How do you "lock in" customers?

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Tim Johnson

42 posts since
Jun 24, 2010

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Aug 9, 2010 12:26 PM

How do you "lock in" customers?

I read Dan Druker's Intacct blog post (http://bit.ly/dhFLST) about the Lawson CEO predicting the collapse of SaaS and got me thinking about old and new models of customer lock in. ERP and enterprise systems management firms (BMC, CA, Quest, et al) were built on locking a customer into their technology by making switching costs so huge. The cost of switching from your ERP system or job scheduler were so extreme that few customers put themselves through the pain of changing to something newer or better. The enterprise companies took advantage of that, especially at renewal time, by not spending much effort or time on customer service or innovation.

Today, with switching costs plummeting (though still not zero) due to SaaS, data migration technologies, etc., I see that old model of locking customers into a technology crumbling. What are some best practices you use to keep your customers happy and using your stuff? What new things have you or your company had to do or learn to retain customers?

Thanks.

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Tags: thought_leadership, product_marketing

Ivan Chalif
2 posts since
Feb 4, 2010

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Aug 9, 2010 9:09 PM (in response to Tim Johnson)
Re: How do you "lock in" customers?

Building complexity and technical challenges into products used to make it easy to capture long-term customers, but keeping customers because they are "locked in" to a product, solution, or company is short-sighted. How much business will you lose because a long-time customer you use as a reference says the following to a prospect, "When we first bought the product, it was great for us, but over time it hasn't kept pace with the competition and we constantly have to escalate issues to them for the most basic functionality. I'd switch to competitor X, but my manager thinks it will cost too much to switch, so we are stuck."

If you want customers be be locked in, build a great product. Solve their problems. Make usability a focus instead of an afterthought. Follow up with customers who are heavy users of your Support services.Make it easy to integrate with their other systems.

Great products don't need gimmicks to lock in customers. They'll stay customers because they WANT to use your software.

Ivan Chalif

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- Tim Johnson
  42 posts since
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  Aug 9, 2010 10:26 PM (in response to Ivan Chalif)
  Re: How do you "lock in" customers?
  
  Ivan,
  
  Thanks for the reply. I agree but my question was more about techniques or systems you use instead of complex software. Have the companies you've been with always had this attitude? Have you had to persuade people to think this way? What have you done to keep customers that has been more effective than others (specific examples, please)?
  
  Thanks.
  
  Tj
  
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Bertrand Hazard
36 posts since
Jun 27, 2010

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Aug 10, 2010 1:12 PM (in response to Tim Johnson)
Re: How do you "lock in" customers?

The best way for customers to be loyal is to develop a strong relationship with them, in particular one of trust. I have found that building a private community for our customers and partners to be one of the most effective way to do that. This is a place where customers can exchange with their peers, share their best practices and find ways to solve their pains. Now and having said that I also think that in this age of advanced technology, customers are also putting more and more emphasis on the human aspect i.e. personal touch and when it comes to decisions of whether buying a new software or renewing a maintenance contract, what matters most is whether the customer believes or not that the vendor will be there for him / her when he / she needs it (whether by solving his immediate problem, listening to him and considering his request for new features in next releases etc)

Bertrand

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- Tim Johnson
  42 posts since
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  Aug 10, 2010 11:21 PM (in response to Bertrand Hazard)
  Re: How do you "lock in" customers?
  
  I think we're all in agreement here but I'm interested in how receptive the rest of your company is to these ideas and practices. Have you hit any roadblocks or speed bumps within your own company or group? If so, how id you overcome them? In the Lawson case, the CEO is stuck in a paradigm from the past. How would you convince him to move to this way of thinking?
  
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  - Matt Green
    76 posts since
    May 25, 2010
    
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    Aug 12, 2010 4:10 AM (in response to Tim Johnson)
    Re: How do you "lock in" customers?
    
