A white paper about the Membership Economy(tm). Nimble companies that have developed a Membership model are thriving. Others have been run off the road by newer models that adhere to the principles of membership. Entire industries are reeling—just look at the drastic changes in the past few years to gaming, software, music and journalism. Major changes in technology and access are redefining historically slower-moving industries like financial services, hard goods and even airlines. New companies including those that rent, lend or offer unlimited or premium access instead of just “ownership,” have the opportunity to leapfrog industry leaders. This white paper tells you what your company should do right now, to avoid being left behind by the Membership Economy. We will look at what the best companies are doing, and how industry leaders like AT&T,

1.
The
Future
of
Membership:
The
Top
Ten
Things
Companies
Should
Be
Doing
To
Build
Strong
Customer
Relationships
by
Robbie
Kellman
Baxter
Executive
Summary
Entire
industries
are
being
reshaped
by
the
Membership
Economy™,
an
important
trend
in
which
companies
emphasize
access
over
ownership.
This
transformation
is
taking
place
for
three
reasons.
First,
technological
changes
allow
people
to
be
constantly
connected,
second,
sharing
of
con-­‐
tent
is
easier
than
ever
before,
and
third,
storage
of
this
content
is
becom-­‐
ing
increasingly
affordable.
Organizations
that
have
always
used
membership
as
a
key
component
of
their
business
model
have
a
unique
opportunity
to
take
advantage
of
these
trends
and
leapfrog
their
competition.
These
organizations
include
professional
associations,
hospitality
companies,
entertainment
compa-­‐
nies
and
insurance
organizations.
Unfortunately,
most
of
these
compa-­‐
nies
have
historically
been
slow
to
move,
and
have
not
taken
advantage
of
the
changing
technology
landscape
to
maintain
advantage.
This
article
recommends
tactics
traditional
membership-­‐based
busi-­‐
nesses
can
use
to
leverage
their
position
to
take
the
lead
in
the
Member-­‐
ship
Economy
What
is
the
Membership
Economy?
Companies
are
moving
in
droves
from
ownership-­‐based
models
to
mem-­‐
bership
models.
We
are
all
familiar
with
ownership-­‐based
models.
We
buy
something,
and
it
is
ours
to
do
with
what
we
like.
For
example,
since
I
own
my
home,
I
can
remodel
it,
rent
it
to
others,
live
in
it,
tear
it
down
or
change
it
in
any
number
of
ways.
If
I
were
renting
my
home,
my
control
would
be
more
limited.
I
could
put
up
my
own
pictures,
and
maybe
even
paint
the
walls,
but
since
the
home
isn’t
mine,
I
can’t
make
lasting
major
changes,
and
my
options
of
how
to
use
the
home
are
limited.
Similarly,
I
own
my
car,
my
clothes,
and
my
computer.
The
great
advantage
to
own-­‐
ership
is
control.
Things
I
own
are
mine.

2.
Technology
advances,
such
as
cloud
computing,
the
radically
decreasing
price
of
storage,
and
handheld,
always-­‐with-­‐you
devices,
are
driving
dra-­‐
matic
changes
in
consumer
and
business
behavior.
Individuals
willingly
share
their
own
content
with
strangers
(and
expect
the
same
from
oth-­‐
ers!),
while
smart
businesses
are
enabling
this
kind
of
engagement
and
new
relationships
between
the
company
and
its
customers,
and
among
the
customers
themselves.
We
call
this
major
trend
the
Membership
Economy.
You
can
see
evidence
of
the
Membership
Economy
across
nearly
every
industry,
from
cars
(ZipCar),
to
travel
(AirBnB)
to
retail
(Gilt).
You
even
see
elements
of
the
Membership
Economy
in
business-­‐to-­‐business
ori-­‐
ented
industries
as
companies
leverage
the
cloud
to
provide
shared
serv-­‐
ices,
and
as
Software-­‐as-­‐a
Service
becomes
a
standard
option.
Some
ex-­‐
amples
include
the
SalesForce.com’s
AppExchange
Marketplace
in
which
app
developers
designated
as
“partners”
get
special
privileges,
access
and
community
benefits;
as
well
as
Yammer,
which
enables
employers
to
cre-­‐
ate
membership-­‐based
communities
for
employees.
Successful
Membership
Economy
organizations
emphasize
access
over
ownership,
and
focus
on
meeting
three
key
human
needs:
1. The
need
to
belong,
2. The
need
to
be
safe
(insurance),
and
3. The
need
to
be
admired
(aspiration).
While
many
ownership-­‐based
businesses
can
provide
some
of
these
core
attributes,
they
are
generally
unable
to
keep
up
with
the
benefits
of
their
Membership
Economy
competitors.
The
reason
is
that
ownership
is,
at
its
core
a
private
matter.
What
I
own
is
mine,
and
not
necessarily
to
be
shared,
so
while
I
may
feel
some
community
with
people
who
own
similar
things,
or
feel
more
secure
for
owning
an
emergency
first
aid
kit
or
backup
generator,
or
I
may
even
build
prestige
for
myself
for
driving
a
certain
type
of
car,
these
benefits
are
limited.
There
is
tremendous
opportunity
for
newly-­‐launching
companies
to
rede-­‐
fine
their
industries
with
radically
different
business
models
that
take
advantage
of
new
technology
and
human
behavior.
However,
there
is
also
a
big
opportunity
for
the
membership
organiza-­‐
tions
themselves
to
take
a
look
at
these
innovative
startups
with
their
ag-­‐
gressive
business
models,
and
think
about
what
they
can
do
to
stay
rele-­‐
vant.
What
Does
This
Mean
for
Membership
Businesses?

