Introduction
In today's fast-paced, interconnected world, the way we consume products and services is changing dramatically. Gone are the days when owning things was the primary goal for most consumers. Instead, people are increasingly seeking access to products and services without the burden of ownership. This shift has given rise to what Robbie Kellman Baxter calls "The Membership Economy."
In her book, Baxter explores how businesses can adapt to this new reality by embracing membership-oriented models. She provides insights into how companies can create lasting relationships with customers, turning them into loyal members who provide recurring revenue. The book is filled with practical advice, real-world examples, and strategies for businesses looking to thrive in this new economic landscape.
The Rise of the Membership Economy
From Ownership to Access
The traditional economy has long been built on the principle of ownership. When customers buy something, they have complete control over it. They can modify it, sell it, or even destroy it if they choose. However, ownership also comes with responsibilities and costs. Take owning a car, for example. You have to pay for maintenance, taxes, insurance, and parking.
But what if you only need a car occasionally? This is where the concept of access comes into play. The internet has made it easier than ever for companies to offer access to products and services without the need for ownership. Companies like Zipcar allow members to use cars when they need them, without the hassle of owning one. Netflix provides access to a vast library of movies and TV shows without the need to buy DVDs or Blu-rays.
This shift from ownership to access is at the heart of the Membership Economy. It's not just limited to cars and entertainment; it's happening across various industries. From software (Adobe Creative Cloud) to accommodation (Airbnb), companies are finding ways to offer their products and services through membership models.
The Power of Ongoing Relationships
In the traditional economy, the relationship between a business and its customers often ends at the point of sale. You buy a hammer from a hardware store, and that's it. The Membership Economy, however, is built on ongoing relationships between companies and their members.
These relationships can take various forms:
- Subscriptions (like Netflix)
- User IDs (like Facebook)
- Membership cards (like gym memberships)
The key difference is that members have a stake in the company. Both parties gain something from the relationship, but they also have responsibilities. Netflix provides access to content, but members need to pay a monthly fee. Facebook offers a platform for social interaction, but users provide their personal data in return.
Baxter identifies four main categories of membership-oriented businesses:
- Digital subscriptions (e.g., Netflix, Spotify)
- Online communities (e.g., Facebook, LinkedIn)
- Offline loyalty programs (e.g., Starbucks Rewards)
- Traditional membership companies (e.g., banks, phone companies)
Each of these categories has its own unique characteristics, but they all share the core principle of fostering ongoing relationships with their members.
Building a Successful Membership Business
Attracting New Members
For any membership-oriented business, attracting new members is crucial. Baxter suggests using an "acquisition funnel" approach, which consists of four phases:
- Awareness: Reaching out to people who know about your brand but haven't engaged yet.
- Trial: Offering potential members a chance to try your service.
- Sign-up: Converting trial users into actual members.
- Long-term loyalty: Retaining members and turning them into loyal customers.
To improve this funnel, Baxter recommends starting at the bottom and understanding your target member. Then, track how many potential members make it through each phase. If you notice a significant drop-off between phases, you've identified a "hole" in your funnel that needs to be addressed.
For example, if many people try your service but don't sign up, you might need to adjust your pricing or contract terms. It's also crucial to focus on retaining new members, as those who stay for at least 30 days are more likely to become long-term members.
Onboarding and Creating Superusers
Once you've attracted new members, the next challenge is to keep them engaged and turn them into active participants. This is where a good onboarding strategy comes into play. Baxter suggests a three-phase approach:
- Remove friction: Make the registration process as simple as possible.
- Deliver immediate value: Engage new members right away with a welcome gift or immediate access to your network.
- Reward desired behaviors: Encourage actions that benefit your community, like referring new members.
The ultimate goal is to create "superusers" – highly engaged members who create content, help other members, and attract new ones. To cultivate superusers, Baxter recommends:
- Making it easy for members to engage from the start
- Personalizing the experience and showing that you care about your members
- Getting members involved by rewarding helpful behaviors
Pricing Strategies
Choosing the right pricing model is crucial in the Membership Economy. Subscriptions are a popular choice because they allow companies to provide ongoing value throughout a member's tenure. Tiered pricing can offer flexibility, catering to different levels of usage or needs.
Baxter uses the example of SurveyMonkey, which initially offered only one low-priced subscription package. When they introduced higher-priced tiers with additional features, they attracted new members while retaining most of their existing ones in the lower tier.
The key to successful subscription pricing is clear communication of costs and benefits. Members should know exactly what they're getting for their money, with no hidden fees or surprises.
While free memberships can be tempting as a way to quickly build a large user base, Baxter warns of potential pitfalls. The main risk is conditioning users to expect your service for free, making it difficult to convert them to paying members later. She cites the example of Napster, which struggled to transition to a paid model after initially offering free music sharing.
Building Member Loyalty
Member retention is crucial for any membership-oriented business. Baxter suggests several strategies to boost loyalty:
Personalize the user experience: Tailor your service to individual preferences, either by asking members directly or by analyzing user data.
Keep it simple: Ensure that sign-up processes and pricing structures are easy to understand.
Track user behavior: Use software tools to gather and analyze data on how members interact with your service.
Provide value from day one: Even during free trials, offer advice and support to help users get the most out of your service.
Be transparent: If a trial user isn't engaging, prompt them to cancel to avoid negative feelings about your company.
