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The Membership Economy_ Find Yo - Robbie Kellman Baxter

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  • PraiseforTheMembershipEconomyHaving seen and experienced the challenges of building long-term sustainablerelationships involving membership organizations, Robbie Kellman Baxter offers clearexamples and straightforward advice how to achieve success in both the nonprofit andcorporatesectors.

    HowardL.Wollner,Chairman,NPRFoundation

    Theresabigdifferencebetweensubscribersandmembers.FromTheTimestoTheSunandnowattheWallStreetJournal,wearecommittedtobuildingourrelationshipwithourcustomers around the principles of membership. Members are more engaged, moreconnectedandmoreprofitable.ReadTheMembershipEconomytolearnhowtotakeyourorganisationfromtransactionaltorelational.

    KatieVanneck-Smith,ChiefCustomerOfficerandGlobalManagingDirector,DowJones

    Astheleaderofamajoralumnirelationsoffice,Iunderstandtheimportanceofbuildinglongtermrelationshipswithourmembers.RobbieKellmanBaxterspracticaladvicewilldriveimmediateresults.Ifyourorganizationdependsonhavinghighlyengagedmembers,youshouldreadTheMembershipEconomy.

    RapheBeck,DirectorofAlumniRelations,StanfordGraduateSchoolofBusiness

    Ive run a successfulmembership business for awhile now. So Id like to tell you tomovealongandnotreadthisbookbecausewhyisRobbieKellmanBaxtergivingawayallourhard-wonsecrets?ButIwonttellyouthat.BecauseTheMembershipEconomyisgreatperspectiveonanimportanttopic.

    AnnHandley,ChiefContentOfficerofMarketingProfs,andauthoroftheWSJbestseller,EverybodyWrites

    Robbiesbookispackedwithinnovativeideasforpricing,acquisitionandengagementofcustomer.IhighlyrecommendthisbookforanyCEOwhoseekstodisrupttheirindustrybyputtingtheircustomersatthecenterofeverythingtheydo.

    HeidiRoizen,OperatingPartner,Draper,Fisher,Jurvetson

    FromNetflix to Spotify, over the past few years, subscriptionmodels have become apowerful and profitable business model in the digital economy. Robbie has written aunique,well-researchedandverysmartbookforanyoneinterestedinbuildingone.

    DavidKirchhoff,formerCEO,WeightWatchersInternationalandWeightWatchers.com

  • At American Express, weve always been committed to putting our members at thecenter of everything we do. Robbie Baxters book provides practical techniques andinsightful new examples to guide organizations in building powerful, ongoingrelationshipswiththeirmembers.

    JoshSilverman,President,ConsumerProductsandServices,AmericanExpress

    The Membership Economy is an insightful, research based look at the strategies andtacticsneededtodevelop,growandmaintainamembership-styleprogramforcustomers.It isperhaps thebest,mostdetailedsourceIvefoundon thissubject todate,and ithasverymuchchangedthewayIthinkaboutourowngrowingmembershipprogram.Icantrecommenditenough.

    MarkKupferman,VP,Insights&InteractiveMarketing,SixFlagsEntertainmentCorp.

    Some will read Robbies The Membership Economy as an entertaining collection ofstoriesaboutsomeofthemostinnovativeorganizationsoutthere,while,forothers,itwillserveasapracticalguide.Itsafuninsiderviewthatsalsopragmatic.

    MarcBodnick,CEO,Quora

    In TheMembership Economy, Baxter explains, illustrates, and advocates for this newwayofdoingbusinessyouwontwanttomissit.

    BobBaxley,HeadofProductDesignandResearch,Pinterest

    Salesforce.com has always focused on open, transparent, ongoing relationships withmembers of our community, from customers to vendors to partners.As a result,wevebeennamedforfourconsecutiveyearsbyForbes.Companiesthatdontbuildthiskindofcommunitywillfallbehind,butRobbiesbookcanhelpanykindoforganizationleveragethese principles and thrive. The Membership Economy is a critical read, and one thatshouldbeaddedtoyourbusinessbookshelfthisyear.

    LEYLASEKA,SVP&GMDesk.comatSalesforce.com

  • Copyright 2015 byRobbieKellmanBaxter.All rights reserved. Except as permittedunder the United States Copyright Act of 1976, no part of this publication may bereproducedordistributedinanyformorbyanymeans,orstoredinadatabaseorretrievalsystem,withoutthepriorwrittenpermissionofthepublisher.

    ISBN:978-0-07-183933-4MHID:0-07-1-83933-X

    ThematerialinthiseBookalsoappearsintheprintversionofthistitle:ISBN:978-0-07-183932-7,MHID:0-07-183932-1.

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    All trademarks are trademarks of their respective owners. Rather than put a trademarksymbol after every occurrence of a trademarked name, we use names in an editorialfashiononly,andtothebenefitofthetrademarkowner,withnointentionofinfringementof the trademark.Where such designations appear in this book, they have been printedwithinitialcaps.

    McGraw-Hill Education books are available at special quantity discounts to use aspremiumsand salespromotions,or foruse in corporate trainingprograms.Tocontact arepresentative,pleasevisittheContactUspageatwww.mhprofessional.com.

    TERMSOFUSE

    ThisisacopyrightedworkandMcGraw-HillEducationanditslicensorsreserveallrightsinandtothework.Useofthisworkissubjecttotheseterms.ExceptaspermittedundertheCopyrightActof1976andtheright tostoreandretrieveonecopyofthework,youmay not decompile, disassemble, reverse engineer, reproduce,modify, create derivativeworksbasedupon,transmit,distribute,disseminate,sell,publishorsublicensetheworkoranypartofitwithoutMcGraw-HillEducationspriorconsent.Youmayusetheworkforyour own noncommercial and personal use; any other use of the work is strictlyprohibited.Yourrighttousetheworkmaybeterminatedifyoufailtocomplywiththeseterms.

    THE WORK IS PROVIDED AS IS. McGRAW-HILL EDUCATION AND ITSLICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THEACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BEOBTAINEDFROMUSINGTHEWORK, INCLUDINGANY INFORMATIONTHATCANBEACCESSEDTHROUGHTHEWORKVIAHYPERLINKOROTHERWISE,AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED,INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OFMERCHANTABILITYORFITNESSFORAPARTICULARPURPOSE.McGraw-HillEducationanditslicensorsdonotwarrantorguaranteethatthefunctionscontainedintheworkwillmeetyourrequirementsorthatitsoperationwillbeuninterruptedorerrorfree.NeitherMcGraw-HillEducationnoritslicensorsshallbeliabletoyouoranyoneelseforany inaccuracy, error or omission, regardless of cause, in thework or for any damagesresultingtherefrom.McGraw-HillEducationhasnoresponsibilityfor thecontentofanyinformation accessed through the work. Under no circumstances shall McGraw-HillEducation and/or its licensors be liable for any indirect, incidental, special, punitive,

  • consequentialorsimilardamagesthatresultfromtheuseoforinabilitytousethework,evenifanyofthemhasbeenadvisedofthepossibilityofsuchdamages.Thislimitationofliabilityshallapplytoanyclaimorcausewhatsoeverwhethersuchclaimorcausearisesincontract,tortorotherwise.

  • Formyparents,whothinkImgreatnomatterwhat.

  • CONTENTS

    ForewordbyAllenBlue

    Acknowledgments

    Introduction

    SECTIONIWhatYouNeedtoKnowAbouttheMembershipEconomy

    1 HowtheMembershipEconomyFitsintotheBiggerPicture

    2 WhytheMembershipEconomyMatters

    3 TheManyFacesoftheMembershipEconomy

    SECTIONIIMembershipEconomyStrategiesandTactics

    4 BuildtheRightOrganization

    5 BuildanEffectiveAcquisitionFunnelfromtheBottomUp

    6 OnboardMembersforSuccessandSuperusers

    7 StartSimplewithPricing,butLeaveRoomforFlexibility

    8 IncorporateFreeasaTactic,NotaStrategy

    9 UsetheRightTechnologyandTracktheRightData

  • 10 HowtoRetainMembers(andWhentoLetThemGo)

    SECTIONIIIMembershipOrganizationsComeinAllShapesandSizes

    11 WhatYouCanLearnfromOnlineSubscriptions

    12 WhatYouCanLearnfromOnlineCommunityModels

    13 WhatYouCanLearnfromLoyaltyPrograms

    14 WhatYouCanLearnfromTraditionalMembershipEconomyCompanies

    15 WhatYouCanLearnfromSmallBusinessesandConsultancies

    16 WhatYouCanLearnfromNonprofits,ProfessionalSocieties,andTradeAssociations

    SECTIONIVTheMembershipEconomyandTransformation

    17 FromIdeatoStart-Up

    18 FromStart-UptoMatureOrganization

    19 FromOfflinetoOnline

    20 FromOwnershiptoAccess

    21 FromBusinessasUsualtoCompetitiveDisruptionConclusion:HowYouCanStartTransitioningToday

    Glossary

    Notes

  • Index

  • FOREWORD

    Belongingmatters.Eachofusyearnsforthetribe:fortheaffiliationsthatwillsupportus,protectus,defineus,helpusmakesenseofacomplexandoverwhelmingworld.Everydayconversation revolves as much as ever around belonging: Do you use an iPhone orAndroid?AreyouaMillennialornot?Theonepercentortheninety-nine?

    Belongingispowerful,sopowerfulitsdangerous.Itincludesus,butmakesusinsular.Itinformsus,butmakesusignorantofotherviews.Itmakesabigworldfeelsmallandcomfortable,forbetterandworse.UnderlyingRobbieBaxtersbookisathemewehavediscovered at LinkedIn: Memberships only work when based on mutual respect andbenefit. She talks aboutGainsight, which reconceives Customer Service into CustomerSuccess; Amazon and their focus on value;mileage programs that fail when they stopvaluingthemembers.Whenyoutreatyourcustomerslikemembers,youinvestinthem.Itstheonlywaytheywillinvestinyou.

    But understanding belonging and how to build it is only one reason you need thisbook.Thesecond?Thisbookdescribesthefuture.

    Robbieisntwritingabouttechcompaniesperse;butthecompaniesshewritesabouthave embraced theopportunities and changes technologyhas brought in the last fifteenyears.Thosechangesincludetwo-wayconversationswithlargememberbases,bigdatatounderstand customer success and your business instantaneously, cloud computing, fullpersonalizationofcustomerservice,andmuchmoreinshort,changeswhichallowanybusinesstobecomeamembershipbusiness.

    WhenRobbie reached out tome a fewmonths ago to talk about the book shewaswriting on theMembershipEconomy, Iwasnt surewe needed this book. Surely,mostfolksatthispointhaveanunderstandingofmembership,right?Weveallexperiencedit:feltthatfeelingofprivilegeandbelongingorfeltbetrayedwhentherelationshipwithourcluborbrandbrokedown.

    ButwhenRobbiesentmethemanuscriptforthebook,ittookmeabouttwochapterstorealizethatIwaswrong.TheminuteIgottoMaslowandtheimportanceofbelonging,I knew shewas about to broadenmy perspective onwhat has always been one of thecentral,evolvingthemesinLinkedInsproductandbusiness.

    Businessitselfischanging.Softwareasaservice,thesharingeconomy,digitizationofphysicalgoods,andthearrivalofvirtualgoodsthesetrendsrepresentonlythebeginningofthecomingchange.Asthecostofphysicalgoodsdropsduetoautomation,astheworldofmanufacturing becomesmassively distributable through 3Dprinting and other cheapmanufacturingtechnologies,asjust-in-timelogisticsbecomeacommodity,thewholeideaofowningthingsisgoingtochange.

  • AndthatswhereRobbiebeginsherdiscussion:theswingingofthependulumbetweenMembershipandOwnership.ItsonitswaytoMembership.Andthistime,itmightendupstayingthere.

    Soenjoyherinsights,andconsiderhereminentlyapplicablestrategiesandtactics.

