Getting Smart About The Membership Economy

If you’re like me, a lot of organizations refer to you as a “member”, but you only consider yourself to be an actual member of a fraction of those.  Like a lot of terms these days, “membership” is a term that can be watered down through misuse.  That said, there are a number of companies – Netflix, Pinterest, LinkedIn and many others – who have built great value for their users and investors by building new business models upon the timeless idea of membership.

So it was with great interest that I read an important book that has just been written on this subject.  The Membership Economy was written by my friend and former colleague Robbie Kellman Baxter from Peninsula Strategies, and is the definitive view on what the membership economy is, and is not.

A story: Many years ago I worked for a regional telecommunications company that catered to business customers.  The ethos of the company was to take great care of the customer, and the success of the model made a deep impression on me.  The operative words in that last sentence were “ethos” and “care”.  The focus on taking care of the customer started at the top of the company, but permeated throughout.  Our customer service reps were empowered to offer the customer a “free day of long distance” if the rep, at his or her sole discretion, felt that was necessary to make the customer feel satisfied.  Given the fact that we served some very large corporate customers, this meant our call center reps could reduce our revenue by five figures simply by making an on-the-spot decision on the phone.

The ethos was based upon a simple trade:  our company would do a great job for our customers, who in turn would pay us for each call.  If we didn’t hold up our end of the bargain, we could be “fired” at any time.

While our telecommunications company truly put customers first, I doubt those customers considered themselves to be “members”.  The membership model takes customer focus to a new level, where a businesses taps into innate human needs like connection and prestige while being hyper-focused on a specific customer persona.  As Robbie points out in the book:

Membership is an attitude, an emotion.  A subscription is a financial arrangement

What I love about the concept of the membership economy is that it aligns the interests of consumers and providers.  In most transactions today, the interests of companies are not well aligned with their customers since transactions between the two are irregular.  Empowering front line staff in an age of organizational scale is one of the great conundrums of large industries today (anyone who has flown on most domestic airlines has witnessed this firsthand).   Companies want to grab as much margin in the transaction as possible, and no emotional claim on the customer’s loyalty can realistically be made (even though there might be a “loyalty program”).

The beauty of the membership model is that organizational success is driven more by retention than it is by acquisition.

Since there is so much misuse of the term, there are those who scoff at the idea of “membership”, correctly pointing out that the term often is used by marketers as hot air to inflate a transactional relationship into something it isn’t.  A perfect example for me is a certain men’s clothing store located in malls across America which regularly sends me “invitations” to attend their frequent “members-only” sales, presumably because I’ve bought a few sweaters from them over the years (although as I think about it, I should probably thank them for all the laughs when I bring in the mail: “hey look! I’ve been invited to an exclusive event because I’m a member”).

The Membership Economy provides a number of useful tips for those who are contemplating new businesses, or simply want to understand how they can leverage some of the membership concepts in their own company.  The book is very readable, with a number of helpful stories, tables and illustrations to make the material come alive.

Life is short, and we’re here to do good work.  No business model can overcome a culture where short-term results trump long-term customer focus.  But a membership model can lead a company in the right direction by aligning what we want as consumers with what we do as producers.