Inside The Membership Economy

22 January 2016 -

Building a business on members, not customers, can help take your success to the next level: the latest in a series leading up to the announcement of the 2016 Management Book of the Year

By 2016 CMI Management Book of the Year shortlisted author Robbie Kellman Baxter

I started writing this book, at least in my mind, about 10 years ago. I live in Silicon Valley and have been here for most of my life. For the past 13 years, I have been running a strategy consulting firm, and early on, most of my clients were Silicon Valley technology companies.

About 10 years, ago, I started working with Netflix. You’re probably familiar with that company. But back then, they were known for being the online DVD rental subscription company. It took a lot of words to describe them, because their model was unlike anything out there.

Netflix used technology to dramatically improve the experience of renting movie DVDs. By the time I started consulting for them, I was already a loyal subscriber. I loved being able to build a queue of movies I was interested in, so I always had three waiting for me, loved being able to order from home and have them delivered, and most of all, I loved the fact that there were no late fees. Ever. I was an evangelist. I loved them.

But I loved them even more as a consultant.

I thought that Netflix was the most exciting company I had ever worked with. Its model was smart and simple. Unlimited DVDs, three out at a time, for a fixed price. Subscribers sign up once, but become loyal subscribers forever - or at least for several years.

Unlike the rental stores that depended on each transaction to drive revenue, Netflix started out in the early days with just one “forever trans¬action” – after you sign up and until you cancel, you get the same great experience without having to enter your payment information ever again.

For the subscriber, it meant constant movies and low stress. For Netflix, it meant recurring revenue.

And the experience was so good it created a whole subset of super users, the loyal product evangelists who educated the market about the Netflix service, while providing helpful feedback to the company.

The Netflix model was disruptive. There were very few digital sub¬scription businesses of any real size at that time. Netflix didn’t have a lot to compare itself to, besides HBO and maybe the cell phone companies.

But it was onto something - and it was all about membership, not ownership.

I was hooked on the model and went on to advise dozens of companies on their subscription and community businesses. It was so obvious to me that technology was enabling new ways of engaging customers in an ongoing, authentic way, and I saw potential everywhere.

Others saw it too. One VC told me: “Membership is the holy grail.” It has so many advantages.

I’m convinced that The Membership Economy will have as a pro¬found an effect on society as the Industrial Revolution or the spread of the automobile. And the leaders who ignore it will follow carriage mak¬ers into oblivion. And yet I’m surprised by how many people haven’t seen this transformation.

That’s why I’m writing this book.

What Is The Membership Economy?

So what is The Membership Economy? Some say it’s all about subscrip¬tions. Others say it’s about community and communication. Still others say it’s about belonging. Some say it’s been around forever, in associa¬tions, loyalty programs, and gyms.

I think the Membership Economy is all these things.

I define mem¬bership as the state of being formally engaged with an organisation or group on an ongoing basis. Members are part of the whole – although they don’t always contribute to the experience of other members.

An organisation able to build relationships with members – as opposed to plain customers – has, as we’ll see, a powerful competitive edge. It’s not just changing the words you use; it’s about changing the way you think about the people you serve and how you treat them.

The Membership Economy model works for both organisations and individuals. Executives and investors alike see that the model succeeds because it reduces uncertainty in their revenue.

When done correctly, mem¬bership appeals to the members too, because membership provides recogni¬tion, stability, and convenience while connecting people to one another.

Today, the promise of membership is greater than ever. Evolving technologies have dramatically enhanced the ability of a broad range of industries to take advantage of membership models.

The Membership Economy is all about putting the customer at the center of the business model rather than the product or the transaction. Every organisation should be focused on the customer.The business model and organisation need to support this customer-centric model. The relationship between customer and organisation is ongoing and formal, a “forever transaction” that has implications across the organisation, changing everything.

The Membership Economy brings together my two loves, business and psychology. It gets its power from connecting to deep human needs. According to psychologist Abraham Maslow, after satisfying physiolog¬ical needs and safety, people focus on needs of belonging and esteem before ultimately moving to self-actualization.

The Membership Econ¬omy helps people satisfy those needs.

The Membership Economy by Robbie Kellman Baxter is shortlisted in the Innovation and Entrepreneurship category of the 2016 CMI Management Book of the Year, in association with the British Library and sponsored by Henley Business School