    YourmembershipintheMembershipEconomyiswaiting.Yourfreetrialstartsnow.

    AllenBlueCofounder,LinkedInVenice,California,September2014

  • ACKNOWLEDGMENTS

    Writing this book is one of the most challenging, creative, frustrating, and rewardingthingsIhaveeverdone.Writingabookismostlyalonely,singularpath.Asanextrovert,its hard for me to work that way. So I reached out to many, many people for help.Amazingly,nearlyallthepeopleIaskedweregenerousinsharingtheirtimeandexpertise.Even theprofessionalswhowereofficially beingpaid to helpmewent over and abovewhat I ever would have expected.Withoutmy colleagues, friends, and family, I neverwouldhavefinished.Ineedtoextendmydeepestgratitudetomanypeople:

    TothepioneersoftheMembershipEconomywhoallowedmetoincludetheirstoriesandwords andwho connectedmewith others: JimAdkins, John Baker, Kerry Barlas,Iniko Basilio, Bob Baxley, Jamie Beckland, Dave Beckwith, Alex Benn, Allen Blue,BruceClarke,MirandaCoykendall,ElizabethCrosta,KevinDonnellan,MichelleEpstein,MichaelGeller,JohnGraham,ReggieHenry,GeneHoffman,DavidHyman,BrianJacobs,VineetJain,ArthurJohnson,MattJohnson,AjayKaushal,ClarkKepler,DavidKirchhoff,TomKrackeler,JohnKremer,BeccaKrass,JimiLetchford,PraveenMadan,FranMaier,TimMaly, LisaMann, TimMcDonald, ChrisMcGill, NickMehta, Cathi Nelson, GuyNirpaz,LindsayPedersen,RajeshRam,NancyRedd,JoffRedfern,TanyaRoberts,CaryRozenzweig,GarretSeevers,LeylaSeka,PaulShoemaker, JoshSilverman,AnneMarieSqueo,Mollie Starr,DawnSweeney,TienTzuo,CamilleWatson,TimWestergren, andMichaelWuandtoallmyclientswhoallowedmetotestnewideasandbeapartoftheirjourneys,andwhohavebeenasourceofinspiration.

    Tomyearlyreviewers:Iamluckytohavefriendswhocanwriteandeditandgivemefeedback in a way that I can hear it and use it. Tomy incredibly talented friends andcolleagueswho spent hours and hours reading and editingmy drafts, combining toughlove with encouragement when I needed it most: Rebecca Bloom, Oona Ceder, LizaHanks,SethKahan,CamilleLandau,CindyLee,LauraLowell,LindaPopky,andBeccaBritton Pecore, for reading many chapters and sections quickly and carefully, and formakingthebookmuchbetter.

    I won the friendship trifecta with Joanna Strober, who is a best-selling author,MembershipEconomy entrepreneur, and a source of daily support andwisdom.Tomygirlfriends who have been there for me through this long journey, with patience andkindness,evenwhenIdidntreturntheircalls:JulieAndersson,RoxanneBozdog,LaurenCalhoon,MaileCreamer, JeanneLowell,LauraMissan, JessicaOlson,ParkeTreadway,andJillZanolli,allofwhomreachedouttomewhenIwasinmytunnelandsawthelightattheendevenwhenIdidnt.

    Tomyconsultingcolleaguesandespeciallythefollowing:ScottEdinger,SethKahan,LisaMcLeod, Linda Popky, LibbyWagner, and ScottWintrip, who encouragedme to

  • thinkbig.

    Tomy consultingmentor,AlanWeiss,who has taughtme somuch about somanythings,andwhofirstgotmethinkingseriouslyaboutwritingabusinessbook.AndtoallthemanypeopleinAlanscommunitywhohavebecomefriendsandcolleaguesovertheyearssomanyofyouhaveofferedintroductions,writingtips,andencouragementalongtheway.

    Tomyfriendswhohavewrittenbooksandwhoansweredmynever-endingquestionsabout everything from agents and proposals, to editing and promoting the book itself:Leslie Crutchfield, Denise Brousseau, Dorie Clark, Heather McLeod Grant, Bill Lee,Charlene Li, Liz Lynch, Roberta Matuson, Sharon Meers, Adrian Ott, Amanda Setili,AndrewSobel,LisaSolomon,andallofthewomenfromtheAuthoresscircle.

    To the publishing andwritingprofessionalswho challenged, guided, andhelpedmegetthisbookwrittenandpublished:mywritingcoachMarkLevy,whohelpedmefindmyvoiceandsparkedmycreativity;SarahWhite,whohelpedmerestructurethewholebookoveralong,intenseIndependenceDayweekendandthenpolishedwithmerightuptothedeadline;WallyWood, who hammered all of my writing chunks into a single smoothstory;my agent, TedWeinstein,who pushedme tomakemy proposal tight, clear, andcompelling and helped me sign with McGraw-Hill; and Donya Dickerson and theMcGraw-Hill team, includingScottKurtz,CherylHudson,RobertaMantus,AnnPryor,RobertSwanson, andChelseaVanDerGaag,who saw the promise of theMembershipEconomy,tookmywords,madethemintoarealbookandbroughtthatbookoutintotheworld.

    Mostofall,Iwanttoexpressgratitudetomyfamily.TomychildrenwhohaveheardenoughabouttheMembershipEconomytowriteabookoftheirownaboutit;tomysisterwhoissuchafinewriterherselfandinspiredmetobemorecandid,authentic,andhelpful,throughherexample; toall theBaxtersandAgustinswhowerealwaysinmycorner; tomymom and dad who read the book several times and offered detailed feedback andunabashedencouragementandsupport.

    AndtoBob,wholetsmewakehimtosharemyworries,whohasreadandeditedjustabouteverywordIvewrittensinceweweresophomoresincollege,andwhoisstillmyverybestfriendandadvisorafterallthistime.

  • Introduction

    Istartedwritingthisbook,atleastinmymind,about10yearsago.IliveinSiliconValleyand have been here formost ofmy life. For the past 13 years, I have been running astrategyconsultingfirm,andearlyon,mostofmyclientswereSiliconValleytechnologycompanies.

    About10years,ago,IstartedworkingwithNetflix.Youreprobablyfamiliarwiththatcompany.ItstheguyswhocreatedHouseofCardsandOrangeIstheNewBlack,twoofmy favorite shows. But back then, they were known for being the online DVD rentalsubscriptioncompany. It tooka lotofwords todescribe them,because theirmodelwasunlikeanythingoutthere.

    Netflix used technology to dramatically improve the experience of renting movieDVDs.BythetimeIstartedconsultingforthem,Iwasalreadyaloyalsubscriber.IlovedbeingabletobuildaqueueofmoviesIwasinterestedin,soIalwayshadthreewaitingforme,lovedbeingabletoorderfromhomeandhavethemdelivered,andmostofall,Ilovedthefactthattherewerenolatefees.Ever.Iwasanevangelist.Ilovedthem.

    But I loved them even more as a consultant. I thought that Netflix was the mostexciting company I had everworkedwith. Itsmodelwas smart and simple. UnlimitedDVDs,threeoutatatime,forafixedprice.Subscriberssignuponce,butbecomeloyalsubscribersforeveroratleastforseveralyears.

    Unlike the rental stores that depended on each transaction to drive revenue,Netflixstarted out in the early dayswith just one forever transactionafter you sign up anduntilyoucancel,yougetthesamegreatexperiencewithouthavingtoenteryourpaymentinformationeveragain.For thesubscriber, itmeantconstantmoviesand lowstress.ForNetflix, itmeant recurring revenue.And the experiencewas sogood it createdawholesubset of superusers, the loyal product evangelists who educated the market about theNetflixservice,whileprovidinghelpfulfeedbacktothecompany.

    TheNetflixmodelwasdisruptive.Therewereveryfewdigitalsubscriptionbusinessesofanyrealsizeat that time.Netflixdidnthavea lot tocompare itself to,besidesHBOandmaybe the cell phone companies.But itwas onto somethingand itwas all aboutmembership,notownership.Iwashookedonthemodelandwentontoadvisedozensofcompaniesontheirsubscriptionandcommunitybusinesses.Itwassoobvioustomethattechnologywasenablingnewwaysofengagingcustomersinanongoing,authenticway,andIsawpotentialeverywhere.Otherssawittoo.OneVCtoldme,Membershipistheholygrail.Ithassomanyadvantages.

    Im convinced that the Membership Economy will have as profound an effect onsocietyastheIndustrialRevolutionorthespreadoftheautomobile.Andtheleaderswhoignoreitwill followcarriagemakers intooblivion.AndyetImsurprisedbyhowmanypeoplehaventseenthistransformation.ThatswhyImwritingthisbook.

  • WhatIstheMembershipEconomy?Sowhat is theMembershipEconomy?Somesay itsallaboutsubscriptions.Otherssayitsaboutcommunityandcommunication.Stillotherssayitsaboutbelonging.Somesayitsbeenaroundforever,inassociations,loyaltyprograms,andgyms.

    IthinktheMembershipEconomyisallthesethings.Idefinemembershipasthestateofbeingformallyengagedwithanorganizationorgrouponanongoingbasis.Membersarepartof thewholealthough theydont alwayscontribute to theexperienceofothermembers.Anorganizationabletobuildrelationshipswithmembersasopposedtoplaincustomershas, as well see, a powerful competitive edge. Its not just changing thewordsyouuse;itsaboutchangingthewayyouthinkaboutthepeopleyouserveandhowyoutreatthem.

    The Membership Economy model works for both organizations and individuals.Executivesandinvestorsalikeseethatthemodelsucceedsbecauseitreducesuncertaintyintheirrevenue.Whendonecorrectly,membershipappealstothememberstoo,becausemembershipprovides recognition, stability, andconveniencewhileconnectingpeople tooneanother.

    Today, the promise ofmembership is greater than ever. Evolving technologies havedramatically enhanced the ability of a broad range of industries to take advantage ofmembershipmodels.TheMembershipEconomy isallaboutputting thecustomerat thecenterofthebusinessmodelratherthantheproductorthetransaction.Everyorganizationshouldbefocusedonthecustomer.Thebusinessmodelandorganizationneedtosupportthis customer-centric model. The relationship between customer and organization isongoingandformal,aforevertransactionthathasimplicationsacrosstheorganization,changingeverything.

    TheMembershipEconomybringstogethermytwoloves,businessandpsychology.Itgetsitspowerfromconnectingtodeephumanneeds.AccordingtopsychologistAbrahamMaslow, after satisfying physiological needs and safety, people focus on needs ofbelonging and esteem before ultimately moving to self-actualization. The MembershipEconomyhelpspeoplesatisfythoseneeds.

    IWroteThisBookforYouThisbookcontainsstrategiesfortheMembershipEconomythatcanbeusedbynearlyanytypeoforganization,aswellasexamplesofsomeofthemanykindsoforganizationsthatarealreadyleveragingthepowerofmembershipandguidelinestohelpyounavigatekeymomentsoftransformation.

    Hopefully the book will help you think more broadly about whats possible andprovide guidance for what to do next. Readers who will benefit most from the bookinclude:

    Executivesinproduct-centriccompaniesseekingtojointheMembershipEconomy.

  • Entrepreneursbuildingneworganizationswhowanttoincorporatethepowerofmembershipfromtheoutset.

    Associationleaderswhoworryaboutdecliningmembershipsatisfaction.

    Marketerswhorunloyaltyprogramsthathavebecomecommoditized.

    Boardmemberslookingfornewmodelstostrengthentheircompanies,buildstrongercustomerrelationships,anddrivemorepredictablerevenuestreams.

    Communityorganizerswhowanttobringpeopletogether.

    Businessschoolstudentswhowillbeinfluencingtomorrowsbusinessmodels.

    Individualswhocareaboutconnectionandbelonging.