    I am also in agreement with you guys. Build a great product and the customer will not look for somewhere else to go...even if the another option is cheaper. This is particularly important in the age of SaaS, open standards, and open source. That being said, as all of the vendors and open source alternatives come to parity with features, one of the best ways to differentiate your product and insure customer stickiness, is to make sure your company feels approachable. I met with a customer just yesterday that said he stayed with us instead of open source because of our personal touch and product quality. We achieve this in many ways
    Customer satisfaction incentives
    Sales teams develop an ongoing relationship
    Social media - blogs, podcasts, youtube, twitter, facebook
    Customer events
    Users groups participation
    User communities
    
    I believe that large companies need to try to feel like a small company to the customer. Customers of every size want to feel like the are special, and important. They want to feel like they are part of a community of users. Being approachable and having many ways into the organization seem to help this.
    
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    - Tim Johnson
      42 posts since
      Jun 24, 2010
      
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      Aug 12, 2010 10:21 AM (in response to Matt Green)
      Re: How do you "lock in" customers?
      
      I've tilted at my share of windmills in my time, some to the detriment of my immediate employment, but I'd like to revisit the example of the Lawson CEO and other areas where the company is stuck in the old paradigm or not willing to recognize and embrace sea changes in the market. The Lawson CEO is a guy who's simply in denial, IMHO, and needs a wake up call about new and better ways to retain customers. How do you get that message across to them and still keep your job?
      
      I watched my second episode of Undercover Boss last night and it is an intriguing show. The premise is the CEO goes incognito into his own company for a week to see how things are going by working as one of the average Joes. I thought the show would be inane or fascile but it is really intriguing. It takes a lot of guts for a CEO to discover and accept that not all the bits of their well-oiled machine are running smoothly. Short of having the producers of the show call your CEO, what other things can you suggest for pointing the way (that doesn't include pointing to your own Exit sign)?
      
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Jim Holland
1 posts since
May 24, 2010

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Aug 12, 2010 2:32 PM (in response to Tim Johnson)
Re: How do you "lock in" customers?

The comments thus far are great and I agree. One element that often overshadows great products and the teams that have their market evidence and sizing in hand, is sales. Historically, sales management looks for ways to "lock in" customers. This happens with long-term or enterprise-style contracts, or other license models tied to a duration and not the success the product.

The downside to this approach can cause undo vendor expectations where a minority of customers who has signed up for "the long haul" believe they have clout, priority and often set demands and expectations because they've "bought in." Recently, I've seen cloud and SaaS-based offerings experience some backlash from the same type of practices.

My advice to product management is to lead the pricing, packaging and lifecycle conversations ahead of any go-to-market activities. Product management and the leadership team has to come to an agreement that "special deals" whether they are large revenue producers, cannot drive the success of the product and its roadmap.

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Tom Grant
55 posts since
Sep 16, 2009

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Aug 25, 2010 10:33 AM (in response to Tim Johnson)
Re: How do you "lock in" customers?

After reading this discussion, got so fired up about the topic that I wrote a blog post about it. FYI, I found this thread to be far more useful and credible than a lot of commentary about switching costs/lock-in from Very Important People.

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- Matt Green
  76 posts since
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  Aug 25, 2010 10:50 AM (in response to Tom Grant)
  Re: How do you "lock in" customers?
  
  Great post Tom.
  
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- Tim Johnson
  42 posts since
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  Aug 25, 2010 11:10 AM (in response to Tom Grant)
  Re: How do you "lock in" customers?
  
  Wow, a blog to a forum topic to a blog! Great post.
  
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Peter Burris
5 posts since
Jul 14, 2009

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Aug 25, 2010 5:00 PM (in response to Tim Johnson)
Re: How do you "lock in" customers?

I think you have to start with this premise: Everything the vendor does has to be in service to the customer's outcome. If you start from that perspective, you realize pretty quickly that SaaS (as Tom Grant argues elsewhere in this thread) is a delivery model. Increasingly in the tech industry, a great delivery model is necessary for success, but it is not, nor ever will be, sufficient.

The key to sustained revenue engagement (a more PC term than "customer lock-in") is to look at SaaS not as "Software as a Service" but as "Service as a Software." That way we're constantly focusing on the continuous utility received by the customer (the good or bad product) and the things we have to do to render that utility convenient for customers to exploit (the delivery model).

