The new dimension of business competition

The way companies create sustainable business competition has forever changed

  • The internet has up-ended the core dimension of business competition

  • Companies used to win by mastering distribution - the act of physically making a product available

  • The internet has made distribution a non-event, especially for digital goods where it's free

  • Transaction costs are now also essentially zero - eCommerce vs many stores

  • These mechanisms have moved the basis for business competition from distribution to user/customer retention

  • To win in this new dimension of competition businesses need customer loyalty

  • There are three core drivers of loyalty (a) having a good product, (b) being in a loyal category (replacement razors, Nespresso), (c) designed loyalty programs

  • Loyalty programs are therefore increasingly critical to be a successful modern business

  • The core loyalty program categories include (a) transactional - buy stuff, get more stuff for less (b) experiential - buy stuff, get access to interesting stuff, (c) fundamental - access our products and services easier through our loyalty program

  • Transactional examples: Sophora, AMEX, Coles Flybuys, Qantas Frequent Flyer

  • Experiential examples: Nordstrom, The North Face VIPeak Rewards, Audi

  • Fundamental examples: Starbucks, Disney MagicBand, Bonobos (or any Digitally Native Vertical Brand), Nike Plus

  • People are bombarded with loyalty card offers and messaging and need value beyond a transaction - buy our stuff and we'll give you more stuff

  • Loyalty programs are increasingly me too and people are bored of it

  • The businesses that create sustainable competitive advantages via loyalty programs will do so via fundamental programs

  • Fundamental loyalty strategies don't look like a traditional "loyalty program" look at the examples given above, these guys have woven their loyalty programs into the fabric of their business

  • These next-level loyalty programs require their own value proposition which is deeply entrenched in the businesses' values, and that align with something the businesses' highest value customers care about

  • They are a product/service in their own right

  • Fundamental loyalty programs can therefore be thought of as a glue that sit above a brand's product/service that drives competitive advantage through user/customer retention

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