    HowtoReadThisBookIhavewrittenthisbookwiththeunderstandingthattime-pressedreadersbrowseanddiveintobooksastheirinterestsdictate.Youwillfindfoursections,eachwithseveralchapters:

    SectionI:WhatYouNeedtoKnowAbouttheMembershipEconomy

    SectionII:MembershipEconomyStrategiesandTactics

    SectionIII:MembershipEconomyOrganizationsComeinAllShapesandSizes

    SectionIV:TheMembershipEconomyandTransformation:KeyInflectionPoints

    Youcanreadthebookfromstarttofinishtheideasbuildoneachother.Butfeelfreeto jumparoundreadingonlywhat seemsmost relevantor interesting toyou.Youwillfindtermsdefinedintheglossaryattheendofthebook.

    Itismydeepestwishthatthisbookisinspiringandhelpfultoeveryonewhopicksitupandthatitenablesgreaterconnectionandmeaninginyourbusiness,civic,andpersonalspheres.

    WhileIhopeyoufindthebookentertainingandfuntoread,Ireallyhopeyouapplysomeof the tipsand techniques tobuildabusiness that is less lumpy,morepredictable,morevaluabletoyourmembers,andultimatelymoreprofitableforyou.

    RobbieKellmanBaxterMenloPark,California

  • SECTIONIWHATYOUNEEDTOKNOWABOUT

    THEMEMBERSHIPECONOMY

  • BeforeyouinvestanytimeinlearningabouttheMembershipEconomyandhowtoapplyitsprinciples,youprobablywant toknowwhat it is,why its important,andhowitcanhelpyou.IfthetransactionalmodelisdyingandtheMembershipEconomyisreplacingit,whatdoesthatmean?

    ThisfirstsectionprovidesanoverviewofhowtheMembershipEconomyfitsintothebiggerpicture,whyitmatters,andwhatitlookslike.

    Membership is a concept that is timeless, important, and powerful. It is part of ourinnate humanity to gravitate toward community. Once trade economies developed, weprovedwewerewillingtopayapremiumforconnection,andtheMembershipEconomywasborn.

    In Chapter 1 you will learn how the Membership Economy fits into the patterncommon tomost transformative business trends and how subscriptionamodelwevelong been accustomed toboth resembles and differs from theMembership Economymodel. Likewise the sharing economy is introduced and compared to theMembershipEconomy.

    InChapter2wedelvedeeperintotheculturaltransformationthatisunderwaythatisshifting us froman economybased on principles of ownership to one based on access.ThisswingexplainsthecurrentinterestinandsuccessofMembershipEconomybusinessmodels.

    InChapter3weintroduceyoutosixoverarchingcategoriesofMembershipEconomyorganizationalmodels,categoriesthatIusethroughoutthebooktohelpyouidentifyyourplaceintheMembershipEconomybothasaconsumer(member)andasabusinessleaderresponsibleforyourorganizationsstrategy.

    ThethreechaptersinSectionIwillhelpyougetthebigpictureandsetthestageforthenextsections,whichgetintospecificstrategies,tactics,andsituations.

  • HowtheMembershipEconomyFitsintotheBiggerPicture

    We hear the stories. Cornered by a passionate friend, we are regaled with stories of abinge-watchingHouseofCards,orthevirtuesofthePaleodietcombinedwithCrossfit,orthenewsongsdiscoveredbyPandora.Acertaintypeoforganizationiswinningtheheartsand voices of their customers, and building the kind of loyalty that traditionally wasreservedforfamily,community,andchurch.Thesecret that theseorganizationsknowisthat people are craving membership. Organizations that build their businesses aroundpeoples needs to belong, to be connected, and to be admired, that are focused onrelationshipsoverproducts,arewinningintodayseconomy.

    You probably picked up this book because you want to understand how theseorganizations are building such loyalty, and how many of them have built recurringrevenuemodels,theholygrailofbusiness.Thegoodnewsisthatitspossibleforjustabout any type of organization to incorporate principles of membership into theirbusinesses. The Membership Economy is transforming the way organizations connectwiththeircustomers,andthisbookwilltellyouhow.

    TounderstandwhytheMembershipEconomyisbecomingsovibrantandhowitfitsintothebiggerpicture,wehavetotakeastepback.Asasociety,wearemovingfasterandspendinglesstimeintraditionalcommunities.Thisalienationisdrivingconsumerstoseekgreater flexibility andconnection,often fromnewkindsoforganizations,goingbeyondthetraditionalclubs,churches,andfamilygatheringsofthepast.

    InBowlingAlone:TheCollapseandRevivalofAmericanCommunity,1 published in2001,RobertPutnamshowshowwehavebecomeincreasinglydisconnectedfromfamily,friends,neighbors,andourdemocraticstructuresandhowwemayreconnectwiththem.Putnamdrawsonevidenceincludingnearly500,000interviewsconductedoveraquarterof a century to demonstrate thatwe sign fewer petitions, belong to fewer organizationsthatholdmeetings,knowourneighbors lesswell,meetwithfriends lessfrequently,andeven socialize with our families less often than in the past. To use Putnams bowlingmetaphor, more of us are bowling more than ever before, but were not bowling inleagues.Werebowlingalone.

    Membershipistimeless,important,andpowerful.

    TheMembership Economy is a reaction to the social trend Putnam identified. TheMembershipEconomy is enabling all kinds of organizations to build social capital andcreatemeaningfulconnections.Maybeitsnotthatwerenolongerconnected,butratherthatour connections arepoppingup innewplaces,manyofwhich are enabledbynewtechnologies.

    Ashifthasbegun.Membershipistimeless,important,andpowerful.Peoplecraveit.Mytownhasaneighborhoodofcloselypackedhouses,designedtolooklikesmalltown

  • America.The development forbids tall front yard fences and gates, sidewalks abound,and theres even a small neighborhood park. A few blocks away, in an equallyconvenientandprestigiousarea, isasecondneighborhoodwithbiggeryardsandbiggerhouses, but people pay the same amount as they do for the privilege of living in thesmallerhousesinthestrongercommunity.

    In other words, people seem to be willing to pay a premium for connection, for aneighborhood.Theyarewillingtogiveupprivacyinexchangeforassociationwithothers.Amembershiporganizationbuildsaneighborhoodforitsidealcustomer.Theresacostassociatedbothwithbuyingandmaintainingahouseinaneighborhood,sothepromiseofconnection,community,andongoingvaluemustbeguaranteed.

    TheDifferenceBetweenMembershipandSubscriptionMembershipisanattitude,anemotion.Asubscriptionisafinancialarrangement.Its

    quitepossibleforsomethingtobebothasubscriptionandamembershiporganization.Infact, the Membership Economy is the logical extension of subscriptions. ManyMembershipEconomyorganizationsdontseethemselvesasmembership.Theysay,Wehave a subscription business, or Were a sharing business, or Were a transactionalcompanywithanaffinityprogram,orWereasocialnetwork.Sometimestheysaythatmembershiporganizationsmustbemission-drivennonprofitsoraboutconnectionsamongmembers.

    Noneofthisistrue.

    What makes a membership organization is the attitude of the organization and thefeelings of its membersnot whether members subscribe. Companies failure to seethemselvesaspartofthisbiggertrendcanlimittheirpotentialtobuildrelationshipsandstrengthentheirmodels.

    A subscription does give access and an array of choices. A transactional customermightowndozensorevenhundredsofmovies.ButNetflixhasthousandsfromdifferentcountries,genres,andmoreprovidingtremendouschoiceandthelatestoptions.Andthemonthlypriceislowwhichprotectsthecustomerscashflow.Accessissomuchbiggerthanownership,andthesubscriptionmodeltiescustomerstoorganizationsinanongoingrelationshipwithanopportunityforbenefitsonbothsides.

    Those are simple subscription benefits. But some of the value subscribers get fromNetflixisderivedfromtheotherpeopleusingitandtheircommentsaboutmoviesandTVshows. This value comes from the community. Netflix also created an algorithm thatharvests the data it collects in order to analyze its members behavior. It can use theinformationitgetstoproviderecommendationsforotherfilms.

    Evenwithallthesebenefits,manyNetflixsubscribersmaynotfeellikemembers,andthatsokaybecausetheyrestillpartoftheMembershipEconomy.Evenwithoutusingthenomenclatureofmembershipandevenwithoutinvestinginthecommunityside,boththecompany and the customers are benefiting from the application of the principles of theMembershipEconomy.

  • WhatBroughtUstoThisPoint?The shift to a Membership Economy follows a pattern that is common to manytransformativebusinesstrends.Itsbroughtonbyanoutsideforce,tiesintoahumanneed,andimpactsawiderangeofindustriesandcompanies.Eventually,thetrendbecomespartofthenewnormal,istaughtinbusinessschoolsandispracticedbymanagers.Letstakealookateachofthese:

    1.Theshiftisbroughtonasaresultofamajoroutsideforce.

    ThereareactuallytwomajoroutsideforcescombiningtodrivetheMembershipEconomy:Theubiquityofonlineaccessviamultipledevices,whichconnectmemberswithcontent,services,othermembers,andthecompanyitselfatalltimes,andthedramaticallydecliningcostsofdatastorageandprocessing,whichenablecompaniestostoreandprovideaccesstoservicesataverylowprice.

    Thefirstphaseofonlineaccesswasaone-wayconnectioninwhichtheorganizationwasabletoprovideservicesandcontenttocustomers.Morerecently,however,technologyhasgrownmoresophisticated,thusallowingindividualstorespondtotheorganizations,providingfeedbackandnewcontentwhilealsoenablingpeerconnectionamongcustomers.

    Forexample,GeneralMotorsrecentlyuseditsFacebookpagetorespondtoconcernsandquestionsrelatingtoitsrecallof1.6millioncarsthathadbeenlinkedtoadozendeaths.2Technologyenablesthetransformationfromuserstomembersandcreatescommunityandinterdependenceamongtheusersthemselves.

    Atthesametime,costsofdataprocessingandstorageaswellasInternetconnectivitycostshavebeendeclining,makingiteasierfororganizationstobearthesecostsonbehalfoftheircustomers,andenablingthemtothinkaboutpricinginamoresophisticatedway.

    UbiquitousandinexpensiveaccesshascreatedtheidealconditionsfortheMembershipEconomy.

    2.Ittiesintoatimelesshumanneed.

    Punditsnevergettiredoflamentingthedeclineofface-to-facecommunityandbelongingthathasbeenbroughtaboutbytheadvancesoftheInternet.Yettechnologyenablesustobeconnectedinwaysneverbeforepossible.ISkypewithclientsinSouthAfrica,Greece,andAsia,andIcaninstantlypollhundredsofotherconsultantsforadvicethroughmyonlineprofessionalnetwork.Withoutboardingaplaneorevenchangingoutofmypajamabottoms,IcanstrengthenmysocialnetworkvirtuallyanytimeIhaveafewminutes.

    Werenotlimitedtodaybyphysicalproximityinourassociations.

    Humansyearntobeconnectedandtogainenergy,knowledge,andcomfortfromothers.Thecommunitiesthataremostmeaningfulandimpactfulmaynotbethesameasthoseinthepastneighborhoodmothers,religiousorganizations,and

  • professionalassociationsbutpeoplearestillfindingwaystostayconnected.Werenotlimitedtodaybyphysicalproximityinourassociations.

    Facebook,forallthecomplaintsaboutpeoplepostingtheirmundanebreakfastsandbreakups,hasbeeninstrumentalinbringingtogetherfamilies,reconnectingoldfriends,andevensavinglives.Inthesummerof2014,theALSIceBucketChallenge,afundraisingcampaigntoraisemoneybyhavingindividualschallengetheirfriendstodumpabucketoficewaterontheirheadsorpay$100totheALSFoundation,wasthehitofthesummer,cloggingourInstagramfeedsandquadruplingthedonationsfromtheprioryear.3

    Throughmembership,memberscanbeperceivedasimportant,connected,orsuccessful.Inshort,membershipmakesusfeelgood.

    3.Theimpactcanbeseenacrossawiderangeofindustriesandcompanies.

