CRM Driven Business Models: The Economics

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John Maynard Keynes once said, “The difficulty lies not so much in developing new ideas, but escaping from old ones.”

Remember that — because I’m going to bite you with it in a second.

Let’s start with this premise: Most of the new business models that have been successful to date have a common characteristic — the companies that developed or used them ceded control to their customers. Everything they do started with that culture shift.

That seems hard to do, because CRM has been premised on the idea of a corporate-controlled business ecosystem, even if it’s customer-centric. Now the business ecosystem is controlled by the customer.

But what makes this somewhat different than past customer-driven business models is that the need for the transformation wasn’t due to a business change but a social one. The evolution of social media tools such as blogs, wikis, podcasts and social networks is changing the face of how we communicate as people and what kind of empowerment communication can provide.

What’s fascinating about this social transformation is how widespread it actually is. The May 2007 Pew Internet & American Life Project found that 51 percent of the respondents were actively using technology (mostly Web 2.0 media and the associated hardware) in their day-to-day work and play. Forrester Research in the late 2006 North American Consumer Technology Devices and Access Online survey found that when it came to Generation Y — no longer the customers of the future, but of the present — 15 percent of them were publishing blogs, 27 percent were reading them, 32 percent were viewing content on YouTube and 37 percent were visiting social networking sites.

While by no means a majority, consider this: Even as recently as two years ago, would you have had any idea what I was talking about?

The fact is that new business models have been created to capture the empowered customers’ personal wants, desires and needs. The reason is that the greater the emotional commitment from the customer, the more likely the ultimate customer — the advocate, aka the evangelist — will be the result.

The benefit of this can be seen in the Karmaloops model. Karmaloops is an online clothing retailer who uses the community retailing business model that is gaining ground particularly among e-commerce driven businesses. They understand that the power lies in the customers’ hands, so they focus their return on investment in the size of the community they build, not the dollars that are brought in. The company carries lines of clothing chosen by the customer, produces some clothing items chosen by the customer, lets customers review the clothing and makes decisions on what to stock accordingly. It gives customers the ability to upload and comment on pictures and other content provided by their hundreds of thousands of community members. This strengthens the bond between the company and the customer, because customers feel that they are participants in the company’s decision making.

But the beauty lies in what Karmaloops calls its “1 percenters.” These are the members of the community who have chosen to help the company sell its items. The idea is that successful sales or influence in sales by community members are rewarded with cash, credit and other compensation.

The success is staggering. Fully 15 percent of the company’s revenue can be attributed to the 1 percent who are engaged in this program. Think about that.

In other words, the customer controls the ecosystem; the company gets that and cedes that control. The company changes the culture and then the business model, accordingly, and then is widely successful by engaging that customer in the business of the business.

That’s what I’m talking about — and so is John Maynard Keynes. He realized that if you could give up the old ideas and open up to the new ones — even the self-evident new ones — the possibilities of success are incredible.

 

Paul Greenberg is co-chairman Rutgers CRM Research Center. He can be reached at editor (at) certmag (dot) com.

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