How To Monetize The Membership Economy Revolution
Today, ownership is out. Trends show that more and more consumers want temporary access, not permanent ownership. And within this changing landscape, membership-oriented businesses are king.
Many companies in many different sectors have understood this trend and are creating an incredible value cultivating and nourishing their customer bases, bringing them to the membership economy.
In this article we outline key strategies and tactics based on real-world examples to help you successfully building a membership organization from scratch, or transforming your existing business.
Jeremy Rifkin had predicted all this in his 2001 visionary essay: The Age of Access.
It took longer than he had imagined, but this time has come. Maybe not for all businesses, but certainly for the smarter ones. Are you one of these or do you want to wait and risk becoming obsolete? As William Gibson said: the future is already here — it’s just not very evenly distributed.
The generations who’ve matured during the Internet age grasp the differences between “top-down, enclosed and proprietary thinking and owning” versus “lateral, transparent and open thinking and sharing.”
The next big, Internet-enabled Third Industrial Revolution will show trends like “distributed ownership”, “on-demand creation” with emerging technology like 3-D printing, and a pivotal “subscribization of everything” societal trend.
During the 20th century the confluence of electricity, the automobile and suburban construction contributed to a Second Industrial Revolution that generated unprecedented levels of growth and wealth in much of the world. But it also generated a legacy in the shape of businesses as we know them.
The information and communication technology revolution that began in the 1990s has not reached its full potential because of this legacy.
It has been necessary more than a decade so that Digital connectivity, smartphones and cheap cloud storage and processing power paved the way for an evolved business model now called the “Membership Economy.”
Some software businesses, such as Microsoft or Adobe, are now subscription-based. Others incorporate membership options and principles into existing structures. Membership organizations, like Netflix and Spotify, build ongoing, mutually beneficial relationships with members.
As we recognize that software has eaten the world, and every company is now a software company, it’s easy to understand that this model is having profound effecst on society as the first two Industrial Revolutions or the spread of the automobile.
The “Subscription Economy”
Netflix and Spotify media giants show how subscription businesses differ from membership organizations. Their subscribers gain access to hundreds of movies, shows and songs, but a subscription means more than simple access. You can talk about shows with fellow users, you develop a feeling of loyalty about the companies and you enjoy being part of the Netflix and Spotify families. You share personal information with the companies in exchange for this connection. They harvest the data and create personalized recommendations based on your past choices.
In other words, the recipe, simple to state and demanding to be realized, reads as follows: any customer-centric business that develops continuing, formal relationships with customers is a membership organization.
Connecting fulfills a human need. The emerging membership economy includes YouTube, news apps and sites to shave (subscribe to the regular supply of razors), cut the grass. Existing businesses of all sizes can incorporate the principles of this economy. For example, some Silicon Valley salons offer subscription haircuts.
Smartphones enable people to participate in membership companies whenever they want, and the processing costs are low. Customers react with these companies and provide real time input, create content, and build relationships with brands and fellow users.
The “Sharing Economy”
The sharing economy is an offshoot of the membership economy. People capitalize on the inherent value of their expensive assets by “sharing” them with others for a fee, like Airbnb (home sharing) and BlaBlaCar (car lift). Sharing firms use traits of the membership model to create communities and forge trust. The traditional “ownership economy” operated on the principles of “rate, transaction size and economies of scale.” The sharing business model works on the access end of the ownership-and-access continuum.
Humans yearn to be connected and to gain energy, knowledge and comfort from others. Based on this assumption, based on 5 millions of years of evolution of our species, the membership economy builds relationships with customers over time. Members relinquish personal and behavioral data to belong. Members value on-demand access, micro-payment plans and relationships with the organization and its other members more than the security, privacy and control that ownership provides.
In turn, membership organizations benefit from predictable, recurring revenue and mutually beneficial relationships with their members, which strengthens the organization’s brand bottom-up. Companies can tailor offerings to their customers’ needs by gathering data about their behavior and their purchases.
