The Subscriptions Future: Customer Retention Forever (Part 4)

Membership Economy

Robbie Kellman Baxter wrote “The Membership Economy” in 2015. She explains the idea:

What is the Membership Economy? Some say it’s all about subscriptions. Others say it’s about community and communication. Still others say it’s about belonging. Some say it’s been around forever, in associations, loyalty programs, and gyms.

I think the Membership Economy is all these things. I define membership as the state of being formally engaged with an organization 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 organization 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 organizations and individuals. Executives and investors alike see that the model succeeds because it reduces uncertainty in their revenue. When done correctly, membership appeals to the members too, because membership provides recognition, stability, and convenience while connecting people to one another.

… Membership is an attitude, an emotion. A subscription is a financial arrangement. It’s quite possible for something to be both a subscription and a membership organization. In fact, the Membership Economy is the logical extension of subscriptions.

She contrasts the Ownership Economy with the Membership Economy:

She adds: “The key metrics in the ownership economy are conversion rate, transaction size, and economies of scale. In the Membership Economy they are retention and customer lifetime value.”

According to Robbie, the three primary advantage of the Membership Economy are:

It creates recurring revenue and removes lumpiness. Most businesses have to deal with seasonality—some more than others. Having monthly subscription revenue can smooth out the peaks and valleys in annual sales.

It builds a more direct relationship that strengthens the brand, by putting customers at the organization’s center. An organization that has a strong, positive relationship with its members is able to use that loyalty to grow as members recommend the enterprise to others and to resist competitive threats.

It generates an ongoing data stream that can be used to improve services and identify opportunities to increase satisfaction. The more the organization understands its customers’ needs, wants, behaviors, and attitudes—that is, much more than their raw demographics—the better it can serve those needs.

A recent 2020 book by Robbie “The Forever Transaction” builds on the core idea of the Membership Economy: “It’s about orchestrating the moment when customers remove their “consumer hats” and don “member hats,” commit to your organization for the long term, and stop considering alternatives. For many companies this is the holy grail: loyal recurring customers, often paying automatically, indefinitely. To earn a “forever transaction” you must offer a “forever promise” in return. You commit to deliver a result, solve a pain point, or achieve an outcome for your members forever, in exchange for their loyalty. To justify the forever transaction, you need to rethink not just your pricing, but all the elements through which you deliver value.

Call it the Subscription Economy or the Membership Economy of the Forever Transaction, the focus is the same: direct data-driven customer relationships built on the premise of recurring revenue.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.