    ExamplesofhowtheMembershipEconomyistransformingindustriesandcompaniesarelimitless.AhairsaloninCaliforniasellssubscriptionhaircutsandencouragessocializingatthesalon.OrganizationslikenewssitesDIGG,Reddit,andNews360aretransforminghowconsumersreceive,evaluate,andprioritizenewscontent.YouTubeletsusallbestarsforprofessionaladvancementandpersonalsatisfaction.PhotosharingsiteslikeFlickr,Pinterest,andSnapfishallowphotoenthusiaststoconnectwithoneanother,andtheAssociationofPersonalPhotoOrganizers(APPO)trainsandconnectstheprofessionalswhoassistphotoenthusiastswiththeirimages.

    Onceyoustartthinkingabouthowtheprinciplesofmembershipcanbeincorporatedintoexistingbusinessmodels,youstarttoseeopportunitieseverywhere.Theimplicationisclear:thismodelislikelyrelevanttoyou.

    4.Eventually,thistrendbecomespartofthenewnormal.

    Businessschoolsnowteachsubscriptionmarketing,andnearlyeverymajorcompanyhasateamdedicatedtobuildingcommunityandbelongingaroundeventhemostmundaneproducts.Organizationsareinvestinginongoingrelationship-buildingandcustomersuccess,goingwellbeyondtraditionaltechsupportcostcentersofthepast.

    TheMembershipEconomybringstogetherbusinessandpsychologybecausethemembershipeconomygetsitsenergyfromdeephumanneeds.

    TheMembershipEconomyhelpspeoplesatisfythoseneedsonanongoingbasissincemostmembershipbusinessesleveragesomekindofongoingsubscription.However,thereisaconsiderabledifferencebetweenamembership-basedandasubscription-basedorganization.

    TheDifferenceBetweenMembershipandSharingBecauseofmyexpertise in theMembershipEconomy,Iamoftenasked tocommentonother new economies. One of those, the sharing economy, is closely related to the

  • MembershipEconomy.

    ManyofthemostsuccessfulsharingeconomybusinessesdependontheMembershipEconomy.

    The sharing economy is amodel based on sharing (or renting) assets not currentlybeingusedacar,asparebedroom,avacationhome.Whilethereisalotofinterestinthesharingeconomyrightnow,theideaitself isnotnew.Sharingeconomyisarelativelynew termand is very trendy.But you canpoint to older instancesvacation rentals byowner(VRBO),forexample.Theyrebasedontheprinciplethatthereisstoredvalueinexpensiveassetsandbymakingthemavailabletootherswhenwedontusethem,wecanunlockthatvalue.Itsasustainableeconomicsystembuiltaroundpeer-to-peersharingofunderutilizedassets.ExamplesincludeAirbnb,RelayRides,andNapster.

    ManyofthemostsuccessfulsharingeconomybusinessesdependontheMembershipEconomy.Afeelingofmembershipinfrastructureisneededsothatpeoplecanextendtrustbeyond thepeople in theirphysical communities. Inmyview the sharingeconomy is asubsetoftheMembershipEconomy.

    When people talk about the sharing economy, theyre talking about people sharingstuff thatbelongs toother individualsandnot toanorganization.Forexample,considerRelayRides. You might come to San Francisco where I live and need to rent a car.Meanwhile,mycarisjustsittinginthedrivewaymostofthetimebecauseIcanwalktowork.Youcanrentmycarforlessthanthecostofatraditionalrental.

    In contrast, Netflix has a membership business where consumers share access to awideselectionofcontent,butthecontentbelongstothecompanyandnottheindividuals.ItsnotmesharingwithyouitsNetflixprovidingaccesstoitscontenttoallofus.

    Changes in technologyhave enabled sharing to takeoff.What enables a large-scalesharingbusinessistrust.TheInternetmakesitpossibletobuildtrustedsystems.Always-onmobiledevices thatenableus toconnectatanytimemakeitmoreefficient toshare.TenyearsagoifyouandIhadwantedtoshareacaranddidntknoweachother,itwouldhavebeenhard to impossible tobroker that situation.Butwith todays technologybigdataevaluatinginrealtimeyourtrustworthinessandmineaswellaslocatingmycaritisrelativelyeasytoidentifymyunusedassetandyourunmetneed.

    Sharingmakes themost sense in areas where the assets are expensive, varied, andunderutilized.Vacationhomes,cars,collectionsofcontent,andspecial-occasionclothingareallassets thataregenerallyunderutilizedandare,notsurprisingly,someoftheearlysuccessesofthesharingeconomy.

    RememberTheMembership Economy has come about and is growing because of massive socialtrends and developing technology. The computer and the Internet are changing humanlives in ways as profound as the mass production of the automobile, which changedeverythingfromthewaywecourtedtothewayweshopped.Inthemidstofthischange,

  • however, human needs remain constant. How to shape an enterprise that meets thoseneedsisthesubjectofthechaptersjustahead.

  • WhytheMembershipEconomyMattersTrythis.Googlemembership.Themajorityofyourresultswillbemuseums,churches,andothernonprofits.Thetermmembershipisownedbynonprofitsandafewloyaltyclubsbutthatsit.Andthatsashame,because,asIshow,theMembershipEconomycontainsmany more organization types than nonprofits and loyalty programs. Indeed, when anorganization is structuredaround thecustomer,withanongoingand formal relationshipbetweencustomerandorganization,itbecomesamembershipcompanyalmostbydefault.

    FromOwnershiptoAccessInthepast,muchofoureconomyhasoperatedontheprinciplesofownership.Companiessellthings,andconsumersbuythemandownthem.Theideaofownershipissimpleifitsmine,itsmine.Icanalter,destroy,sell,orsavemystuff,andIcanuseitforaslongasIdlike.However,italsomeansthatIhavetheresponsibilitiesthatcomewithownership.

    Many of us own cars, and there are certainly benefits to ownership. If youwant topaintflamesonthesideofyourcarorliftorlowerthechassisorcustomizeyourplates,you have to own the car. But if your car breaks down or a fender-bender takes out aheadlight, you need to fix it. If it becomes expensive to maintain, you need to decidewhethertoinvestinanewmodelorlivewith,andbeseenin,unreliablewheels.

    Ifyouneed touse thecaronlyoccasionally,donthaveagarage,orwant toalwaysdrivethelatestmodel,ownershipmaynotbeyourbestchoice.Otheroptionsexistifyouwantaccesstoacar.Youcanrentone,leaseone,orcallacab.ButnoneoftheseoptionshastrulytakenadvantageoftheMembershipEconomy.

    Ownershipandaccessareattwoendsofacontinuum,andrightnowthependulumisswingingawayfromowning.

    Today, technologyhasprovidednewmodels fordrivers thatwereunavailable in thepast.TheseincludeZipcar,whichprovidesmembersaccesstoafleetofcompany-ownedcarsforsingle-tripusagewithoutrequiringby-the-dayrental;RelayRides,whichallowsmemberstorentthecarsofothermemberswhenthecarsarenotinuse;andUber,acarservicewhichallowsanyonewithaluxurycartobecomeadriverforhire.

    Ownershipandaccessareattwoendsofacontinuum,andrightnowthependulumisswingingawayfromowning.Asindividualsgrowfrustratedwiththeburdensofowning,caringfor,andstoringtoomuchstuff,theyarelookingforwaystominimizethatstress.They are also experiencing a need for meaningful connection and community. TheMembership Economy provides a solution to both of these challenges: simultaneouslyminimizing the burdens of ownership while offering new ways to derive a sense ofcommunity.

    Table 2.1 charts the key differences between ownership and the Membership

  • Economy.

    Table2.1KeyDifferencesBetweentheOwnershipandtheMembershipEconomy

    Thekeymetricsintheownershipeconomyareconversionrate, transactionsize,andeconomiesofscale.IntheMembershipEconomytheyareretentionandcustomerlifetimevalue.

    FromPrivacytoBelongingSome people want to be anonymous, but others are willing to give up some personalinformationinexchangefortherecognitionandbenefitsthatcomefrombelonging.Thereis an ongoing and probably endless debate over the complex concept of privacy. Howmuchprivatedatadoyouwanttoshare?Andwithwhom?Howmuchshouldyouhavetoshareinexchangefortheprivilegesofmembership?Onechallengemanypeoplefaceisthedesire to access anorganizationsbenefitswhilewanting to stay independent.Somewant to be protected from Big Brother, while others want to avoid superfluous socialinteractions.Stillothersareunabashedjoinersandsimplywanttoconnect.

    CaryRosenzweigandIarebothjoiners.MaybethatswhywevebothbeendrawntoworkintheMembershipEconomy.RosenzweigwastheCEOforfiveyearsatIMVU,oneof the first andmost successful virtualworlds.According to itswebsite, IMVU is anonline social entertainment destination where members use 3D avatars to meet newpeople,chat,createandplaygameswiththeirfriends.1Memberscancreate,sell,andbuyvirtualgoods,usingvirtualcurrencytheyearnthroughplayorbuywithrealmoney.

    Whats fascinatingabout IMVU is that its a community that encourages anonymity

  • whilestillprovidingthebenefitsofmembershipconnection,access,andmore.OneofthethingsthatsurprisedmemostsaysRosenzweig,ishowrealtherelationshipsandtheemotionsarebehindtheavatars.2

    Many of the people who connected through IMVU behind the avatar facadesdevelopedgenuinefriendshipsandevenmet,andinatleastonecasemarried,intherealworld. You see this desire to maintain privacy even while enjoying the benefits ofcommunity among younger people who use middle names as last names on socialnetworks, or even use an alias altogether. Maybe this is for security, although mostmembershiporganizationsreportveryfewprivacyviolationsorharassmentcases.Maybeitstohidewildbehaviorfromschoolsandemployers.Ormaybeitsjustawaytotestthecommunitybeforemakingthemselvesvulnerable.

    AMembership Economy businessmodelmay be right for your business, even if itisnt right for you personally. You might not be a joinerand thats okay. Nonjoinersmight pay cash and forgo loyalty programs tomaintain privacy about how they spend.They tend to stay away from Facebook, not just because they dont want to post, butbecause they find their connections incessant sharing annoying. Membership is aboutconnection and access over privacy and ownershipand not everyone values these thesameway.

    Whatmakesagoodmarketerisaninterestinwhatmotivatestargetbuyers,howtheybuy,andwhatearnstheirloyalty.

    Evenifyouarenotajoiner,hundredsifnotthousandsoforganizationsareusingtheideas,strategies,andtechniquesthisbookdescribes.Youmaynothavechildren,butasamarketeryoucanselldiapersandhelpotherpeopleseethevalueofthis.Ihaveadvisedorganizations selling high-performance bicycles, databases, and business processmanagementsoftwareproductsforwhichIwasnotthetargetbuyer.Runningabusinessdoesnotmeanthatyoubecomeitstargetbuyer.

    Whatmakesagoodmarketerisaninterestinwhatmotivatestargetbuyers,howtheybuy, and what earns their loyalty. So even if membership is not for you, and youpersonallyfeelyouarealreadytooexposed,toopublic,andsharingtoomuch,rememberthatforothersmembershipishugelyimportantandworthpayingapremiumfor.

    TheMembershipEconomyMatterstotheMembersMembers love membership models because they fulfill powerful human driveslikeneedsforaffiliationandprestige.

    You can certainly get all these benefits through ownership as well. Membershipmodels, however,with their emphasis on ongoing relationships, access over ownership,anddrip-paymentplansthatreplacebigpricetags,areoptimizedtoprovidethesebenefits.

    Thebenefitsofownershipcenteraroundsecurity,privacy,andcontrol.

  • The pendulum swings back and forth between ownership and membership. Bothmodelscanexistsimultaneously,althoughusuallyoneortheotheristypicallyinamoredominant role for anygiven industry.Thebenefitsofownershipcenter around security,privacy, andcontrol.Rightnow,however,ownership isdramatically losing favor,whileconnection is becoming critically important. Realtors will point out that key buyersegmentstodayarelessinterestedinbigprivateestatesandmoreinterestedinthequalityofcommunityandsharedassetslikepools,clubhouses,andproximitytolocalattractions.Music lovers are tossing their CD collections in exchange for access to digital musicsubscriptions,peer-influenceddiscovery,andsharingcommunities.