Go Beyond The Loyalty Program
Loyalty programs are commonplace, and many people have several cards stuffed in their wallets. While most loyalty programs give away a free product after a certain number of purchases, many companies use their programs as marketing tools and vehicles for collecting customer behavioral data. Starbucks expanded its loyalty program to resemble a membership organization. Users who register their rechargeable gift cards online gain access to discounts and customized offers, and they get to try new products first. American Express is a traditional membership organization. Its slogan from 1986 to 1991 was “Membership Has Its Privileges.” American Express offers members various services, a range of products and a tiered membership structure.
How to Build Your Membership Organization
Creating a membership organization requires inspiring everyone in your company to live and breathe the culture of membership. Customer retention, rather than customer acquisition, is the top priority. Tailor your offerings to meet the evolving needs and expectations of your targeted customers, and track metrics for customer satisfaction. Connect all of your products, services and consumer interactions to attract new members and retain existing ones.
Then shape your membership organization’s engagement process like a funnel. At the top you draw the awareness of your prospects, tapering through the trial and sign-up stages, to a smaller number of loyal members at the base. The funnel becomes like a chute when it maximizes the number of potential customers in each phase, identified as buyer personas and along their circular customer journey. Then focus most of your efforts at the base of the funnel to meet loyal members’ expectations and deliver the brand promise to new ones.
Evolve Relationships and Monetize
When the member-to-benefit ratio is high, people stay engaged and satisfied. Your challenge is to craft the right message and deliver it to your target audience at the right time. Test your strategies and messages with small sample groups to get your communication and timing right. Constantly leverage key capabilities like A/B Testing. Make sign-up “frictionless.” Enable people to engage immediately, welcome them and thank them for enrolling. Provide something of value right away.
Continue to reward desired behavior. Enhance members’ experiences by using data analytics to customize your products for them. Encourage a two-way process by giving and receiving feedback and asking for referrals. Monitor the funnel, evaluate the metrics and refine the marketing. Your goal is to retain new members for at least a month, so they become accustomed to participating and it eventually becomes a habit.
Your possible revenue models include:
- “Subscriptions” – Most membership organizations follow the subscription model. The frequency of payments may vary, but subscription income is recurring. The decision about how to schedule member payments – annually, monthly or more often – depends on your individual company’s research. Many firms offer tiered pricing and charge a base price with options for upgrades depending on usage and need. Subscribers assume that membership companies will maintain their value and update their offerings.
- “À la carte services” – Members purchase one-time-only or specialized services as needed. For example, a health-club member might pay for a fitness assessment.
- “Ancillary products” – Offer products related to your company to your members. For example, art museum gift shops offer prints or cards showing the museum’s paintings.
- “Partnership streams” – Cross-marketing or providing space or referrals to a business that’s a natural partner can increase your commissions and fees. For example, a hotel might allow a car-rental company to operate a desk in its lobby.
- “Aggregated analytics” – The value of members’ personal and behavioral data opens the door to new sources of revenue. For example, LinkedIn compiles data about the employees of a company that the firm can analyze for further insights.
- “Advertising” – Specific audiences may find advertisements beneficial. For example, a vacation resort may show ads for local attractions.
The first challenge that your new Membership Organization will face is attracting enough members to create value and offering full benefits from the first sign-up. Begin with a simple concept, test continually while you’re still small and capitalize on viral growth. For instance, LinkedIn kept its initial offering simple, just providing members with a place to share résumés. As membership grew, it added services and benefits.
Regardless of which growth approach you choose:
- Establish a culture oriented toward membership from day one.
- Support the vision with a powerful Digital Customer Experience technology like Neosperience, integrated with a solid back-end engine like Zuora, to keep processes from commerce, to billing, to finance aligned.
- Be humble and flexible: we are all learning in this new market space. As some people prefer all-in subscription models, other are more open to obtaining the products and services they want on an micro-payment pay-per-use basis.
In the years to come people will be we’re much more attracted to brands that advertise experiences, relationships and belonging than those that simply sell a product.
It’s a fundamental change in the way we think, that was made possible by the explosion of apps like Uber, Netflix and Airbnb. These companies, which hold onto your credit card information in exchange for being “there when you need it,” helped create a virtual culture of trust.
Now it’s your turn. Become part of the game before it’s too late.
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