The Primitive Power of Recurring Revenue
:: By Adam Hanft, Aria Systems ::
You’re alone. You’re hungry. You’re in the dark. You’re crying. You want to be fed.
Oh, and one more, thing. You’re three months old and suddenly the one predictable reality in your life isn’t there anymore.
Why am I painting this picture? Because that baby I’m describing is in the midst of experiencing the emotional basis for one of the most important trends in the global economy: Recurring revenue.
I’ll explain shortly. But first, let’s agree that there is no shortage of buzz about the explosive growth of recurring revenue platforms, which includes everything from giants with immensely sophisticated billing needs like Verizon, Experian and Pitney Bowes, to start-ups like StudyDog and SavvyMoney.
Most of the current conversation revolves around the enormous value that recurring revenue represents from the perspective of the company behind it. And it's all true. There are huge economic advantages to the model, including predictability and the opportunity to drive meaningful lifetime value. We’ve all seen the data; it takes 6-7 times more money to acquire a new customer, than maintain an existing one.
But like so much else that goes in the often narcissistic business-to-business echo chamber, what’s missing from the dialogue is the consumer. The end user -- the person responsible for all the economic joys of recurring revenue. Whether they’re an individual subscribing to an ongoing credit monitoring service, or a middle-manager requisitioning a cloud storage platform they are just people, not machines.
And these people, all people, are hard-wired to experience pleasure in ritual and routine. It’s what psychologists call a neural imprint – one that was burned into our respective brains soon after we were born. When something we’ve been awaiting arrives on schedule, it triggers our dopamine and the pleasure centers of the brain light up, like we were back in the crib again.
That’s why rituals appear in every culture; they are stress relieving and pleasure-inducing behaviors that trigger the trust instinct in us. And that’s why long before the Internet, businesses based on repeat triggers – from Book-of-the-Month Club, to Harry & David, to Nutrisystem – thrived. In other words, recurring revenue is a comfort both to chief financial officers (CFOs) and ordinary folk, albeit it for entirely different reasons.
But just as reassurance is a powerful marketing strategy, so too are novelty and surprise. (Life is full of the truth of opposites.) It turns out that the brain has a “novelty center” – it’s called the substantia nigra – and is activated when we are exposed to things that we haven’t seen before. There’s also research that says our addiction to multi-tasking derives from this novelty-seeking impulse.
That combination embodies some invaluable strategic advice for those companies marketing products and services within the recurring revenue model. You need to balance the comfort and security of the predictable, with the unexpected and delightful. Just when the consumer is getting bored with ritual, change the game with a surprise message or gift or new product. Like any relationship, we want security and stimulation – they both communicate that someone has been thinking about you.
Now that the power that lurks in recurring revenue has been revealed, it’s a fun process to do some brainstorming about business opportunities that haven’t been invented and commercialized yet. Here are some examples with deep emotional resonance:
• Every year, in October and November, millions of people spruce up their houses in anticipation of entertaining family for the holidays. So, how about a subscription service where painters would show up like clockwork, every year, for two days of touch-up work. It could be a new business, or a recurring revenue model created by Home Depot.
• How about offering a subscription where a professional photographer would take pictures of your kids as they grow up, twice a year? What more powerful psychic motivation could there be than that?
• Employee recognition is a massive, innovation-free $20 billion dollar industry. But it’s structured in such a clinical, joyless and impersonal fashion that it often fails on its mission of lifting performance and improving engagement.
But imagine a model that combined predictability and surprise in a new way: corporations would sign up for a service that sent employees rewards and incentives a specific number of times during the year. It could be based on performance, on a big win that everyone contributed to, or just a random act of generosity. Employees would look forward to their five gifts during the year, like a kid looking forward to their birthday,
When you start to widen your aperture about recurring revenue, and recognize the need it serves, you will get creative about optimizing the programs you have, and innovating new ones. Just remember the anticipation of that crying baby, and you’ll find new ways to leverage technology in the service of the primitive. What could be a more effective combination than that?
Adam Hanft is founder of Hanft Projects, a NYC branding firm and a consultant to Aria Systems - the expert in recurring revenue management solutions for the enterprise. Mr. Hanft is a marketing expert, cultural critic, and advisor to many leading digital and consumer packaged goods companies.