    Overthepast20years,manytraditionalmembershipmodelshavebecomelesscentralto peoples lives. People are more transient, both personally and in their work, whichdriveslonelinessandvulnerability.Technologyenablesimportantconnections.

    TheMembershipEconomymatterstoorganizationsofallsizesindozensofindustriesforatleastthreemajorreasons:

    Itcreatesrecurringrevenueandremoveslumpiness.Mostbusinesseshavetodealwithseasonalitysomemorethanothers.Havingmonthlysubscriptionrevenuecansmoothoutthepeaksandvalleysinannualsales.

    Itbuildsamoredirectrelationshipthatstrengthensthebrand,byputtingcustomersattheorganizationscenter.Anorganizationthathasastrong,positiverelationshipwithitsmembersisabletousethatloyaltytogrowasmembersrecommendtheenterprisetoothersandtoresistcompetitivethreats.

    Itgeneratesanongoingdatastreamthatcanbeusedtoimproveservicesandidentifyopportunitiestoincreasesatisfaction.Themoretheorganizationunderstandsitscustomersneeds,wants,behaviors,andattitudesthatis,muchmorethantheirrawdemographicsthebetteritcanservethoseneeds.

    VirtuallyanyorganizationcanbecomepartoftheMembershipEconomy.Membershipstrengthens loyalty. Membership strengthens participation. Membership strengthensreferrals.Andorganizationsthatthinkaboutmembershiptendtofocusmoreonprovidinglong-termvalue,whichultimatelyleadstobettercustomerlifetimevalue.AnyCEOwhois not thinking about membership is missing a huge opportunity to point his or herorganizationtowardlong-term,sustainableprofitability.

    RememberThere are benefits to ownership, but todays consumers are increasingly interested inaccessoverownership.Accessminimizesthestressofcaringforandstoringallourstuff,whileofferingusnewwaystofeelpartofacommunity.

    Tobepartof theMembershipEconomy,peopleneedtofacethefact thatprivacyofpersonal information may well need to be given up in exchange for the benefits ofmembership.

    Themembershipmodelfillspowerfulhumandrivesoneofthereasonsitisgrowinginpopularityamongmanykindsofbusinesses.Virtuallyanyorganizationcanbecomepart

  • oftheMembershipEconomy.

  • TheManyFacesoftheMembershipEconomy

    Membershipasanorganizationalstructurehasbeenaroundforacouplethousandyears.ThinkoftheCatholicChurchorthemedievalguilds.

    The Membership Economy, however, is a new idea enabled by the technologicaltransformationthatissweepingtheworld,aresultofthepersonalcomputer,theInternet,social networks, user-generated content, smartphones, cloud computing, big data, andmore.

    Membershipisthefutureofallbusinessmodels,withanemphasisonformal,ongoingrelationships.Ibelieveitisreplacingthetransactionalmodel,andorganizationsthatdontevolvewillfail.

    Whenyoubuyaproduct,sayapairofNineWestshoesatNordstrom,yougetalotofhelpinthestore,butoncethetransactioniscompleted,therelationshipisover.Youcanchoosetoengagewiththatstoreagain,oryoucanjustfadeawayandstopcomingback.Theres no ongoing commitment. But with membership, youre committed until youcancelyouhavetobreakuptoendit.

    Ibegan tonotice thefirststirringsof theMembershipEconomy15yearsago,andInowseeiteverywhere.Technologywasenablingnewrelationshipsbetweenindividuals,between individuals and organizations, and between organizations. As a result, certainorganizationswereputtingcustomersatthecenterofanongoing,formalrelationship;theywereabletoestablishwhatamountstoaforevertransactionwiththeirmembers.

    Themembershipmodelcanbenefitalmosteveryorganization,fromthesmallestmom-and-poptothelargestbluechip.

    AMembership Economy organization is any enterprise in whichmembers have anongoingandformalstakeintheorganization.Thestakecouldbeasubscription,aswithNetflixorSurveyMonkey,orauserIDlikeFacebook,oramembershipcardlikeGoldsGym. In all cases, members understand that the relationship is ongoing, not simply atransaction.Untilthemembercancels,thefirsttransactionlastsforever.

    In addition, in most Membership Economy organizations, the members have aresponsibilitytoprovidesomethingmembershipduestoanassociationorcountryclub,contentaswithPinterestorTwitter,orevenjustpersonalinformationaswithGrouponinexchangeforaccess to themembershipbenefits.MembershipEconomyorganizationsrun across a broad spectrum.The level of expression and contribution ofmembers cangrow from simply an ongoing payment model (New York Times) or a loyalty card(Starbucks,UnitedMileagePlus) to a deeply engaged group of individuals collectivelymoldingtheservicestheorganizationprovides(BreastCancerAdvocacyNetworksonlinecommunity).

  • And ideally members are given the opportunity to engage not only with theorganization butwith one another. Thismeans that the community as awhole benefitsfromthethoughts,experiences,andopinionsofeachmember.Whilenotallmembershipsincludeelementsofcommunity,manygetbigbenefitsfromthem.

    Membership Economy organizations enjoy competitive advantages. Their memberstendtobeloyalandarelikelytoengageinrecruitingothermembers.Inaddition,memberfeedback and the ongoing behavioral data members generate enable MembershipEconomyorganizationstoreallyunderstandwhattheirmemberswant.Theclosertheyareto their customers, the better able they are to fend off competitive threats. If they staylocked in transactional relationships, they are vulnerable because it ismore difficult tobuildanongoingrelationship.Membersenjoyconvenience,access,andflexibility.

    MembershipistheHolyGrailofbusinessbecauserecurringrevenueispredictableandsmooth. Smooth revenue makes it easier to manage a business, to justify additionalinvestment, and toplan for the future. I amwriting abookabout theorganizations thathavefoundtheGrailsootherscandoittoo.

    MembershipOrganizationsComeinaVarietyofFlavorsIf Membership Economy organizations include more than nonprofits, what are someexamples? Throughout this book, I focus on six types of organizations, includingnonprofits. These are not the only types, and there are certainly hybrids, but if youunderstand the strategies and structures of these, youll have a strong understanding ofhowtoapplytheprinciplesanywhere.ThetypesIspendtimeonare:

    Digitalsubscriptions.Onlinebusinessesinwhichmemberspayarecurringfeeinexchangeforaccesstocontent,features,orservices.Oftenthesearebuiltonafreemiummodel,inwhichsomemembershaveafreesubscriptionwhileotherspayforadditionalbenefits.ExamplesincludeEgnyte,Netflix,Pandora,andDropbox,aswellasallsoftware-as-a-servicebusinesses.

    Onlinecommunities.Group-basednetworksofpeoplewithsharedinterestsorgoals.Membersofthesamecommunitymayormaynothaveasocialnetworkofpersonalrelationshipsaswelltheprimaryconnectionisthesharedinterests.Manyonlinecommunitiesleveragedigitalsubscriptionsaswell.ExamplesincludeLinkedIn,Facebook,andPinterest.

    Loyaltyprograms.Formalprogramsdesignedtotrackandrewardloyaltyandongoingcommitment,oftenbyconferringmembershipstatusontransactionalcustomers.ExamplesincludeStarbucksandCaesarsEntertainment,aswellasfrequentflierprogramsandpunchcards.

    TraditionalMembershipEconomycompanies.Thesefor-profitbluechiporganizationswerebuiltformembershipandarefrequentlypresentedasrolemodelsformembership.ExamplesincludeAmericanExpress,T-Mobile,Curvesgym,andWeightWatchers.

    Smallbusinessesandconsultancies.Soleproprietorshipsandlocalretailers

  • thathaveincorporatedMembershipEconomyprinciplesintotheirbusinessmodels.ExamplesincludeMillionDollarConsultantAlanWeiss,KeplersBooks,andthemanysmallbusinessesbuildingconnectionswiththeircustomersthroughloyaltyprograms,subscriptions,andonlinecommunities.

    Nonprofits,professionalsocieties,andtradeassociations.Organizationssuchasprofessionalassociations,causes,religiousinstitutions,andartisticcentersthatreinvestsurplusrevenuestoachievegoalsratherthandistributingthemasprofitordividends.ExamplesincludetheSierraClub,AARP,andAssociationofProfessionalPhotoOrganizers(APPO).

    TheDarkerSideoftheMembershipEconomySomepeoplesaythatthebenefitsofmembershipcomeataprice.Manyhavecomplainedabout membershipsoften with good reason. Not everyone is comfortable giving upprivacy.Thepressureofonlinecommunitiescanbestaggeringtoo.

    FearofmissingoutorFOMOhasmadelifedifficultforteenagersaddictedtotheirsocialnetworks.Othersexpress frustrationathaving topaymonthlyforsomething theyonly use occasionally. There have been investigations into the integrity of privacyprogramsamongcommunities.AndsomeofthemostsuccessfulandbelovedMembershipEconomy companies, like Facebook, have been accused of using member data forunapprovedresearch.1

    TheMembershipEconomydoesntcausesocialevils,butitbringsmanyofthemintothebravenewworldsofonlinecommunitiesandsocialnetworks,wheredatacanbeusedwithoutpermission,andanunfoundedrumorcanspreadatlightningspeed.

    RememberThe Membership Economy model, enabled by technological transformation andemphasizingongoingrelationshipsratherthanindividualtransactions,canbenefitalmosteveryorganization.Membershipmakesrecurringrevenuepredictableandsmooth.

    MembershipEconomyorganizationscanbestructuredasdigitalsubscriptions,onlinecommunities, loyalty programs, traditional Membership Economy companies, smallbusinessandconsultancies,ornonprofits/tradeassociations.

    TheMembershipEconomyisnotwithoutits troublingaspects,suchasrelinquishingpersonalprivacyinexchangeforaccess, increasingthepsychologicalburdenoffearofmissingout,and the integrityofsomecompanies.TheMembershipEconomydoesnotcreatethesesocialevils,butitbringsthemintothisemergingbusinessmodel.

  • SECTIONIIMEMBERSHIPECONOMYSTRATEGIES

    ANDTACTICS

  • Now that youve read Section I, What You Need to Know About the MembershipEconomy,youprobablywanttoknowhowtomakeitworkforyourorganization.Youreready to explore the strategies and tactics that will help you join the MembershipEconomy.Or, if you are already part of theMembershipEconomy,maybe now yourereadytoupyourgame.Ifthatsso,thenthisnextsectionisforyou,becausehereIteachyouaboutthestrategiesthatcanhelpyou.

    This section is the meat and potatoes of the book. If there were a test on theMembershipEconomy,mostoftheanswerswouldbefoundinthissection.Inthissection,we look at the seven strategies outlined in Table II that form the foundation of theMembershipEconomy.Wealsolookatsomefrontlinetacticsthatyoucanapply.

  • TableIIStrategiesoftheMembershipEconomy

    Asyouread,keepinmindwhichareyourfavoritesandwhichyoumightbeabletoapply right now. You might want to keep a list while youre reading. If you reallyunderstandhowtoapplyeachofthesestrategies,youwillbewellonyourwaytosuccess!

  • BuildtheRightOrganization

    IfyouwantyourorganizationtotrulybepartoftheMembershipEconomy,startwiththeteamandtheculture.Youneedtohavetherightpeopleandprioritizetherightvalues.

    MembershipisattheheartofAARP.Dedicatedtoamissionthatpromisestoenhancethequalityoflifeforallasweage,leadingpositivesocialchangeanddeliveringvaluetomembersthroughinformation,advocacyandservice,theAARPtrulyfocusesonneedsofmembersoveranyothergoal.Infall2014,ImetwithKevinDonnellan,AARPExecutiveVPandChiefofStaffandhiscolleague,SeniorVP,Membership,LynnMento.TheywereabouttolaunchtheRealPadbyAARP,anewtabletdevicethattheAARPhaddevelopedfromthegroundupfortechshypeopleover50.

