The Membership Economy

What if you could build an ongoing, meaningful relationship with your customers, making them invested supporters of your business instead of one-time buyers?

1. The Shift from Ownership to Access

The rise of digital platforms has redefined how we consume products and services, focusing more on access rather than ownership. Instead of buying things to own permanently, people now prefer renting or subscribing for temporary access. This trend has grown due to the advent of internet-powered systems that make it easy to offer this kind of access.

Ownership often comes with responsibilities and costs. For instance, owning a car means paying for maintenance, insurance, and other fees. By contrast, subscribing to services like Zipcar or RelayRides, people can use a car only when they need it, saving money and avoiding the hassle of ownership. This trade-off appeals to consumers seeking convenience and flexibility.

Examples of access-based models span industries and services. Netflix and iTunes offer media on-demand; Airbnb makes temporary stays easy; and companies like Spotify offer streamed music for a monthly fee. The economy is increasingly centered on these shared systems, revolutionizing traditional concepts of possession.

Examples

• Netflix's subscription model provides entertainment without the need to buy DVDs.
• Zipcar gives customers short-term access to cars without the costs of ownership.
• Airbnb replaces the need to invest in a vacation home with temporary alternatives.

2. Membership is a Relationship, Not a Transaction

Membership businesses redefine the interaction between companies and their customers by establishing ongoing, reciprocal relationships. Instead of a simple transaction, where the relationship ends after a purchase, members are engaged over the long term, benefitting both parties.

These relationships come in many forms. For instance, Netflix uses digital subscriptions for recurring access to entertainment, while platforms like Facebook foster community membership based on shared interests. Membership involves a give-and-take: companies provide value, such as content or features, and members contribute money, data, or loyalty.

In addition to subscription services, many physical businesses have embraced the membership model. Gym memberships, library cards, or frequent-flyer programs foster dedication through benefits like discounts, special access, or accumulated points.

Examples

• Netflix offers continuous entertainment for monthly fees, creating an enduring bond with subscribers.
• Starbucks' loyalty program rewards consistent purchases with discounts or free items.
• Facebook gathers user data for advertising but gives members a free social platform.

3. Building Membership Through an Acquisition Funnel

Gaining members for a business requires a clear strategy that moves potential users through stages of awareness, trial, commitment, and loyalty. These steps form an acquisition funnel, gradually narrowing the group to those who become long-term members.

At the start, people must become aware of the company. This might involve marketing campaigns or word-of-mouth referrals. Next, they should have an opportunity to test or trial the service, helping them understand its value. From there, the goal is to convert trial users into paying members and retain them by offering consistent benefits.

Improving the funnel requires analyzing where drop-offs occur. For instance, if trials don’t convert into memberships, the company may need to offer better incentives or adjust pricing. Retaining members beyond their first month is critical, as longer initial engagement often predicts sustained loyalty.

Examples

• LinkedIn’s free trial helped users explore the value of creating professional connections.
• Netflix tracks where users drop out during a trial to refine their offerings.
• Dropbox offers free storage space to attract users, some of whom later pay for advanced features.

4. Onboarding Drives Engagement and Loyalty

When a member joins a service, the onboarding experience shapes their long-term engagement. A seamless start ensures members stay connected and begin to see the value of their membership immediately.

First, companies minimize obstacles at the registration stage. An easy, clear sign-up process reduces frustrations and potential dropouts. Once registered, members should receive instant benefits to hold their interest and encourage them to explore further. Finally, desired behaviors, like referring friends or contributing to the platform, should be rewarded to build loyalty.

Superusers, or members who are extremely active, often emerge through effective onboarding. By supporting new users early, companies can encourage participation, helping these members transform into advocates for the organization.

Examples

• Pinterest shows new users how to create and share pins, fostering creativity and continued use.
• Facebook’s suggestion of connecting with friends immediately after sign-up encouraged higher engagement.
• Subscription box services like HelloFresh reward referrals to encourage word-of-mouth growth.

