book.chapter Understanding the membership economy

Membership implies that organizations are shifting their focus from single transactions to fostering ongoing relationships with their customers, aiming to secure a steady stream of revenue through long-term engagement. This approach seeks to win over customers by appealing to their emotions and loyalty, rather than treating each purchase as an isolated event. Memberships have a long history, but what has changed is the consumer's readiness to pay more for the opportunity to connect with a community of individuals who share similar interests and can help them achieve more. This shift towards a preference for community is propelled by several key business trends. The widespread availability of online access across various devices, particularly smartphones, is one such trend. Another is the significant reduction in the costs associated with data storage and processing, which allows companies to offer services at much lower prices. Additionally, the decline of traditional, in-person communities and their replacement with virtual ones has contributed to this trend. The proliferation of online platforms such as news outlets, photo and video sharing services has also played a role. The growth of the membership economy is a testament to the enduring human need for connection, even in an age of technological advancement. Membership businesses thrive by fostering genuine connections that fulfill this need. These businesses often rely on some form of subscription payment, the size of which can vary greatly. The revenue generated is used to maintain the necessary infrastructure and to fund the acquisition of new content and materials. In cases where there is no ongoing subscription payment, the business model aligns more closely with the sharing economy, which is considered a subset of the membership economy. Historically, the economy has been based on the principle of ownership, where both companies and consumers purchase and own assets, giving them the freedom to use them as they see fit. However, ownership comes with its own responsibilities and costs. Membership suggests a different approach: instead of owning something that is used infrequently, it may be more advantageous to rent access to it as needed. Ownership and membership represent two ends of a spectrum. In an ownership economy, companies focus on transaction size and economies of scale, cross-selling to increase revenues, and offering free samples to drive sales. In contrast, the membership economy emphasizes lifetime customer value and retention, offering tiers of value and optional add-ons, and providing free trials and freemium options. The membership economy values flexibility, critical network effects, value-based pricing, and expects ongoing innovation, fostering a forever relationship with customers and encouraging sharing over privacy. The current trend across the economy is moving away from ownership towards membership. People are increasingly seeking meaningful connections and a sense of community, often feeling overwhelmed by the stress of ownership. Membership-based businesses cater to this need. The recent surge in the membership economy across various industries can be attributed to three primary advantages. First, the membership business model generates recurring revenue, smoothing out the irregularities in revenue streams caused by seasonality. Second, it fosters a direct relationship with customers, which strengthens the brand and engenders loyalty, reducing the threat of competition. Third, it provides a continuous stream of data that can be used to enhance products and services and identify opportunities to improve customer satisfaction. Membership organizations are characterized by their capacity to learn and adapt. Membership organizations can take many forms, but six basic types are most commonly used: - Digital subscriptions, where members pay a recurring fee for access to content, services, or features, often employing a freemium model. - Online communities, where members pay to engage with peers who share their interests. - Loyalty programs, which reward members for their continued patronage. - Traditional membership organizations, such as those offered by credit card companies or wellness programs. - Small businesses and consultancies, which provide memberships for ongoing services. - Non-profits, professional societies, and trade associations, which typically reinvest surplus revenues into community projects rather than distributing profits to owners. These diverse types of membership models demonstrate the flexibility and adaptability of the membership economy to various industries and consumer needs.