"The Membership Economy model, enabled by technological transformation and emphasizing ongoing relationships rather than individual transactions, can benefit almost every organisation."
Membership and Ownership are two opposite ends of a continuum. Preferences of both consumers and businesses are shifting from ownership to membership.
In the Ownership model, companies sell things, and consumers buy and own them.
Businesses have to optimise each transaction value, cross sell and increase sales volume to achieve economies of scale. Relationships end when transactions are completed.
For the consumer, the benefits of ownership centres around security, privacy and control. However, ownership comes with responsibilities. Owning a car in a crowded city is an example. Consumers want ways to minimise the stress and seek meaningful connection and community.
Membership economy addresses both of these challenges: simultaneously minimising the burdens of ownership while fulfilling the powerful human drives for affiliation and prestige.
Subscription is a basic form of the membership economy, where a business offers a great deal of values to justify recurring revenue. However, the true value of membership economy comes from the community. Member participation and interaction strengthens loyalty and generates referrals, which fuels growth and ultimately leads to better retention rate and customer lifetime value.
In her book The Membership Economy, Robbie Kellman Baxter makes a strong case for the Membership economy and presents a 7-step framework for companies to transform themselves from an Ownership to Membership Economy.
Membership organisations come in all shapes and sizes
"Once you start thinking about how the principles of membership can be incorporated into existing business models, you start to see opportunities everywhere. "
Learning from existing Membership Economy organisations provides an understanding of the underlying strategies and structures. Robbie discusses six major categories that we can learn from.
- Digital subscriptions
Provide access to content and services online on a subscription basis. Sophisticated subscription models attract and retain loyal customers. Free options like freemium and free trial drive growth. Examples: Survey Monkey and Egnyte.
- Online communities
The product is the community and the content it generates. The business provides the infrastructure for individuals to share ideas, content and physical products that otherwise might go underutilised. Examples include LinkedIn, Match.com and Pinterest.
- Loyalty programs
Loyalty programs are powerful but they need to be differentiated with innovative ideas that provide true value beyond box checking. Examples: punch cards that reward frequent visits and Starbucks’ loyalty programs.
- Traditional membership economy companies
American Express fulfilled the powerful human drive for affiliation and prestige with the ‘Membership has its privileges’ campaign from 1986-1991. T-Mobile abolished the ‘required loyalty’ of the two-year contract and offered month-to-month plans, which is ‘voluntary loyalty’. The strategy paid off.
- Small businesses and consultancies
To leverage the power of the Membership Economy, it is important to determine the value provided and extend it by building ongoing relationships. Examples include The Nail Concierge (New York), Kepler’s Books with its supportive community, and Alan Weiss, the consultant with the Million-Dollar Community.
- Nonprofits, professional societies and trade associations
Think about constant innovations while staying true to your mission and relevant to your members. Examples: APPO (Association of Personal Photo Organizers) and The Sierra Club.
7 key strategies and tactics for the Membership Economy
"If there were a test on the Membership Economy, most of the answers would be found in this section."
- Build the right organisation
The membership economy requires a change in culture and attitude, not just marketing tactics. For example, sales people should be compensated on the basis of customer lifetime value, not merely transactions.
- Build an effective acquisition funnel from the bottom up
The sales funnel consists of top to bottom segments of awareness, trial, sign-up and loyal members. Start by analysing the target member’s needs to ensure that there is alignment between actual benefits provided and member’s demands.
- Onboard members for success and superstars
The first few days for any member are critical to their long term engagement. The onboarding process welcomes new members, makes it easy to use the product or system, delivers immediate value and rewards desirable behaviours like regular visits, participation in the community and referring new members.
- Start simple with pricing, but leave room for flexibility
There has to be the right balance between offering pricing tiers and the confusion of having too many options. Businesses should also consider other potential revenue streams, such as ancillary products, partnerships, advertising and free or freemium options to drive revenue.
- Incorporate ‘free’ as a tactic, not a strategy
‘Free’ is not a business model. It is a marketing tactic that helps generate revenue. Free offerings drive awareness and trial while simultaneously creating a community, generating interest to build a critical mass.
- Use the right technology and track the right data
Memberships can leave a huge trail of data which provides information for building stronger relationship with members. Use the data to analyse, predict, and proactively manage members’ experiences.
- How to retain members (and when to let them go)
Loyalty needs to be built into members’ habits, right from the beginning. The membership experience should be easy, personal and involved. For example, members can be invited to create content and support each other, so that they feel connected to the business and to one another. When a member decides to leave, make the process easy, as it also makes it more likely that the member will return.
The technology drivers of the Membership Economy
"Technology matters – especially in the membership economy."
The membership economy is driven by:
- Declining cost and easy access of storage
Cloud storage allows all kinds of content to be hosted and shared.
- Social media and content sharing
The internet and social media allows everyone to create and share content with others. User generated product and service reviews fill the trust gap that is very much needed in the online environment.
The ubiquitous mobile access by devices, from smart phones to wearables, allow real time updates and access of information, powering the ‘always on’ community experience.
- Rise of data analytics
Membership requires collection and storage of members’ information, serving as a form of security control. Member activities continuously generate data, which can be aggregated and analysed to help with strategic decisions like personalisation, features and function offerings, pricing, and understanding of member behaviours.
For example, Uber has a database of maps and member details. Members use Uber anywhere from their mobile devices. User reviews provide trusted feedback. All trip details are captured for future reference and analysis.
The categories of software that support membership economy are: marketing automation, customer relationship management, subscription billing, community, customer success, loyalty.
Almost any company can benefit from the shift from Ownership to Membership.
We need to ask: How can I structure my product or service for regular access? And, how can I provide an abundance of value on a consistent basis?