Introduction
Although Robbie Kellman Baxter’s book “The Membership Economy” is not new, it represents, in this reviewer’s opinion, the most comprehensive overview to date of the increasingly important challenge of developing an effective membership strategy, also known as a subscription strategy, sharing strategy, or, simply, service strategy. The key idea behind such a strategy is that in order to benefit from the use of an asset one does not necessarily have to own it, but instead can simply subscribe to it . This business model has been around for a long time – a classic newspaper is an example. Readers subscribe to a newspaper, and by so doing also become members of the of the newspaper’s daily readership. A key advantage for the business that employs this strategy is a typically steady stream of annual subscription fees, most of which are renewed every year. Some users decide not to renew and drop out, creating what is called “churn”.
Today there is a wide and growing variety of firms that adopt a membership strategy. It appears that these firms tend to grow faster and be more profitable than most of their more conventional counterparts.
The key message of the book is how can one create a stronger sense of belonging among one’s users (members). Mutual respect stands out as particularly important because it helps to clearly delineate benefits for all parties.. Therefore, it is argued that a loyal membership community definitely has value! Being a member in this case evokes a sense of privilege!
The author, Robbie Kellman Baxter, is a consultant and speaker based in the Silicon Valley. She is the head of the successful consulting firm Peninsula Strategies.
The book’s 21 chapters are grouped in the following sections:
What you need to know about the membership economy
Membership economy strategies and tactics
Membership organizations of all shapes and sizes
Membership economy and transformation
This reviewer found the first two sections most relevant. The conceptual model discussed in section two is particularly useful. The last two sections of the book seem less critical, thus they shall only receive a cursory review here.
Section 1
Section one discusses several basic principles and issues central to the membership economy model. Netflix is used as a comprehensive case example.
What is a membership economy? The author has indicated the following five characteristics:
Annual subscription
Community of users
Communication to/from the users
Strong sense of belonging among members
Members play a critical role, when perceived as an association
Those whom we traditionally saw as customers are now members. How do we build a strong social capital and create more meaningful connections among members? What motivates members who are now target buyers? How do they buy? How do we earn their loyalty?
As mentioned above, this reviewer believes that the central aspect of the book is the conceptual model for building afirm’s strategy in the membership economy . The model is presented on page 31, and consists of seven elements:
A typical strategy for a firm in the membership economy is built on the first three pillars of the model:
Organization: Instead of discussing organizational structure, the author focusses on three tactics organizations must adopt to be successful: promote a culture of marketing innovation and technology, avoid too much complexity, and strive for good success, particularly at the start.
Acquisition funnel: Acquisitions, as defined by Kellman Baxter, resemble an hourglass, more so than a funnel with a wide “top” and narrow “bottom”. The top “half” of the hourglass describes the steps to generate loyal members in the same way and sequence as the funnel does: awareness, trial, sign-up, and loyalty. An interesting additional aspect of the process is presented in the “bottom” half of the hourglass. It provides context in which acquiring and retaining loyal members may be easier. For example, the source of referral is an important part of the context. Depending on the source, engagement may increase..
Onboarding: This pillar deals with what can be done to create a strong usage habit among members. How can this process be made as effective as possible? It is critical to make usage as easy for members as possible, while delivering immediate results. To make onboarding even more effective, rewarding desired behaviour is helpful. The ultimate purpose of onboarding is to create a group of super-users.
After laying the foundation, Kellman Baxter then goes on to discuss the additional four elements of the membership model:
Pricing: The author acknowledges that setting the price “right” is difficult. She then discusses how to approach pricing, both in the context of the basic subscription model and in alternative types of renewals. Price must always be consistent with the perceived value that the members of a given membership community see as reasonable. Even if the price is high, a good policy is not to change it. It is also important to avoid excessive number of different price points. One might want to develop a higher price for those who use the membership service infrequently. Super-users, in contrast, should get a better price, especially when the price of all available services are bundled together, and paid for, say, once per year. The higher the overall usage, the lower the price!
Free-mium: The author discusses how to provide a so-called “free-mium”. This can be a good tactic, in contrast to free trials.
Technology: Technology is a fancy word for software packages that are developed through open or closed sourcing. Nowadays, there are many open source software packages available. Kellman Baxter talks about these packages as they fall into different areas of application. It is of course important to invest appropriately in this area. A particular challenge might be to link software programs together that have primarily been developed for different applications (e.g. for marketing automation, for billing and renewal of subscription, and so on). In the end, open sourcing tends to become significantly less expensive than closed sourcing systems.
Customer Success: The seventh and final dimension of a membership economy strategy deals with how to be more effective in retaining members. It is important that members feel that they are linked and connected. Such network of contacts might be a good way to build loyalty. And this is not only a matter of focusing on free trials or giving favors (hopefully that are relatively inexpensive).
The final two sections of the book are comparatively less critical. In section 3, Kellman Baxter describes six different types of membership organization:
Digital subscriptions. Here it is particularly critical to encourage annual subscriptions.
Online community models. Leveraging the know-how of members is key.
Loyalty programs. Members essentially promote this type of programs.
Traditional membership economy companies. Dependent on scalable solutions.
Small businesses and consulting firms. Relatively inexpensive way of achieving one’s goal.
Non-profit organizations, e.g. societies and trade organizations. The broader community might be encouraged here.
In the final part of the book, there is a discussion of how membership organizations might evolve and transform. The author discusses five paths:
From idea to start-up: Here one must be clear about the benefits. One must also keep a narrow focus and a tight budget.
From start-up to mature company: The biggest challenge when it comes to this transition is how to evolve from a one-single-big-idea-focus, to continuous innovation. New skills will be needed, likely as well as a new culture.
From offline to online: To be able to provide one’s offering online is key. Most members expect that things are online. Specific technical skills are needed.
From ownership to access: A stream of small membership payments can be expected to grow. It is important to understand the specific priorities and interests of each membership cluster sub-segment.
From business as usual to competitive disruption: The business model should evolve proactively through the launching of new disruptive, innovative features, thus keeping competition at bay.
Conclusion
As mentioned earlier, I find this book highly valuable. As the Founder, Chairman and Owner of the Lorange Network, I have benefitted a lot from the many insights and “How To’s” given. I can definitely say: To apply the key ideas of this book“works for me!”, or, as Josh Silverman, President, Consumer Products and Services, American Express states: “At American Express, we’ve always been committed to putting our members at the center of everything we do. Robbie Baxter’s book provides practical techniques and insightful new examples to guide organizations in building powerful, ongoing relationships with their members.”
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