The Membership Economy | Robbie Kellman Baxter

Summary of: The Membership Economy
By: Robbie Kellman Baxter

Introduction

In the increasingly connected world, the traditional principles of ownership are rapidly being replaced by access-oriented models. The book ‘The Membership Economy’ by Robbie Kellman Baxter explores this transformation and demonstrates how businesses can transition to the membership model to thrive. The author uses compelling case studies from companies like Netflix, Zipcar, and Airbnb to illustrate the innovative and dynamic nature of this new economy. In this summary, you will discover the key elements that constitute a successful membership business, learn about the categories the membership economy companies can fall into, and uncover strategies for attracting and retaining members in this new era.

The Rise of Access

In the past, owning things was the norm, but with the internet’s global reach, access-oriented streaming services have become the go-to business model. These services allow us to bypass the responsibilities and costs associated with ownership. Instead of buying things, we can rent or subscribe. Web-powered companies have emerged to provide access in almost every sector, from Zipcar in transportation to Airbnb in accommodations. The focus shifts from products to customer, who is no longer just a client but a member. This new model gives people freedom and flexibility without the burden of ownership.

The Membership Economy

The membership model is a shift from the classic model of customer interaction. Members have a stake in the company and both parties must provide something in exchange for something. The advantages of the membership economy are mutual, and it can be broken down into four categories: digital subscriptions, online communities, offline loyalty programs, and traditional membership economy companies. Attracting members is the next step once a company has decided which category it falls under.

Attracting and Keeping Members

Attracting and retaining members is key to any membership-oriented business model. An optimal acquisition funnel consists of four phases, with each phase narrowing down potential members. The first phase involves targeting people aware of your brand but who haven’t engaged yet. The second phase involves offering a trial to give potential members a better understanding of your company. In the third phase, interested individuals sign up, and in the final phase, a percentage of those sign-ups become loyal members.

To improve the acquisition funnel, track potential members’ behavior and address any holes in the process. Retaining members is equally important, so tracking their behavior and addressing any concerns are crucial. A member who remains active for 30 days is more likely to become a long-term loyal member. By implementing these strategies, membership-based businesses can succeed in attracting and retaining members.

Creating Devoted Members

Successful membership organizations require active participation from their members. To ensure participation, a good onboarding strategy is crucial. The strategy should be implemented in three phases: reducing registration friction, delivering immediate value, and rewarding desired behaviors. Companies can create superusers – members who are particularly devoted to the organization – by following three rules: making it easy, making it personal, and getting members involved. To make it easy, organizations should provide meaningful benefits from the moment members sign up, such as an easy-to-follow tutorial. To make it personal, organizations should maintain contact with their members to show they care. To get members involved, organizations should offer benefits to those who help others or refer new members, such as a referral program. By following these strategies and rules, companies can attract and retain devoted members who create content, help others, and attract new members.

The Pros and Cons of Subscription-based Pricing

Subscription-based pricing can provide ongoing value for the duration of a user’s membership, however, communicating costs and benefits clearly is key. Tiered pricing offers greater flexibility, and free memberships raise brand awareness but may condition people to expect a free service, reducing the potential pool of paying members.

When it comes to buying a car, people factor in the price of repairs and understand the long-term cost. But how do people calculate the cost of membership? Subscriptions are one of the most common pricing models in the membership economy, and businesses offering subscription-based pricing can provide ongoing value for the duration of a user’s membership. Plus, tiered pricing offers greater flexibility because it’s based on the value provided to each member.

An example is the company SurveyMonkey, which initially offered only one low-priced subscription package. However, after introducing two higher-priced packages that offered added features and services, new members were attracted, while most old members stayed in the low-priced tier. But the key to subscription-based pricing is to communicate costs and benefits clearly. Members need to know what exactly they get for their money to build trust from the start.

While free memberships may raise brand awareness, it should be used with caution. Having a “free” membership can attract more members and allow businesses to build a large community, providing content and added value. However, offering free memberships may condition people to expect a free service, reducing the potential pool of paying members in the long run.

One example is Napster, a free peer-to-peer file-sharing platform founded in 1999. After numerous copyright violations, Napster was sentenced to pay $36 million in 2001. To meet its debts, Napster tried to convert to a subscription-based model, but the users were already conditioned to expect a “free” service, and only a fraction were willing to pay. Ultimately, the owners had to sell their company.

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