When Apple launched iTunes 18 years ago, it rapidly became a category killer, reshaping music sales and demolishing compact discs, music retailers and the music libraries that many of us had collected. Yet now the once-domineering music pioneer has itself been disrupted and is shuttering.
What happened? And how can any firm learn from iTunes' voyage? Are there lessons we can all apply to helping us adapt faster than our clients and competitors do?
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In the early stages of the digitization of music, companies like Napster provided free (pirated) music downloads for whoever wanted to run the legal risk. Apple very quickly reshaped the music industry by understanding that providing a legal, convenient way to take your music with you would be a service for which consumers would pay. But companies like Spotify and Pandora used Apple's own playbook against it, ending the 20-year reign of iTunes.
Here are a few of the most important ideas that help us understand how change consumers' habits.
• Convenience rules. iTunes made it easier to have all of your music with you, easier to play what you wanted. Overnight it became a lot more convenient to create a playlist than a mixtape (you younger folks can look that one up, but it helped convince my wife to become my girlfriend many years ago).
By the same principles, music-streaming services and global 4G allow us to listen to any song we feel like. Personalized stations mean not even having to create a playlist. As wealth managers, we need to remember the power of making things easy for our clients.
• Low-commitment entry point. Most disruptors (and advisers) fail to win the client because they require consumers to make a binary choice. Great change agents understand that trying something new has a "cost" associated with it.
iTunes allowed you to digitize your existing musical library. That was its brilliance: You paid nothing to transition your music and then you'd buy all future music on the new format, on your new iPod. Then Pandora came along and applied the same rules, adding a robust, free streaming service with subscription upsells to no commercials and individual song selection.
Most firms in our industry have no "low-commitment" version for consumers, which means it's all or nothing, us or them. Great change agents start by allowing clients to change very little of their preexisting preferences by providing a service that is an enhancement to what they already have at very low cost. It's all about "and," not "or." This lays the groundwork for a clear strategy to enhance services and revenue over time.
• Design around consumers. Over time, the once-sleek user experience of iTunes became overloaded with movies, TV shows, games, music videos and other cumbersome add-ons. The famous design ethos that makes Apple the envy of the tech world had crumbled.
The shift from music product to entertainment platform was not well-handled. Once consumers feel confused, they become vulnerable to change. Compare the dashboards of Spotify and iTunes, and it's easy to see why the latter lost.
So how well do your clients understand what you are doing for them? How easy is it for them to interact with you? Most wealth managers overcomplicate the work they do with their clients, and that creates an opening for any firm that has built their service around making it engaging and easy for customers to interact and understand the services they receive.
The indispensable adviser
Most financial advisers spend too much time internally focused and not enough time looking at industry shifts in other sectors. After all, independent firms have incredibly high retention rates, so why worry?
Do not make the mistake of confusing high retention rates with a competitive client offering. If you have been providing financial advice, planning and investing for a long time to your clients, then the cost to leave is very high for them.
The best way to gauge how well you are positioned and whether you have a competitive offering is by measuring how many new clients you are bringing in, especially those who have been working with other advisers.
So how do you get these prospective clients to make a big shift away from their existing relationships? Make your firm easy to work with, simplify their lives, and be better than the competition. And if you want them to stay, never stop evolving along with them.
(More: Winning in a crowded field)