5. Pricing Strategies Matter

The membership economy thrives on well-designed pricing models. Subscriptions work well because they create a steady income flow and allow users to pay for continued access over time without the burden of upfront costs.

Tiered pricing broadens appeal by offering packages with varying benefits. For instance, SurveyMonkey added higher-priced options, attracting a new demographic while retaining existing members in lower tiers. The key is to make pricing transparent—members should know exactly what they pay for without hidden fees, as trust is built on clear communication.

Although free memberships can attract large audiences, they also come with risks. Free users may later resist paying for a previously no-cost service. Napster’s failure to convert its free users into paying customers highlights why companies must consider this carefully.

Examples

• SurveyMonkey’s multi-tier pricing attracted new, higher-paying users.
• Adobe’s Creative Cloud subscription made expensive software affordable to more members.
• Napster’s free model failed because users weren’t willing to pay after legal changes.

6. Personalization Builds Loyalty

Membership organizations succeed when their members feel valued and catered to. By personalizing the experience, businesses can increase satisfaction and loyalty.

Many companies use data to tailor services to individual preferences. Streaming platforms like Netflix offer customized recommendations based on viewing habits. Simple gestures, such as providing options to tailor the interface or suggesting relevant content, go a long way in improving user satisfaction.

Offering top-notch customer support also helps members feel respected. Whether answering queries promptly or seeking feedback, action based on user needs showcases that the company truly cares about its community.

Examples

• Netflix’s personalized recommendations keep users engaged.
• Spotify curates playlists for individual listening preferences.
• Airbnb stores user preferences to suggest suitable accommodations.

7. Start-Ups Need Laser-Focus for Membership Success

Start-ups face a challenge when building a membership base: they need members for the product to be valuable, but members won’t join until there's value. Solving this "chicken and egg" problem requires a small and focused launch.

Launching with a narrow target audience helps start-ups cater to specific users, ensuring their needs are met. Facebook, for instance, focused solely on college students at first, making it easy to connect with peers. This created a concentrated value that could later expand to a wider audience.

Additionally, a start-up can offer a high-priority feature instead of a full-service option. LinkedIn started as a digital resume platform to serve a clear purpose before evolving into a networking hub.

Examples

• Facebook initially launched for Harvard students only.
• LinkedIn started as a simple resume-sharing platform.
• Airbnb began with shared apartments before growing into a diverse lodging network.

8. Determine If Your Business Can Adapt

Switching to a membership model doesn’t fit every business and requires careful analysis. The shift from selling a product to offering access must align with customer needs and market opportunities.

Before making the change, businesses should evaluate if their product benefits from access over ownership. Adobe, for example, thrived with its switch to cloud-based memberships since its users value flexibility. Additionally, companies must check for market gaps rather than entering an already-saturated membership field.

If the shift is feasible, pricing and communication are key. Updating pricing models to emphasize value and being transparent about membership benefits can cushion the transition.

Examples

• Adobe transformed its business model with its Creative Cloud subscription.
• Spotify succeeded by introducing easy access to music libraries.
• Traditional fitness centers embraced memberships, replacing the pay-per-use model.

9. Transparency Drives Trust

For long-term success in a membership economy, businesses must prioritize trust and clarity in their relationships with members. Transparency in pricing, policies, and benefits assures members that they’re not being misled.

During transitions to new business models, like Adobe's move to a cloud subscription, clear communication with customers eases the change. Companies should also be upfront about potential limitations or downsides of their services to manage expectations effectively.

By maintaining openness, businesses create trustful relationships, encouraging loyal members to stay and even advocate for the company within their circles.

Examples

• Adobe’s transparency during its cloud transition helped retain clients.
• Spotify’s pricing clarity made deciding on premium upgrades easier for users.
• Netflix’s clear cancellation policy reassured subscribers.

Takeaways

1. Analyze whether your existing business would benefit from a membership model by considering market demand and user preferences.
2. Make your onboarding process seamless to ensure immediate value and sustained engagement for members.
3. Maintain honesty with members about pricing, policies, and changes to build and retain their trust.