Digital connectivity, communication technology and cheap cloud storage pave the way for an evolved business model that Silicon Valley consultant Robbie Kellman Baxter calls the “Membership Economy.”
We had the chance to sit down with Robbie and discuss the benefits and drawbacks of this business model.
getAbstract: How do membership organizations differ from traditional subscription businesses?
Baxter: Subscription is about pricing. Membership is about the organization’s mindset. Whether or not you call the people you serve “members” is less important than whether you treat them like members. In the Membership Economy, organizations focus on building a Forever Transaction with the people they serve. When people take off their consumer hats and put on their membership hats, they stop considering alternatives.
getAbstract: Your book was published in 2015. Do you think that since then “the Membership Revolution” has already started?
When I wrote the book, I was documenting what was already happening. Companies like Amazon, LinkedIn, and Netflix are digital natives built around principles of membership. But since writing the book, I have seen an acceleration of this transformation. You see membership models being used by small businesses like carwashes, nail salons and small professional services firms, but also by large consumer products companies, like Unilever, and by retailers like Sephora. There has also been an explosion of subscription box companies with a model of sending monthly packages to consumers interested in being exposed to new products—everything from snacks (Graze) to makeup (Birchbox).
Any business that depends on building long term relationships with customers to thrive, and where customers have alternatives, can be transformed via the Membership Economy. This is one case where size doesn’t matter. The Membership Economy can be the great equalizer for small businesses.
getAbstract: What is the greatest challenge for an evolving Membership Economy startup?
The greatest challenge for a new Membership Economy company is developing product market fit and building traction. This is true of almost any new business but is especially true in the Membership Economy because retention is such a key component of success. So even if you build buzz and lots of people pay or join, if the company can’t retain them, the business will fail.
Many businesses (not just startups!) make the mistake of focusing too much on acquiring new customers but not enough time making sure they’re engaged and getting value from the products and services they have purchased. Ultimately, this leads to churn. Retaining customers is one of the most powerful and underutilized tools to increasing profits. If your subscription is $10/month, and acquiring a new customers $22, then if you acquire the wrong customer who cancels after two months, you actually lose money.
getAbstract: What strategies could help a membership organization succeed?
Any membership-oriented business needs to start with forever. What is the long term promise that the organization is making to the customer or member, that justifies loyalty? What will make someone take off their “customer hat,” put on their “member hat,” and stop considering alternatives?
Once you figure out what that promise is, you need to be committed to it, whether it’s the best route to fitness, as in the case of many gyms, or great video content, delivered efficiently with cost certainty like Netflix. There is a huge temptation to cut corners to hit short term numbers, but if the organization focuses on the long term, member loyalty pays huge dividends.
Another benefit of a membership model is that in many cases, the community can be part of the value. Member-created content and connections are sticky and don’t require huge investment once they’re established. Look at Linkedin, for example. Most of the value is access to information that has been created by members. Salespeople, recruiters and job seekers, as well as advertisers, are willing to pay for access to that content.
getAbstract: What is a superuser?
A superuser is a customer who is so committed to your brand that they go beyond just being great profitable customers. They actually invest their own resources in helping your organization thrive, through referrals, support of other customers and feedback to you.
Superusers are important because they can be the flywheel for growth of your whole business. They want to see you succeed, are often willing to use early versions of your offerings before they’re bug-free, and they can be a great source of new members.
To harness the power of your superusers, you need to know what they look like, and then you need to figure out how to find more of them and encourage similar behaviors. You want to make it easy for your superusers to be recognized for their contributions, and for you to learn from their insights.
Salesforce calls their superusers “MVPs”. These special customers are frequent speakers at salesforce conferences and events, have special status within the Salesforce community (as “MVPs”—a public designation) and have access to product leadership to provide feedback.
getAbstract: In your book, you say that “the Membership Economy will have as profound an effect on society as the Industrial Revolution or the spread of the automobile.” So, how do you view the future of the Membership Economy?
The Membership Economy has transformed so many industries already…music, video, software, news, retail, and financial services just to name a few. Big companies are joining the Membership Economy, as are mom and pop nail salons, car washes and restaurants. It’s affecting the public sector nonprofits and associations as well as private enterprise. And what’s exciting is that we’re just getting started.
Any business that does not depend on a geographic, patent or regulatory advantage, where marketing and sales matters or in which the customer has other options, has the potential to grow in the Membership Economy.
After all, at the heart of the Membership Economy is the idea of putting the customer at the center of everything the organization does, and focusing on their long-term well-being. And when you take care of people, you win their loyalty.
About Robbie Kellman Baxter
Robbie Kellman Baxter is the founder of Peninsula Strategies LLC, a management consulting firm, as well as the author of “The Membership Economy: Find Your Superusers, Master the Forever Transaction & Build Recurring Revenue”, a book that has been named a top 5 Marketing Book of the Year by Inc.com. She coined the popular business term “Membership Economy”, which is now being used by organizations and journalists around the country and beyond. She has advised Netflix, SurveyMonkey and Guthy-Renker’s OceanX as well as dozens of smaller venture-backed companies. Over the course of her career, Robbie has worked in or consulted to clients in more than twenty industries. Before starting Peninsula Strategies in 2001, Robbie served as a New York City Urban Fellow, a consultant at Booz Allen & Hamilton, and a Silicon Valley product marketer. She has an AB from Harvard College and an MBA from the Stanford Graduate School of Business. Robbie has been quoted or interviewed by major media outlets, including CNN, Consumer Reports, and NPR. As a public speaker, Robbie has presented to thousands of people in corporations, associations, and universities.