Using services to help sell more products

Best Buy's Totaltech offering seeks to create a lasting bond with customers

Quick summary:

• Looking to sell more products? Consider revamping your service offerings!

• Companies that look for “flywheel” effects can rapidly boost revenues

• Membership models and subscription services can unlock lasting value

How one decision can lock in customer loyalty

With the end-of-year holiday season upon us, my wife Dani and I have been shopping for presents like many parents. As our kids have grown older, their wish list has become more expensive, and their technology needs greater: laptops, tablets, iPhones, etc. Our days of waiting in line on Black Friday at Best Buy for deals on flat-screen TVs are over: many of our holiday purchases are now made online on Amazon. Yet we sometimes go to brick-and-mortar stores to get a feel for major purchases such as appliances.

Recently, Dani and my youngest daughter Sienna visited Best Buy to look at new laptops. Sienna found one that is a significant upgrade over her old Chromebook and should last her through middle and high school. Dani called me from the store as she considered the options for a protection plan on the computer. In addition to the standard offerings, she told me about Best Buy's Totaltech membership. For just under $200 annually, Totaltech combines numerous service offerings into one, including:

• Free 24/7/365 tech support from their GeekSquad experts

• Up to 24 months protection plan for purchases

• Free 2-day shipping, delivery, and standard installation

• An extended time of up to 60 days to return items

• 20% discounts on labor for repairs

• Discounted pricing for members

Totaltech is modeled after Amazon Prime and the myriad of benefits offered for Prime membership. Wisely, Best Buy even suggests on their website to consider giving Totaltech as a gift for others.

Getting the best of both worlds: recurring revenue and increased customer loyalty

On the phone, Dani and I discussed the relative merits of Totaltech. The cost was high: $200 annually for a protection plan on a $1,000 laptop was certainly not worth the price. However, one appealing aspect of Totaltech is that the same protection plan also covers additional purchases at no cost. So part of the calculus was whether we expected to purchase more appliances and technology we would want to protect over the next year. We discussed our need for a new refrigerator and another laptop and decided that becoming a Totaltech member was worth the price.

Now that we are actively shopping for holiday presents, some of the implications of our decision to purchase Totaltech have become clearer, and the benefits to Best Buy are brilliant.

• Best Buy gets an additional $200 in revenue immediately

• This revenue recurs annually unless we decide to cancel - which would end the protection pan coverage for our new laptop and any new purchases we made

• Since the marginal cost of protecting new purchases is zero, we now have a strong incentive to start our search for a new refrigerator and technology at Best Buy

• Even if the price of these new products is higher at Best Buy, we are still likely to purchase from them because the cost elsewhere includes both the price and cost of their protection plan for a given product

The bottom line: we have now gone from periodic customers of Best Buy products to loyal customers, all because of a service offering.

Customers are valued; members are treasured

I have seen first-hand the mindset difference between customers and members for two decades while working at USAA. The company is a member-owned association, and customers are always referred to as members. The difference could cynically be viewed as mere semantics, but I firmly believe there is a tangible difference in the mindset of how you view those who purchase your products and services. Customers are transactional; the term implies a one-time engagement. A loyal customer may engage in multiple transactions over time. Members, by contrast, feel like part of your enterprise - they play an active and collaborative role in your success.

Author Robbie Kellman-Baxter wrote a book called The Membership Economy, which highlights the relevant distinctions between customers and members. Kellman-Baxter emphasizes a mindset shift from anonymous transactions to valued relationships, and modern technology, such as cloud computing and artificial intelligence, allows companies to develop relationships at scale. Customer acquisition costs are high, and it is cheaper to retain an existing customer than find a new one. By re-examining how your firm relates to your customers, it is possible to explore whether or not a more immersive, all-encompassing service offering such as Totaltech or Amazon Prime can help you both increase recurring revenues and customer loyalty simultaneously. Firms should spend as much time discussing business models as they do products and pricing; rethinking the right way to do business can yield outsize results quickly and cheaply without needing a significant capital investment.