Maybe that will include delivering the Service as a Software on some binary distribution media. Why not? We also think that the industry will have to start recognizing that:

offering = product + channel.

We're in the midst of a pretty significant piece of research on a Big Idea that is built, in part, on these exact concepts. Anybody that wants to discuss it, ping me.

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- Matt Green
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  Aug 26, 2010 3:06 AM (in response to Peter Burris)
  Re: How do you "lock in" customers?
  
  This is good Peter. I don't, however, understand how the concept that a product offering is the product plus the delivery channel is a big new idea. It seems to me to be obvious unless there is some subtleness that is lost on me. Maybe you should start a seperate topic on this. I woud like to discuss it.
  
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  - Bertrand Hazard
    36 posts since
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    Aug 26, 2010 4:32 AM (in response to Matt Green)
    Re: How do you "lock in" customers?
    
    I agree with Matt. I am not sure what's new in this concept. In our company we even go one step further to talk about the 'whole product' which includes software, know-how, communities and partnerships. This is our overall focus and delivery is one critical component in that equation but they are many more. I'd like to hear more.
    
    Bertrand
    
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    - Matt Green
      76 posts since
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      Aug 26, 2010 4:37 AM (in response to Bertrand Hazard)
      Re: How do you "lock in" customers?
      
      We are very much the same. What we call is product is the entire ecosystem that sourrounds it; product, channel, community, partners, training, professional services, marketing updates, etc.
      
      So why is product plus channel so new?
      
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  - Tim Johnson
    42 posts since
    Jun 24, 2010
    
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    Aug 26, 2010 11:24 AM (in response to Matt Green)
    Re: How do you "lock in" customers?
    
    I also agree with Matt. I've seen compartmentalized thinking when it comes to "the channel" but less and less so over the years.
    
    I'm guessing but I suspect that your definition of the 'product' element may encompass what some others are citing as separate elements: community, knowledge base, etc. If that is the case, then thinking of 'offering' as the whole product my be new to a lot of people.
    
    Start another thread and tell us more, please.
    
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  - Peter Burris
    5 posts since
    Jul 14, 2009
    
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    Aug 28, 2010 8:12 AM (in response to Matt Green)
    Re: How do you "lock in" customers?
    
    Whoops! The big idea that I referred to is not O = P + C, but rather incorporates that concept. The big idea is more focused on the "everything in service to a customer's outcome" concept. But I think the two are very much related.
    
    Great feedback from everyone on O = P + C. If it's well know, well understood, and consistently applied, then we can just assume it as we build out the implications.
    
    Per your suggestion, I've started another discussion thread. Let's see where it goes.
    
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    - Sundar Ramanathan
      2 posts since
      Sep 23, 2010
      
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      Sep 23, 2010 9:34 AM (in response to Peter Burris)
      Re: How do you "lock in" customers?
      
      Interesting discussion on comparing Busness Solutions rendered thru' SaaS versus Building it with Custom or Commercial Off The Shelf [ COTS] software /Hardware stack of products/services. The Total Cost of Ownership and Business Outcomes [ sometimes the Business process changes have been rapidly ocuring in the SaaS model vs COTS/custom builds] can only determine the real benefits. Some of enterprises running multiple unsuported versions of software and hardware are taking a hard look at these SaaS solutions. Too much variability and failure to deliver/deploy global solutions are also driving some clients. Customers lock-in by IT vendors using a multi-year license renewals cannot be pooh-poohed with SaaS model replacement without estimating and evaluatinng Total costs and Business Process change accomadation [ or there will be more siloed apps sitting behind SaaS solutions...]. Keeping the Enterprise benefits in terms of Business Outcomes with appropriate measures and metrics can be very helpful for the Enterprise Solution transformation to SaaS vendor solutions [ not SaaS vendor promises..]
      
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Jason Whitehead
1 posts since
Sep 24, 2010

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Sep 24, 2010 12:30 PM (in response to Tim Johnson)
Re: How do you "lock in" customers?