    I asked them how theywould feel if copycat products by companies likeAmazon,Samsung,andAppleweretofloodthemarket.Theiranswersurprisedandimpressedme.Wewouldbe thrilled, saidDonnellan.1 Iwas skeptical, thinking that theyd surelybefrustratedaboutthecompetition.DonnellanandMentoexplainedthatgivingmorechoicestopeople50+wastheirreasonforexisting,andthattheytrulyjudgedtheirorganizationalsuccess by achieving thatmission, rather than short-term revenue impact. This kind ofmission-drivenorganizationexemplifies thecultureof theMembershipEconomy.Whenanorganizationwantstohavealong-termrelationship,theycantbeblindedbyshort-termfinancialmetrics.

    Ofcourse,nearlyeveryorganizationadmonishesemployeestoputthememberatthecenterofalldecisions.Buttheresalotmoretoconsider.Communicationiscritical; thelanguageusedintheorganizationwhentalkingaboutmembersreallymatters.And,mostimportantly,marketingandinnovationneedtobepriorities.

    PromoteaCultureofMarketingInnovationOrganizations dramatically underspend on marketing, research, analysis, and planning,thinkingtheyaredoingenoughjustbecausetheycanchecktheboxesaroundkeytypesofcampaignsandactivities.(Websiterefresh?Check.Newsletter?Check.Loyaltyprogram?Check.) Itsnotenough todo thecampaignsand treat themarketingdepartment likeanoutsideagency.Organizationsneedtoconstantlyconfirmthattheyarereachingtherightpeoplewiththerightcampaignsfortherightofferingsandusingthemetricsthattracklong-term relationships with customers. Marketing is more than campaignsits aboutfocusingonthemarket.Thisisalwaystrue,butespeciallyintheMembershipEconomy,whereretentionmattersmorethanacquisition.

    Marketingshouldensurethattheofferingstheorganizationscreatemeettheongoingrequirements of the target buyers and that those prospective buyers know about the

  • benefitsoftheoffering,signup,andbecomeloyal.Eachofthesegoalshasmetrics,andmarketingshouldbetrackingthemtobesureitisbuildingtherightkindofrelationships.

    Goodmarketing is honest. Sometimes people have the idea that goodmarketing isabout tricking people into buying things they dont need. Not only is this approachunethical, but in theMembership Economy,with the need for ongoing relationships, itsimplydoesntwork.

    Gainsight,aSiliconValleytechnologycompany,providesanexcellentexampleofthemindsetneededtosucceedintheMembershipEconomy.Gainsighthasmadeitsmissionensuring customer success for its subscribers. Its software helps organizations in theMembershipEconomy strengthen ongoing relationshipswith theirmembers.CEONickMehtabelievesthatyoushouldnthaveacustomersatisfactiondepartment;youshouldnthaveacustomersupportdepartment;youshouldhaveacustomersuccessdepartment.Allemployeesneedtobeempoweredtomakeadifference,andNickfollowstheseguidelinesinhisowncompany,givinghisteammemberslatitudetotakecareofhiscustomers.

    Incontrast,thinkaboutthetypicalcustomerservicecall:IdidntgetwhatIordered,or, It arrived broken, or, Im not happy with the way it works, or some variant.Organizationsoftentraincustomersupportpeopletogetcallersoffthephoneasquicklyaspossible.Companiessometimesmeasureperformancebythenumberofcallsfielded.

    Customersuccess-orientedemployeeswillbemoreconsultative.Theirtaskistohelpcallers use the productmore effectively, more efficientlyso that they will beincreasingly loyal. A staff that supports customer success builds loyalty. GainsightsmissionofcustomersuccesssupportstheMembershipEconomywithitsemphasisontheroleofthepeopleandtheculture.

    Theentireorganizationneedstobealignedwiththemembershipstrategy.

    Frontline, operational employees who work for membership businesses need tounderstand that their unique business model depends on intimate, lasting relationshipswithmembersthatoftengowellbeyondtheexpectationsoftypicalcustomers.Thisstartswithemployeesusingapersonaltouchwithmembers,callingthembyname,butitgoesfurther.Customersupportneedstobegivenmorelatitudeandtraining(andprobablymorepay)sothatthefrontlineisfullyequippedtobuildrapportwithmembersandtoresolveissues and concerns as they arise. Product developers and managers need to carefullyconsider product changes that might disrupt current member expectations. The entireorganizationneedstobealignedwiththemembershipstrategy.

    Another role that canbeuseful in theMembershipEconomy is that of communitymanager,thepersonwhoattracts,manages,andleveragesthepowerfulcommunitythatcan develop around an organization. TimMcDonald, former director of community atnews community website Huffington Post and founder of My Community Manager(myCMGR.com), a community for community managers, says that the communitymanager needs to be both the voice of the brand to the community and voice of thecommunitytothebrand.2Thechallengeiskeepingthebusinesssbestinterestinmind,whiletappingintowhatthecommunitysays.Havingadedicatedpersontoconnectwithandmanage the community can pay dividends, not just in building loyalty, but also in

  • gleaninginsightsaboutwhatmembersvalueintheoffering.

    Buildingamembershiporganization isnt just about theoffering, the execution, andthe product. Its also about the culture. Its about all the people you hire and how youacculturatethem;whatyouexpectfromthem.

    TosucceedintheMembershipEconomy,theorganizationmustbuildaculturethatiscentered around the long-term evolution of themember relationship. TheCEO and theheadofmarketingmayknowwhatthemembersneedandhowthoseneedschangeovertime,but theheadofHRmustmakesure thateverybodybelieves itand lives thatway.Table4.1showsthechangingrolesintheMembershipEconomy.

    Table4.1ChangingRolesoftheMembershipEconomy

    Forexample,inanownershipeconomybusiness,itsthesalespeoplewhoareafterthe

  • big contracts. In the Membership Economy, the sales departments goal is to planthundredsofseedsandthenwaterthem,knowingthatovertime,theywillpayoff.Inanownershipeconomybusiness, thesupport staffsgoal is tominimizecustomeranger. IntheMembershipEconomy,thegoalistomaximizeloyalty.

    StaffmembersatCaesarsEntertainment, forexample,areactuallyempowered todospecialthingsforspecialmembers.Theycanupgradeamember,compadrink,ormakeanexceptiontoarule,usuallywithoutmanagerapproval.

    Theairlines,bycontrast,generallydonothaveasmuchflexibility,althoughtherearecertainly exceptions asVirgin, Southwest, and others have put a lot into differentiatingthemselvesoverthepastfewyears.Formostairlines,therearestillampleopportunitiestoincorporatemoreofasayyesculturetocomplementtheirloyaltyprograms.Theycallwhattheyofferaloyaltyprogram,buttheydonthavetherolesandculturetosupporttruerelationshipswiththeirmembers.

    Atypicalconversationcango:

    Airline customer service representative: Oh, I see you have 14,513 points.Youreeligibleforafreefirst-classupgrade.

    Customer:Idontwantafirst-classupgrade.Iwantmydaughteronthisflightwithme.

    Airlinecustomerservicerepresentative:Wedontdothat.

    Nobodyisempoweredtoactuallyhelparecognizedmember.

    Not long ago I talked with a venture capitalist who invests only in subscriptionbusinesses.Oneofthethingshesaidthatsurprisedhimistheverydifferentorganizationalstructure needed for Membership Economy enterprises. These new enterprises have adifferent staffing model. They have different titles. They need a different set of skills.Somepeoplewillbecomeredundant,andsomeotherpeoplewillneedtobehiredwhenanorganizationtransitionstoaMembershipEconomymodel.

    Membership Economy organizations need to extend the relationship with theirmemberstopartners.Relationshipswithdevelopers,vendors,andsuppliersinthebroadercommunitycanbestructuredtoprovidefurtherbenefitformembers.Forexample,earlyon,Salesforce.cominvestedinbuildingacommunityofvendorsofrelatedproductswhoweredevelopingappsthatextendedthevalueofbeingaSalesforce.comuser.

    Today, Salesforce.com has a whole team of professionals who recruit, vet, andpublicize these app developers in the broader Salesforce community. As a result,SalesforceusersareevenmoreentrenchedinSalesforce-relatedproducts,thusincreasingthevalueoftheirmembershipwhilealsoincreasingswitchingcosts.Andthedevelopersinthe greater community, not the salesforce community itself, participated in the vastmajorityofinvestmentinthisinitiative.

    CommittoContinuousInnovationSupportedbyMarketingInsights

  • Innovationismotherhoodandapplepieinnearlyeverytypeoforganization,butfor theMembership Economy, continuous innovation is especially important. The bestMembership Economy organizations are constantly tinkering with their offerings. Forexample,AmericanExpresshasofferedallkindsofevolvingbenefitstoitsmembersoverthepastseveralyears,rangingfromdiscountstoexclusiveaccesstospecialservices.AndAmazoncontinuestoaddfeaturestoitsprimemembership.

    Innovation is not an event. Its a process which needs to be ingrained in anorganizations culture. Innovation is described as the act of introducing new ideas,devices,ormethods. In theMembershipEconomy, innovation iscontinuous. Itmustbe,because the relationships are continuous. Most organizations think of innovations asnouns,asin,Thisinnovationreallydifferentiatesusfromthecompetition.Butitneedstobethoughtofasaverb.Organizationsneedtoinnovateconstantlyandalwayslookfornewandbetterwaystoprovidevalue.

    Still,membershiporganizationsoftenfailbecauseoftheirlackoftinkering.HeresacomplaintIveheardfromleadershipmorethanonce.Inthiscase,theexecutivedirectorofawell-knownnonprofitforchildrentoldme,Membersjustdontbehavethewaytheyusedto.Theyexpectmorefromourorganization.Whatswrongwiththem,andwhyaretheysoselfish?

    Forthisexecutivedirector,thechangingattitudesofnewmembersweresurprisingandfrustrating. But change is inevitable, and organizations need to assume that constantinnovation is the norm.Toomany organizations demonstrate an unwillingness to tinkerand to be flexible.Many organizations invest heavily in a single big effort to set up aprogramtobringinmembersandthenrelyonit.ThinkofNPRwithitspledgedrives.Ithas only recently begun tinkeringwith 48-hour double your pledge drives,which areshortandsweetrespondingtomemberfeedback.Andtherearealwaysdozensofotherwaystoattractandretainmembers.

    Membersaremoreforgivingthancustomerswithregardtotheirloyalty.

    Onceyoubringinanewmember, thememberis likelytostayforalongtime.Andsince retention is so important to revenue, it sometimes becomes the only thingorganizations really focus on. So unless you are tracking new member acquisition ascarefullyasyoutrackoverallrevenue,youmightfindyourselfwithanagingpopulationandnoawarenessorrelevancetoprospectivemembers.Constanttinkeringtobringinnewmemberswhileretainingtheonesalreadytherecanminimizethisrisk.

    Membersaremoreforgivingthancustomerswithregardtotheirloyalty.Everytimeacustomertransactswithanorganization,customershavetomakeadecisiontoopentheirwalletandengagewiththeorganization.Butwithmembership,paymentsareautomatic,and its the act of unsubscription that requires an action. As a result, members stayengagedmuchlongerthantransactionalcustomers.

    Subscriptionscanlullorganizationsintoafalsesenseofsecurity,convincingthemthatthey dont need to adjust their offering or improve service because themembers seemhappy.However,atsomepoint,ifthediscrepancybetweenthevaluetheenterpriseoffersand the price charged becomes too great, not only does the organization lose existing

  • members,butitalsostrugglestobringinnewmembers.Thiskindofstumblecanmeanmonths,ifnotyears,ofpoorresults.

