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To keep a customer in line, simply use a club

The Business World
IT IS club time in the business world. A few days ago a couple of bottles of wine were delivered to the door. I hadn't ordered them, nor were they some PR exercise because I was a journalist. No, they came with the compliments of a club in which I happen to be an ordinary member as recognition of my supposed loyalty to it. But this was not a club in the normal sense of the word - it was the British Airways Executive Club, hardly an exclusive preserve to judge by the hordes passing through BA's lounges.

But the wine illustrates a point. Companies want to become clubs, or at least to persuade their customers they are not just purchasers of services but involved in some kind of relationship. There are clubs that want to become companies, or rather in the case of the RAC, are prepared to be taken over by them - assuming that the sale to Lex Service Group agreed last week goes through.

What's up? What's wrong with the old-style relationships? If you were a member of a club you did so because you had some form of common interest with the other members. You did not think of yourself as a customer of the club, though you might buy some services from it. If you were a customer of a commercial company you had a purely commercial relationship. You paid for what you wanted, and you did not think of yourself as having some kind of common bond with other purchasers. All I have in common with other members of the BA Executive Club is that we have jobs that require us to spend a lot of time sitting on BA seats.

What has changed is information, or rather the importance of it. Almost every business in the world is trying to find ways of stopping itself being a seller of a commoditised product: if you are selling only on price there is room for only a tiny number of large-scale, very-low-cost producers. If you are one that is fine, but for the majority it is misery. Somehow you have to find a way of preserving margins.

The traditional way of so doing was either to brand or to innovate: to nurture to command a premium or to develop niche products or differentiated ones. But there are limits. If you have a strong brand it's great, but if you don't you are in peril. In any case people have become resistant to excessive product development, aka product churning.

So if you can't differentiate your product, you differentiate your customer. You turn him or her into a member of a club. Exploiting membership by cross-selling requires information but club members seem more willing to provide that information than regular customers - even if the "club" is only your local supermarket.

Don't laugh. Tesco has managed, by creating its pseudo-club, not only to build a successful retail bank but also to run the magazine with the largest circulation in the country, 10 million. It works.

As for established clubs, their members are assets. The RAC is remarkable in that it also happens to have enormous business assets too. But that business would not have been able to grow to its present size without the membership base on which it could build itself. So where might this convergence lead? There seem to me to be several possible lines of development, as information technology and telecommunications improve. Here are five ideas.

First, it becomes possible to run virtual clubs of like-minded people around the globe. Physical and national barriers have become irrelevant.

Second, it becomes possible to slash communications costs. Up to now the cost of communicating with club members has limited the amount of interaction that can take place between the centre and the periphery, while it has been virtually impossible for members to share thoughts with other members. Now Internet-related technology exists that can bind together existing clubs and drop the entry costs for those who wish to create new clubs.

Third, people seeking to create new businesses may start by creating new clubs. Once you have identified the common interest or need and then assembled the potential members, you may find you have created a business without knowing it.

Fourth, all businesses will seek to create some element of the club with their customers in the sense that they will seek to have a continuing relationship with them. When you had to mail your customers, keeping a database of them was expensive and the costs of running after-sales service was prohibitive. Now it has become virtually free. And it is much easier to sell a new product to a previously satisfied customer than to go out and persuade a new one to buy.

Fifth, one important effect of this last point will be to speed up the shift of manufacturing into services, in the sense that manufacturers will move from selling products to selling services. They will still start by selling the customer the product, or maybe leasing it, but that will increasingly be merely the start of what the vendor hopes will be a continuing relationship. The customers and the products will be tracked, as though they were members of the manufacturer's or retailer's club. They will be given new product updates, continuing advice on the use of the product, details of similar products or services which might interest the buyer and so on.

The common theme here is that business is trying to move from dealing with customers on a transaction basis to dealing with them on a relationship basis. The question this raises is whether we, the customers, want this change. Do we really want to become members of what is presented as a company club, but is actually just another way to increase margins?

The answer to that will depend on whether the club provides a real service that people actually want. I don't particularly want a relationship either with British Airways or with my fellow Executive Club members. But it is a sight more useful to be able to drop into club rooms at airports all around the world when you are caught between flights than it is to trek over to one of the traditional clubs in Pall Mall for an indifferent lunch when you could have eaten better at a local restaurant.