Marketing in the Usage Economy
By : Dr. Vinod Vasudevan
The usage economy brings new challenges demanding new solutions for data-driven marketing. Customer data analytics – descriptive, predictive and prescriptive analysis of customer behaviour – helps enterprises to develop a deep understanding of their customers, predict their wants and needs and act in a manner to meet customers’ expectations. By this, enterprises strive to generate longer, deeper and more valuable customer relationships.
The type of business determines customer behaviour. As compared to asset sales business, enterprises offering usage models have richer customer data needing more sophisticated treatment. In a traditional trading business, assets are purchased from enterprises and once purchased the ownership and almost all associated risks are transferred to the consumer. After this discrete ‘purchase & transfer-ownership’ transaction, the enterprise goes on to the next transaction. Business, essentially, is then a collection of such discrete transactions and the goal of marketing is to increase the number of such purchase transactions. That is, the customer behaviour to be influenced is (discrete) purchase transactions and the most important historical data for this is the past (discrete) purchase transactions.
In a usage economy the consumer only “uses” the services and does not purchase the asset. The ownership of the asset and associated risks in delivering the services rest with the enterprise. The consumer pays for using the service, typically based on quantity, quality, time of use etc. Business is then determined by how much, when and at what quality the consumer uses the services – that is, the usage pattern. The goal of marketing is to increase what the customer pays by changing the usage pattern to one with higher value. The historical usage patterns reflecting the type of service, quantity, quality, context of usage, the sequence of usage, etc. as well as consumer characteristics decide the marketing actions to encourage higher value usage patterns.
A telecom CMO characterises the difference as “If I sell a telecom subscription to a consumer, I have to serve him for life, unlike if I sell a shirt to him”. Telecom is, indeed, a prime example of subscription business; other examples are Banking, Utilities, Transportation, Ride Sharing, Mobile Payments etc. All retail industry, including e-commerce, is the traditional sales model. There is no real usage pattern when a consumer purchases a laptop, a clothesline and a collapsible ladder from a (r)etaier, but only discrete transactions. It is, however, true that today most businesses exhibit mixed characteristics with loyalty programs by retail, one off sales by Telco etc. Also, there is a growing trend of traditional sales moving to subscription (e.g., DollarShaveClub now part of Unilever) or enterprises introducing some level of subscription elements (e.g., Amazon Prime, Loyalty programs etc.) in their business.
The goal of marketing in a usage-based business is to encourage a higher value usage patterns whereas in the asset sale-purchase business it is to encourage more discrete purchase transactions. Future behaviour is determined by analysing past behaviour and the former must analyse past usage patterns and the latter past discrete purchase transactions. Enterprises already in as well as those planning to enter the usage economy must recognize this difference and plan their marketing strategy accordingly.