere to
increase weight and volume is really nothing more than an effort to build
bigger, boring bundles, which won't excite anyone. Even a big box of the
best candles is no match for a light bulb.
If the proffered responses are tepid and tentative, there's very
little chance of serious adoption by current customers and few realistic
prospects for material success. It makes sense to constantly be looking
for adjacencies and opportunities to land and expand and
to add new revenue streams to your base, but these enhancements and extensions
are likely to be only modest movers of the needle.
The example I most often use is the American Automobile
Association (AAA), which has around 57 million members nationwide. When I was
growing up, AAA provided two primary benefits. The first offering was TripTik,
which was basically a loosely bound set of sequential road maps that would show
you how to drive from Point A to Point B. It also served up information about
all the interstate attractions you might enjoy along the way as you and your
family shuttled from one set of Golden Arches to the next. The second service
was Roadside Assistance, which offered towing, flat tire changes and battery
boosts.
Both services made sense and provided real value at a reasonable
annual cost to millions of AAA "members" until the arrival of free
turn-by-turn navigation on every cellphone. Auto manufacturers then included
in-car guidance and emergency notification features as standard equipment.
Similarly, every upscale manufacturer has incorporated towing and other
roadside services in their basic support packages for owners along with the assurance
that they would be dealing with experienced support personnel from local
dealerships rather than some random tow truck guy.
Unfortunately, AAA's response has been mainly more of the same.
Offering home and renters insurance has basically been a bust with less than 1%
of their members signing up. Car loans, credit cards and mortgage
services haven't done much better and random travel services and purchase
discounts didn't make a dent. There were simply no compelling reasons
sufficient to overcome the consumers' eventual indifference. And, of course,
there was nothing new to see or offer. To move the needle in cases like this,
you've got to jump ahead and leapfrog the mass of commoditized competitors.
Porsche did it right by forming a partnership with Mile
Auto to offer pay-by-the-mile Porsche-branded auto insurance to
its high-end owners, whose annual mileage was always a tiny fraction of the national averages. This
was a clear benefit, a carefully differentiated offering, and a real savings
and service to its owners.
AAA needs to find similar prospective, rather than reactive,
solutions. A perfect example of a next generation offering that would be ideal
for them is a startup called SparkCharge which
provides EV charging anytime, anywhere. This enables customers to charge their
electric vehicles on demand and without the grief and hassles of finding the
"right" charging station, hoping that it's not occupied, and waiting
for the charge to be completed. They can be in a meeting, at a
restaurant, watching a movie or a ballgame and know that their vehicle is being
serviced at the same time.
It's a perfect fit for AAA's customers now and even more so in
the future and a great marketing channel for SparkCharge to reach millions of
precisely targeted prospects at little or no cost. There's nothing better or
smarter for a new business to do than to ride someone else's already-built rails.
The bottom line is that sticking more of the
same old stuff into your offerings might make your marketing people feel like
they're keeping busy and earning their keep, but it's not an effective
strategy. It's like talking back to the TV. It may make you feel better,
but it doesn't make a difference. If you've got nothing new, you've got nothing
going for you.