    WhenpeoplefindoutthatIamanexpertinsubscriptionandmembershipbusinesses,they immediately want to tell me about the most unfair memberships they haveencountered. They tellme about their frustrations as children signing up forBMG andColumbiasmusic clubs long ago. (Remember?Those clubs sent unrequestedCDs youhadtokeepunlessyoureturnedthemwithinatighttimeframe.)Ortheyllcomplainabouthow the airline loyalty programs actually reduce loyalty. More recently, weve seencomplaints about software companies that stopped selling packaged software the buyercan use for years in favor of monthly subscriptions that customers feel provide noadditionalvalue.

    The fundamentals arewhat they alwayswere: the customer-company relationship isbased on good value in exchange for a fair price. You simply cannot run a long-termsuccessful business if you dont seek to improve the condition of your customers andmembersconstantly.

    Your organization should have someone strategically managing your product andmarketingteamswhointimatelyunderstandsyourbuyersandyourofferings,andwhocanexplainhowandwhypeoplechoosetobeloyal toyou,aswellashowandwhytofindnewmembers. If this is notwhos onboard now, youmay need to think about staffingchanges. If you dont know, consider bringing in an outside expert to evaluate yourorganization. Understanding the market need and environment is the single biggestdeterminantofaMembershipEconomyorganizationssuccess.

    WhyMarketingLovesMembershipIfyoure inmarketingandsales,membershipmakesyour jobeasier.Youhave tomakeonlyasingletransactiontowinacustomerforlife.Ifyourmodelincorporatescommunityand connections, the members will build loyalty themselves. Subscription paymentsfurtherfuellong-termrelationships.

    Membershipisnotafixturetobetakenforgranted.

    Manymembershiporganizationsmakethemistakeofconfusingretentiondollarswithnew revenue. New revenue means the buyer made a decision based on todays offer.Recurring revenue is passive. A membership or subscription cancellation is a sign ofactivedispleasure.Innovation(orlackofinnovation)canbeseeninthesetwometricsnewmembersandlostmembers.

    Membershipisnotafixturetobetakenforgranted.Youcantjustsay,Thereitis.You need to be willing to tinker. Ironically, loyalty of members can lull membershiporganizationsintothinkingthattheirmembersarehappy,whenactuallytheofferingisnotprovidingthesamevalueitoncedid,andorganizationshaventevolvedtheprogrammingtokeepupwiththebrandpromise.Onedaythememberlooksup,maybebecausehercreditcardexpiredorbecauseshereadsomethinginthepaper,andsherealizesthathersubscriptionisworthless.

  • AgreatexampleisAOL.

    InitiallyAOL,withitsfriendlyuserinterfaceandwalledgardenmodel,wasasafeand comfortable introduction to the Internet. Over time many other offerings beganprovidingamuchcheaper(andfaster,withbroadband)pointofaccesstotheInternet.TheInternetitselfbecameeasiertonavigatebecauseofgreatnewbrowsers.

    There was a point when people in the know knew that anyone who was an AOLcustomerprobablyjustdidntunderstandthatthereweremuchbetterproductsanddealsoutthere.WhenAOLcustomersrealizedit,theyfeltAOLhadbeencheatingthem.AOLsbrandsufferedandneverreallyrecovered.Thisisunfortunate,sinceAOLwasreallythefirstmajorbrandontheInternet.Itcouldhavebecomealong-termsuccesslikeGoogleoreBayorFacebook.Instead,in2014,itisstilltryingtofigureoutwhoitishavingsoldoff or franchisedmost of its technology and evolved into a brand company that ownsseveral content properties including TechCrunch, TheHuffington Post,Moviefone, andMapQuest.

    Theresapull,whichIhaveseen,betweenexpandingafirmsofferingtoprovidegreatbenefitandstickingtoyourknitting.eBayhastriedmanytimestoexpandtheutilityofitshugeandengagedcommunityofmerchantsandtraders.In2005,eBayboughtSkypefor $2.6 billion, expecting that the voice-over-Internet protocol (VoIP) service wouldimprove communications between its customers. Buyers could talk with sellers aboutitemsinwhichtheywereinterested;sellerscouldbuildrelationshipswithbuyersviaVoIPchats.

    WhateBayfound,however,wasthatmemberswerealreadycomfortableusingemailanddidntneedvoiceorvideo.Andeventhoughtherewastremendousoverlapintargetusers,itturnedoutthatpeopledidntwanttobuytheiraudio/videocommunicationservicefromtheironlinemarketplace.WhileeBaythoughtthattherewouldbesynergybetweenthetwocompanies,thetruthwasthateBaymemberswerentinterested.Fouryearsafterbuying Skype, eBay sold it in 2009 for $1.9 billion. eBay has since made manyacquisitions,mostly better alignedwith the eBay shopping and paying experience, andthesehavebeengenerallymoresuccessful.

    Iencourageclientstoexploreexpansionandcreativetinkeringeveniftheystilldecideto stick to their knitting because I see what happens when they dont explore. If yourproductisreallybuildingtractionbyallmeans,stickwithitanddontdiluteyourfocus.Butwhenyoustarttoseeacquisitionslow,or,worse,youseeretentiondecline,youmightneedtoconsiderotheroffers.Anditsalwaysworthexploringwaystoprovideincreasedvalueforloyalmembers.

    RememberIfyouwanttobeatrueMembershipEconomycompanyforallthebenefitsitoffers,youneed topromoteacultureofmarketing innovationand technology.Youneed touse thelanguageofmembership.Youneedtoempoweryourfrontlinestafftobeabletorecognizeyour members as individuals and take good care of them. You need to invest in yourcommunityandthepeopletomanagetherelationshipsandensuretheirsuccess.Youneed

  • tocompensatesalespeopleon thebasisofcustomer lifetimevalue,not transactions,andyoumightneedtorethinkcustomersatisfactionandsupport.

  • BuildanEffectiveAcquisitionFunnelfromtheBottomUp

    SupposeItoldyouIdidntlikeMcDonaldsbecausemyhusbandandIwentthereforouranniversary andweredisappointedby the ambiance and lackof caviar and champagne.Youmight say, Robbie, dont youknow thatMcDonalds is not designed forweddinganniversaries?Itsdesignedtobequick,cheap,andconsistent.

    McDonalds has done a great job of letting people knowwhat its brand represents.Morethanthat,ithasdoneagreatjobofbuildingaconsistentexperience.YoucanwalkintoanyMcDonaldsintheworldandknowthefrieswilltastelikeMcDonaldsfriesandtheBigMacwilltastelikeaMcDonaldsBigMac.

    Whatsimportantaboutthisclearmessageisthatyoudonthavealotofpeoplewhohaveexperiences thatwere inconsistentwith theirexpectationswho thenbad-mouth theproduct.There issomewasteat the topof theMcDonaldssales funnel, in thatmanypeoplewhoarefamiliarwiththebrandandadswouldnevereatthere,butIthinkitssafetosaythatfewpeoplearesurprisedbywhattheyfindwhentheywalkintoaMcDonaldsrestaurant.

    Inthischapter,wefocusonthefunnel.Iexplainwhatafunnelisandhowyoucanuseafunneloralternativestructuretoattracttherightpeople,engagethem,andevenmotivatethem to strengthen the funnel by attracting and retaining others. The bestMembershipEconomy models go beyond the transaction, tracking behaviors including sign-ups foradditionalservicesandlevelsofmembership.Thefunnelcaneventrackreferralsmadebyexistingmembersthatleadtonewmembers.

    TheStepsinaTypicalSalesAcquisitionFunnelFigure 5.1 shows a typical sales acquisition funnel. Tracking the steps in yourorganizations funnel is importantbecause it canprovide insight intohowyouwin (anddontwin)newmembers.

  • Figure5.1Salesacquisitionfunnel.

    Atthetoparepeoplewhoareawareofthebrandbuthaventengagedwithityet.Atthe bottom are the most loyal customers. Different channels such as partnerships, adcampaigns,andevents,shouldfeedthefunnel.Afractionofthepeoplewhoareawareoftheofferingwillwant to learnmore.Someof thosepeoplewill try it.Andsomeof thepeoplewhotryitwillbecomemembers.Thefunneltracksindividualsprogressionfromthemomenttheylearnaboutthemembershipuntilthemomenttheybecomeamember.Inthemiddle of the funnel are prospectswho have engagedwith your brand but haventbecomemembersyet.Maybetheyhaveattendedaneventyourorganizationhashosted,ortheyvereadyournewsletter.Atthisphasewhatsimportantisbuildingthetrustrequiredfora formalcommitment.At thebottomof the funnelarecustomersand theirongoing,andhopefullyincreasing,engagementwiththeorganization.

  • Manycompaniesarecontentwithawidetopandanarrowbottom,theideabeingthatits always good for more people to engage with you and try your product. However,funnelsinvolvealotofwaste.Manyofthepeopleatthetopwhointeractwithyourbrandwillneverbecomecustomersandmaybeshouldneverbecomecustomers.

    Analternativetoanacquisitionfunnelisthechute,showninFigure5.2.Achuteisthesamewidthatthetopandthebottom,andthingsmovequicklyfromthetoptothebottomof a chute. By narrowing the funnelthat is, by focusing awareness at the top andmaximizingthenumberofprospectsthatstayinthefunnelateachstageanorganizationcanhavemoreofachute.

    Figure5.2Thefunnelandchute.

    AnexampleofanorganizationthatgoesbackandforthbetweenfunnelandchuteisAmericanExpress. Initially, it startedwithasinglecardthegreenoneandblanketed

  • the marketplace with campaigns to build awareness. As the company grew moresophisticated about who actually became loyal members, it refined its awarenesscampaigns and also introduced new productsgold, platinum, blue, black, and mostrecently two new debit cards targeting people who have no existing relationship withbanks, such as recent immigrants and lower income groups.AsAmex introduces thesenew offerings and focused campaigns, they are creating multiple chutes from a singlefunnel.

    Theimportantthingistohavecleardefinitionsofeachsegment,andthentotracktheratios.

    Targetedmarketingisevenmoreimportantforsubscriptionormembershipbusinessesthanfortransactionalorganizations,becausethemembershiporganizationmakesaprofitonlyifthememberstaysforanextendedduration.Soifarecurringrevenuebusinesspaysforaprospect tohavea free trialand theprospect isnot thekindofpersonwhowouldbenefit fromthemembership, thatmoney iswastedand thepersonwillbedisappointedwiththeeffort.

    Step1a:StartattheBottomoftheFunnelAlleffortsneedtostartatthebottomofthefunnel,thusensuringthatthereisalignmentbetweentheactualbenefitsprovidedandthetargetmembersneeds.Thesebenefitsneedto align with the organizations mission, in fact, to deliver on that promise to newmembers.Todo that, youneed toknowexactlywhoyour targetmember is. (Doyou?)You also need to be 100 percent confident that your best salesperson could convert anidealprospectduringafriendlyconversationona45-minuteplaneflight.Inotherwords,ifgivenenough time toexplain thevalueproposition inacustomizedway, theprospectwouldbuyit.

    To get value out of the funnel, first outline the steps from awareness to sign-up. Inmanyorganizations,thesestepsareawareness,engagement(whentheprospectgivestheorganization permission to contact him), trial, and membership. Some funnels includepostmembershipsign-upeventslikerenewalandup-selling.Theimportantthingistohavecleardefinitionsofeachsegmentandthentotracktheratios.

    There are several ratios to track. You want to track the relationship between thenumberofpeoplewhoareawareofyourorganizationandtheoneswhoengage.Thenyouwanttotrackthepercentageofengagedpeoplewhoconvertintomembersoveracertainperiodof time.Youprobablywant to track these things in agranularwayby specificcampaign or channelbut as a starting point, you justwant to be aware of howmanypeoplemakeitthrougheachlevelofthefunnel.Ifpeoplearentconvertingfromoneleveltothenext,itslikeyouhaveaholeinyourfunnel,andthatisawaste.