This is a great topic. The move to SaaS question has indeed triggered the need for a paradigm shift. By lowering the costs to switching systems software vendors have inadvertently shifted customers focus from the total cost of ownership (TCO) of a system to the value created from the system/return on investment (ROI). What this means is that software vendors can no longer rely on selling the features and functions of the system, instead vendors must ensure the system is used in such a way that it actually delivers measurable business results to the customer. Quite simply, this means that vendors can no longer just deliver software, they must deliver value.

VENDOR PARADIGM SHIFT
The shift to focus on customer value creation has major implications for vendors:
Vendors must help customers drive and sustain effective user adoption of their system over the life of the contract. Full, effective and sustained user adoption is on the critical path to customer value creation (and, in turn, customer retention).
Most vendor approaches to software implementations use a “go-live and go-home” approach. Vendors need to change their customer engagement strategies to include ongoing efforts to sustain adoption and measure value creation/ROI.
Vendors need to consider re-aligning sales incentives from a focus on closing the initial sale to instead focus on retaining long-term customer renewals.
One of the biggest challenges vendors face is that while they often have great software and skilled technical, training and consulting staff, they often lack the knowledge and skills necessary to drive and sustain user adoption over the long term. Vendors also struggle with the realization that traditional approaches to training and change management, which are typically focused just on the initial go-live, are not sufficient for driving and sustaining user adoption over the long term.

CLIENT EXAMPLE:
Here is a specific example of how one of our clients (a SaaS vendor) is addressing this issue. Our client was experiencing high customer churn at the end of their contracts and they found that one of the biggest drivers for this was due to low user adoption. After receiving multiple requests for help with adoption from their customers, our client engaged us to deliver our on-site seminar, “User Adoption Fundaments”. Through this class they quickly realized the myriad organizational and human performance issues (not technical issues) affecting user adoption that they need to help clients address if they are to increase user adoption and retention. We are now working with them to help develop a user adoption professional services capability they are introducing to their clients. It is anticipated that this new capability will provide several benefits such as: reduced customer churn, additional professional service revenue, increased opportunities to up-sell and cross-sell customers, and increased customer satisfaction.

ADDITIONAL RESOURCES:
I have written several blog posts on related issues that might be of interest to your readers.
What is IT Success?
Accelerating User Adoption
Does Your User Adoption Methodology Remove Organizational Barriers?
The Death of SDLC
The Myth of User Resistance
The Business Case & User Adoption

I look forward to hearing more examples of what other companies are doing about this challenge.
Jason Whitehead

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- Tom Grant
  55 posts since
  Sep 16, 2009
  
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  Oct 13, 2010 6:51 PM (in response to Jason Whitehead)
  Re: How do you "lock in" customers?
  
  I'll second what Jason just said. The question for SaaS vendors should not be, "What new tactics can we devise to keep our customers entangled with us?" It should be, "Now that we have an opportunity to learn how people adopt our technology, let's use these insights to build a better value stream." Or, to use an October metaphor, less trick, more treat.
  
  Since I just published something about SaaS, I'll quote myself:
  
  Those are but a few ways in which SaaS removes many of the mysteries about the adoption process. At the same time, adoption becomes a central business concern, the key to maintaining a healthy revenue stream. Therefore, adoption is a central concern of both product managers and marketers in an on-demand world. As a vice president of PM at a large software company said, "We must be really good at thinking from the user's point of view, and we have to get it right immediately."
  
  The most productive way to talk about the effects of SaaS on the lives of product managers and product marketers, I found, was to put it in the context of the innovation process. It became clear quickly, based on interviews we did with PMs, that SaaS had the biggest impact in the adoption phase. If the PMs working on a SaaS product aren't putting a significant amount of time and effort into figuring out why and how customers adopt their technology, then they're doing something wrong.
  
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Steven Lewis

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Jan 31, 2011 4:54 AM (in response to Tim Johnson)
Re: How do you "lock in" customers?

With increasing competition and expanding markets, converting customers to loyal clients is definitely a difficult task. Business reviews((http://www.ratepoint.com/) is one strategy that can help in your efforts to build loyal customers. Create a space for your existing customers to write a business review for you, explaining their experience they had while dealing with you and why they decided to buy from you. This will be a great way to convince prospective customers that you are the right choice.

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