How to position your business for the membership economy?

Imagine always having access to a new, clean car, without worrying about having a garage or paying taxes for it. Doesn’t sound bad, right? In our modern, networked world, this is the reality for an increasing number of people who simply want access to a product, rather than ownership of it. The result is that more and more companies are changing their business model from a customer-based to a membership-orientated one.

The book, “The Membership Economy: Find Your Super Users, Master the Forever Transaction, and Build Recurring Revenue”by Robbie Kellman Baxter, explains the membership business model and outline the workings of modern membership organizations.

Just 15 years ago, pretty much everyone had their own collection of CDs and movies. Today, that’s no longer the case. Obviated by services like Amazon Prime, Netflix and iTunes, such collections now seem slightly decadent. With the unprecedented global access to media provided by the internet, a new business model, that of access-oriented streaming services, now dominates the market.

The advantage of this model is that it allows us to bypass all the responsibilities and costs associated with ownership. But it’s a big shift, because the traditional economy is built around the principle of ownership; when customers buy things under the standard system, they can do whatever they want with them.

Just think of owning a car. You can paint flames on the side or adjust the chassis. But, of course, there are also costs. If the car breaks down, you have to fix it. You also have to pay taxes and secure a parking spot.nBut what if you only need a car once or twice a month? Renting might be the best solution. That way, you’d have access to a car when necessary, but not have to bear the responsibility or pay the costs of ownership.

Fortunately, the internet makes this kind of access easier than ever before. And over the past few years, new web-powered companies have emerged, giving their customers convenient alternatives to ownership in almost every sector.

For instance, Zipcar members have access to a fleet of company-owned cars. Using a slightly different approach, RelayRides pairs car owners with those who want to rent a vehicle. Similarly, you can rent movies on Netflix or book a temporary room through Airbnb.

Imagine going to a store to buy a hammer. After you’ve paid for it, your relationship with the shop is over. This is the classic model of customer interaction. The membership model, on the other hand, is different. When customers commit to a company, they get all the benefits and responsibilities of an ongoing relationship.

This relationship could be determined by a subscription (as with Netflix) or a user ID (think of Facebook), or with a simple membership card, like what you’d get at the gym. What’s important is this: in the membership economy, the relationship between customer and company changes. Unlike traditional “customers,” members have a stake in the company.

The advantage of this model is that both parties gain something from the relationship – but they also have to provide something. Netflix provides access to movies, but customers have to pay for them; Facebook grants members access to a dynamic social platform in exchange for customers’ personal data.

Companies in the membership economy come in many different forms. And we can break them down into four basic categories:

• Digital subscriptions: online businesses like Netflix ask members to pay a recurring fee to access content, features or services.

• Online communities: platforms like Facebook or LinkedIn create networks around shared interests or goals.

• Offline loyalty programs: brick-and-mortar businesses like Starbucks track and reward loyalty, perhaps by providing discounts for frequent shoppers.

• Traditional Membership Economy companies: like banks or phone companies, these membership-oriented firms predate the internet. To use the service, customers must set up an account.

Technology has made it possible for people to get access to products and services via the cloud. But in the process, it has narrowed the market for ownership. This transition, from ownership to access, hasn’t been easy. But for some companies, it’s necessary to make the shift.

Still, before you plunge into the membership economy, make sure your company is eligible for the membership model. Not every company is suited to this style of doing business, so if you’re thinking of making the transition, consider these points:

The transition from ownership to access should benefit your customers (or future members). If it doesn’t, they’ll leave. Benefits might include lower risk, lower up-front expenses and lower maintenance.

You should also research the membership market in your sector, to make sure it’s not already saturated with the product you offer. Just think how hard it would be to launch another social community like Facebook!

If you do move forward with the transition, some dropouts are inevitable, but you can reduce their number. Start by adjusting your pricing to reflect the new membership approach (people aren’t paying to own, but rather to use your product for a finite amount of time) and make sure your product is suitable for the access model.

Consider Adobe: in 2013, the company shifted from selling its software as a physical disk to adopting a cloud-based subscription model. The firm now offers its product for access, by allowing its members to access the software from anywhere, simply by logging into the Adobe Creative Cloud.

Finally, transparency is the key to member retention during a transition. Clearly communicate all benefits and drawbacks to your stakeholders. That way, your move into the membership economy is sure to be a success!

To stay competitive in a membership-oriented business world, you need more than a basic company homepage; your whole organization needs to be built around the concept! If you fully commit to a membership model, put the right strategy in place to gain and retain members, appropriately price your product and track user behavior, your business will prosper. Hope this serves as good material if you are embarking on your new startup!

Check out my related post: Value Proposition Design: How to Create Products and Services Customers Want – Business Book Review 6

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10 thoughts on “How to position your business for the membership economy?

  1. I remember when Adobe shifted to the cloud—the price to access the software dropped tremendously and by leasing the product, it gave way to much more residual income. It does seem like everything is shifting towards a lease/membership network (even the ownership of smart phones). It makes you wonder which industry is next!

    Dom |

    Liked by 1 person

      1. I hate that my generation will be forever indebted. I kinda like the feeling of outright owning something without payments looming just around the bend. But quality has evolved with the times; hardware doesn’t last as long because it doesn’t have to and it makes it cheaper to lease. Millennial probs.

        Dom |

        Liked by 1 person

      2. Certainly from a business perspective it makes sense. From a consumer perspective, perhaps… but also maybe not? If I stop paying my $10/month Apple subscription, all of my curated playlists and library disappears into thin air. My hand is forced into leasing an iPhone because they don’t last long enough to buy outright (even though the option is still available). The model works; as a consumer, I’ll be forever indebted.

        Dom |

        Liked by 1 person

      3. You brought a good point on the iPhones. Looking at products due to their “usage life” we are in a way leasing to use. But the subscription model dramatically reduces that and provides you a way out when you want it. There are programs to shift out your playlists so you are not bounded into the service. Do you usually try to sell the older phone back when you switch to a new model?

        Liked by 1 person

      4. No, because essentially, it’s useless. I bought my 64g 6s iPhone in April 2016 for $800. Its now discontinued and barely worth $200 now. The tech is so outdated. The depreciation almost forces my hand to sign up for service with one of the big 4 carriers and lease a phone instead. I opt for a cheaper cell phone service at $40/month instead of paying $80-100 a month for service + lease + insurance.

        Liked by 1 person

      5. Interesting. The mobile phone industry tends to keep pushing out newer models so that we can get the latest functionalities. here in Asia, we swop phones every two years or so. So that leasing format would work for us.


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