    Step1b:LookBeyondtheBottomoftheFunnelEngageandRetain

  • Additionally,youwanttobesurethatmemberswillstayoncetheyjoin.Thiscanbetrickyifyouarejuststartingout,butforestablishedbusinesses,waitingtoseeifmembersstayatleast for the first 30 days (long enough to establish a habit) is worthwhile. If themember/benefitalignmentisstrong,theywillstay.Youwanttocheckbecausesometimespeoplesignupoutofoptimismoraspirationandthenrealizethattheydontgetanyvaluefrom the membership. These people will cancel, if not now, then soon. When peoplecancelbecausetheyrealizetheyarentgettingvalueinsomethingtheyjustsignedupfor,youcanalsoexpectthattheywillfeelangryorbetrayed.Andthiscanconverttobadwordofmouthormediapublicity.

    Sometimesthefunneleventrackswhathappensaftertheprospectbecomesamember.By measuring how new members behave, whether they refer friends and whatdistinguishestheloyalonesfromtheoneswholeave,thefunnelcanhavegreatervalueformembership-oriented organizations. The shape of this funnel resembles an hourglass(showninFigure5.3),andgoespast thebottomof thefunnel,wideningtoemphasizethe importance of the transaction. With this funnel, you can see the impact of eachindividual new member in driving significant and increasing revenue after the initialtransaction. If you use an hourglass funnel, you become even more aware of howimportantitistoretainthecustomersyouhaveacquired.

  • Figure5.3Thehourglassfunnel.

    This is why the first step, themember/benefit alignment, is critical. If you are notcertainaprospectwouldlovetheofferingifheorsheknewaboutit,thereisnopointininvestinginanythingotherthanfixingtheofferandfiguringoutwhomtotarget.Maybeyouhavethewrongtarget.Maybetheofferisntcomplete.

    Inanycase,whyinvestinacquiringamemberwhosgoingtoleavequicklyandcostyou money? Membership/benefit alignment is the most important thing, but manyorganizationsstillignoreitandrushaheadtobuildacquisitionprograms.

    Step2:RefinetheMessageYoucanthaveyourCEOpersonallydeliver everypitch, so its important to figureouthowtocrystallizeyourmessagesothatitcanbedeliveredwithouthimorher.Whatarethe key things that prospects need to know in order to engagewith your organization?How can you develop the words and pictures that convey these things without anevangelistpresent?

    You can test yourmessage through any of your channelson thewebsite, throughtelemarketing,orinalivepitchbyatelemarketerorsalesperson.Testingiscritical.Thismeanstryingdifferentoptionsinsmallquantitiesandcomparingtheresultsuntilyoucraftonethatseemstoworkconsistently.

    Again, remember that you dont want to invest heavily in ads or websites or salestrainingforyourteamuntilyouknowyouhavetherightmessageandoffering.Itisworthbeingpatient,experimental,andflexible.

    Step3:SelectChannelsandDevelopProgramsNowthatyouhaveastrongmessage,youcandetermine the typesofcampaigns to run.Youwanttoreachprospectsatatimewhentheyrewillingtobuy.ItdoesntmatterhowgoodyourpitchisorhowmuchIllneedaparkanextwinter,ImjustnotgoingtobuyonewhileImsittingonthebeachinJuly.Youneedtothinkabouttherightchannelandtherighttimingtoreachyourtargetbuyers.Thegoodthingaboutchannelsisthattheyareofteneasytotestinsmalliterations,soyoucanfigurethisoutwithoutbiginvestments.

    If youwant to have a freemiummodel and rely on viral buzz,maybe youwant toprioritize getting as many people as possible onto free membership to give people achance toengageonanongoingbasiswithyourofferingsandmembers.Ormaybeyouthink youd get better results by advertising with key words? Or through partnerrelationships?There aredozensof options tobringpeople intoyour funnel andnurturethem until theyre ready to spendmoneywith you.Whatworks, however,will changeovertime,socontinuetestingandmeasuring,evenifyourcurrentapproachisworking.

    Monitorthefunnelandreviewthemetricsatweeklyteammeetingstoidentifychanges.

  • Butremembertostartatthebottomofthefunnelanddontspendonacquisitionuntilyouknowthatprospectsarelikelytojoin,and,moreimportantly,tostay!

    Step4:RinseandRepeatConstantlyThisprocess isnotaone-time thing. It shouldbeanongoingactivity foramembershiporganization because it can tell youwhere the challenges are. If retention is strong butacquisitionisdropping,itcouldmeanthatyourmessageisnolongercompellingenoughtowin,evenifyourmembersdemonstrateloyalty(whichcanbehardtodistinguishfrominertia).Orifyoufindthatyourretentionrateisdropping,itmaybetheresanaturalcliffwherepeoplenolongerseevalue.Perhapsmembersneedsarechanging.

    Isuggest thatmyclients (not justmarketers,but theentire leadership team)monitorthefunnelandreviewthemetricsatweeklyteammeetingsinordertoidentifychangesintheratiosandalsotoworktoimproveeachofthese.Anytimeyouaddanewprogramorchannel, you need to track how the metrics from that activity stack up against otherprogramsandhowyoucanoptimizethemforbestresults.

    Andremember,startatthebottomofthefunnelandworkyourwaytothetop.Itsamorecost-effectiveapproach.

    ContinuouslyImproveYourFunnelYouDontWantaSieveYouracquisitionfunnelismorethanametaphorforattractingandrecruitingmembers.Itcanalsotellyou:

    Whichchannelsandprogramsaredrivingawareness,acquisition,andresultinginloyalmembers.

    Whereprospectsarelosinginterestanddisengagingfromtheacquisitionprocess.

    Howwellyoursign-upflowworks.

    Whereyourbestmemberscomefrom.

    Overtime,youwanttoimprovetheconversionratiosfromawarenesstoengagementtotrialtosign-up.Youcanusethefunneltoidentifythebiggestworries.Forexample,ifyouarebringinginlotsoftrials,butnooneconverts,youcanfocusonthisstepandfixit.First,develophypotheses.Maybepeoplearentfullyutilizingthetrial,sotheydontseethebenefitsbeforethetrialends.Maybetheylikethetrialbutfindthemembershiptermsthemselves(price,duration)toohigh.Maybe,likeonecustomerofmine,theydidntevenrealize they had signed up for the trial (evidenced by the fact that they never tookadvantageof the trialatall).Test thesehypothesesbychangingthepricingona limitedpercentageoftrialsorbysurveyingthetrialenrollees.

    Ifyouareinvestinginasignificantamountofawarenessactivities,likeemail,events,tweets, and advertising, and you have a lot of people engaging with your content and

  • members,butnoonesignsup fora trial,maybe theydontneedyouroffering,but likeyouremails, freeevents,andwebsitecontentinotherwords,youaremarketing to thewrongpeople.

    Figureoutwheretheproblemsare,soyoucanimprovethefunnel.

    Companies that are disciplined in their approach to innovation get a much betterpayoffthantheonesthatareeagertojusttrysomething.Anexampleofanorganizationthat invested in innovation beforemoving up the funnel isWeightWatchersOnline. Itfocusedonthebottomofthefunnel,gettingtheexperienceandthebenefitsrightbeforemarketing to all prospects. Even thoughWeightWatchers had a proven and successfuloffline model, the whole model had to be rethought for a digital experience, and thecompanytookitstimetobuildamodelthatwasquitedifferent.

    WeightWatchers Online is the exception, however.More than ever, companies areeagertostartfiringbeforetheyaimbecausetheybelievethattheycanjustseewhatsticks.ManycompaniessufferfromwhatIcalltheSteveJobsmeetsFieldofDreamsproblem.

    Jobswasfamousforpointingoutthatsometimeshiscustomerscouldntprovidegoodfeedbackaboutwhattheywanted,becausetheydidntknowwhattheywanteduntiltheydseenit.Tenyearsago,whoknewtheyneededaniPhone?Whoknewtheyneededatabletcomputer? The implication for manymisguided entrepreneurs is that they know betterthanconsumerswhattheconsumerswillwantandifwebuildit,theywillcome.Sadly,99percentof the time, thisapproach failsmiserably.Thinking thatyoucanbe thenextSteveJobsandsimplyknowwhatcustomersneed is likesayingyouregoing todropoutofcollegeandstartacompanybecausethatswhatSteveJobsdid.Justbecausehediditdoesntmeanitsgoingtoworkforeveryone.

    RememberYou should build an effective acquisition funnelor chutefrom the bottom up,constantly refine the message, select the marketing channels to reach the most likelyprospectsatthetimetheyaremostlikelytobeinterestedinwhatyouhavetooffer,andreiteratewithdiscipline.Onceyouhaveanefficientfunnel,youwanttobringmembersonboardbyremovingfrictionanddeliveringimmediatevalueaswellasrewardingdesiredbehaviorsthatdrivemembersuccessthesubjectofthenextchapter.

  • OnboardMembersforSuccessandSuperusers

    Amembershiporganizationwantsneedsitsmemberstomakeahabitofstoppingby,ofparticipating.Theorganizationneeds a strategy and tactics to encouragemembers tomakethevisitaregularhabit.Thisstartsbybringingnewmembersonboardeffectively.

    I encouragemy clients to optimize the onboarding process even before we start tothinkabouttheacquisitionfunnel.Memberonboardingisalotlikeemployeeonboarding,theprocessofbringingpeopleintotheorganization.Itincludesprovidingaroadmapofwhat to expect and helping them be successful in getting up to speed. Just as withemployee onboarding, membership onboarding ensures that the member has theknowledge, habits, and cultural mindset to be successful in this new community.Onboardingbeginsrightaftersomeonesignsup.

    A successful onboardingprocess (shown inTable6.1 andFigure6.1) has three keysteps:

  • Table6.1TheOnboardingProcess

    Figure6.1Onboardingforsuperusers:avirtuouscycleofthreerepeatingstepsremovefriction,deliverimmediatevalue,andrewarddesiredbehaviors.

    Removingfriction

    Deliveringimmediatevalue

    Rewardingdesiredbehaviorsthatwilldrivemembersuccess

    Rinseandrepeatthesestepstoconvertnewmembersintorenewingmembersand,overtime,increasetheirloyaltyandactivityinthecommunity.

    In the Membership Economy, the first task of onboarding is removing frictionanything thatslowsdownausersability toengagewith theservicesoffered,especiallyduringthesign-upprocess.Therationaleforinvestinginremovingfrictionissimple:Youdontwanttoloseapotentialmemberbecauseanyonesteponthepathtosigningupandgettingvaluewastoohardortime-consuming.

    Thesecondstepisdeliveringimmediatevalue.CamilleWatson,directorofmarketinginNetflixsearlydays,saysitwascriticalthatnewmembersgotagreatexperienceright

  • away.Sheremembers,WeknewmemberscouldntexperiencethefullpowerofNetflixuntil they returned the first threemovies and could experience the rapid turnaround ingettingthenextmovie.Sowemadesurethattheypickedfivemoviesupfront.1

    Pandoradoes this in adifferentway.Bychoosing just one single songor artist, theusergets tostart listeningforfree toastationoptimizedaroundthatsong.Over time,you can add other songs and artists, or simply react to the songs Pandora pickswith athumbsupordown.

    Thethirdstep,rewardingdesiredbehaviors,isaboutbuildingthehabitsofsuccessfulusersofyourcompanysvalue.Therearesignificantdatasupportingtheideathatgettingsomeone to behave in a certain way for a certain period of time (such as 30 days)dramatically increases the likelihood that thisbehaviorwillbecomepartof thepersonsregular life. If you want trial users to become active, loyal members (and maybeeventuallytobecomesuperusers),youwanttoacculturatethemtothesehabits.

    WhatDefinesanOrganizationsSuperusersThe Membership Economy values special kinds of users, superusers. They are thoseespeciallyloyalandengagedmemberswholeveragethepowerofthecommunitythroughtheirparticipation.Superusersarememberswhospendsignificanttimeparticipatinginthecommunity. Someone becomes a superuser by building the habit of consistent groupparticipation.Itsnotaboutsingleinstancesofheavyusage,butongoingregularusage.

    Superusers


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