Technology and Data
To effectively manage member relationships and personalize experiences, the right technology is crucial. Baxter recommends several types of software:
Customer Relationship Management (CRM) software: Tools like Act-ON can help organize marketing, customer service, and tech support.
Customer success software: Platforms like Gainsight can track and analyze member engagement.
Loyalty software: Tools like Belly can help recognize and reward member loyalty.
These technologies allow companies to gather and analyze data on member behavior, preferences, and engagement levels. This information can then be used to improve services, personalize experiences, and identify potential issues before they lead to member churn.
Starting a Membership-Oriented Business
Overcoming the "Chicken and Egg" Problem
New membership-oriented businesses often face a challenge: they need members to provide value, but they need to provide value to attract members. Baxter offers several strategies to overcome this:
Start with the right team and culture: Ensure your organization is focused on member value from day one.
Focus on a specific target audience: It's easier and less expensive to please a small, homogeneous group than a large, diverse one.
Provide immediate value: Offer something useful to members right away, even if your full range of features isn't available yet.
Start at the bottom of the funnel: Focus on providing a specific, valuable service before expanding into a broader community.
Baxter uses Facebook as an example of starting small and focused. The platform initially served only Harvard students, ensuring a tight-knit community where members knew each other. This approach provided immediate value and allowed Facebook to refine its service before expanding to other colleges and eventually the general public.
Building the Right Culture
For a membership-oriented business to succeed, the entire organization needs to be aligned with the membership principle. This means focusing on long-term member value rather than short-term transactions. For example, sales compensation should be based on customer lifetime value rather than one-time sales.
It's also important to foster a culture of continuous improvement based on member feedback. Regularly soliciting and acting on member input can help improve your service and build stronger relationships with your members.
Transitioning to a Membership Model
Assessing Eligibility
Not every business is suited for a membership model. Before making the transition, Baxter suggests considering several factors:
Customer benefit: The shift to a membership model should provide clear advantages to your customers, such as lower risk, reduced upfront costs, or easier maintenance.
Market saturation: Research your sector to ensure there's room for another membership-based offering.
Product suitability: Ensure your product or service is well-suited to an access model rather than ownership.
Managing the Transition
If you decide to move forward with a transition to a membership model, Baxter offers several pieces of advice:
Adjust pricing: Reflect the shift from ownership to access in your pricing structure.
Be transparent: Clearly communicate the benefits and potential drawbacks of the new model to all stakeholders.
Expect some churn: Some customers may leave during the transition, but clear communication can minimize this.
Focus on long-term value: Emphasize the ongoing benefits of membership to your customers.
Baxter uses Adobe as an example of a successful transition. In 2013, the company shifted from selling software on physical disks to offering cloud-based subscriptions. This move allowed members to access Adobe's software from anywhere, providing greater flexibility and value.
The Future of the Membership Economy
As technology continues to advance and consumer preferences evolve, the Membership Economy is likely to grow and change. Baxter predicts several trends:
Increased personalization: As data analysis capabilities improve, companies will be able to offer increasingly tailored experiences to their members.
Integration of AI and machine learning: These technologies will help companies predict member needs and preferences, improving service and retention.
Expansion into new industries: More sectors will find ways to adopt membership models, from healthcare to education.
Focus on community: Successful membership businesses will increasingly emphasize building communities around their products or services.
Ethical data use: As members become more aware of data privacy issues, companies will need to be more transparent and responsible in their data collection and use practices.
Conclusion
The Membership Economy represents a fundamental shift in how businesses interact with their customers. By focusing on ongoing relationships rather than one-time transactions, companies can create more value for their members and build more sustainable, profitable businesses.
Success in the Membership Economy requires a holistic approach. It's not just about offering a subscription or creating a loyalty program; it's about reimagining your entire business model around the concept of membership. This includes everything from your company culture and pricing strategy to your technology infrastructure and customer service approach.
Key takeaways from Baxter's book include:
Focus on access over ownership: Provide value to members without the burdens of ownership.
Build ongoing relationships: Foster long-term connections with members rather than focusing on one-time transactions.
Personalize the experience: Use data and technology to tailor your offering to individual member needs and preferences.
Create a clear value proposition: Ensure members understand exactly what they're getting for their money.
Cultivate superusers: Identify and nurture your most engaged members, who can help drive community growth and engagement.
Be transparent: Clearly communicate costs, benefits, and any changes to your membership model.
Use technology wisely: Leverage software tools to manage relationships, track behavior, and improve your service.
Start small and focused: When launching a new membership business, begin with a specific target audience before expanding.
Foster the right culture: Ensure your entire organization is aligned with membership principles.
Continuously improve: Regularly seek and act on member feedback to enhance your offering.
By embracing these principles, businesses can position themselves to thrive in the evolving landscape of the Membership Economy. Whether you're starting a new venture or transitioning an existing business, understanding and applying these concepts can help you build stronger, more profitable relationships with your customers.
Remember, the key to success in the Membership Economy is not just acquiring members, but creating an environment where they want to stay and engage for the long term. By focusing on providing ongoing value and fostering a sense of community, businesses can create "forever transactions" that benefit both the company and its members.
As you consider how these ideas might apply to your own business or industry, keep in mind that the Membership Economy is not a one-size-fits-all solution. It requires careful thought, planning, and ongoing adaptation. But for those who get it right, the rewards can be substantial: loyal customers, predictable revenue streams, and a business model built for the future.