3. What
does
the
Membership
Economy
mean
for
traditional
businesses,
especially
those
who
already
use
a
model
that
depends
on
membership?
The
Good
News.
Companies
that
have
always
embraced
membership
are
in
a
strong
position.
Professional
associations,
social
and
health
clubs,
insurance
companies
and
the
many
companies
in
the
hospitality
industry
are
leaders
in
the
Membership
Economy™,
or
they
can
be
if
they
continue
to
evolve
and
seek
new
ways
to
provide
value
to
their
members.
Numer-­‐
ous
case
studies
have
been
written
on
how
Caesar’s
Entertainment
Cor-­‐
poration
has
used
its
TotalRewards®
program
to
build
its
casino
busi-­‐
ness
into
a
membership
organization.
The
AARP
has
long
been
held
up
as
a
model
of
membership
organizations
offering
three
key
benefits
to
members:
access
to
discounts,
access
to
information
and
the
security
of
knowing
the
AARP
is
advocating
for
key
rights.
Many
other
associations
and
companies
have
built
strong
loyalty
among
their
members,
which
gives
them
a
position
of
strength
from
which
to
grow.
The
Bad
News.
Unfortunately,
it
is
often
these
front-­‐runners
that
end
up
losing
the
race.
In
his
book
Only
the
Paranoid
Survive,
Intel
founder
Andy
Grove
discusses
the
common
missteps
organizations
make
when
they
as-­‐
sume
that
their
current
leadership
represents
the
natural
order,
rather
than
a
moment
in
time.
Put
simply,
companies
are
often
slow
to
innovate
because
of
their
past
success.
If
they
don’t
take
advantage
of
already
hav-­‐
ing
a
loyal
membership,
someone
else
may
steal
their
members
via
new
technology.
Membership Associations are being attacked by new model companies. Cor-
porations are building professional communities which may make profes-
sional associations irrelevant. These new communities often feature free
membership options as well as paid, as a means of building a large community
And
have
strong
online
community
features
which
enable
sharing
of
data
and
ideas,
and
integrate
mission-­‐critical
business
tools
with
the
commu-­‐
nity
experience.
Examples
include
• LinkedIn
for
HR.
In
many
corporations,
HR
is
the
Rodney
Danger-­‐
field
of
functional
departments,
earning
limited
respect
from
lead-­‐
ership.
Traditional
associations
for
HR
have
been
ineffective
at
raising
the
profile
of
recruiters
and
other
people-­‐professionals,
and
LinkedIn,
by
providing
tools,
online
communication
and
even
offline
conferences
for
cutting
edge
thinking,
is
becoming
a
de-­‐
facto
professional
association
for
a
historically
neglected
group.
• Salesforce.com
for
sales.
Much
has
been
written
about
how
Sales-­‐
force
has
allowed
sales
people
greater
control
over
their
prospects
and
customers,
decentralizing
a
system
that
has
historically
been
owned
by
corporate,
and
moving
a
strategic
function
out
of
IT
and
into
sales
and
marketing.
• Intuit
for
small
business
owners,
has
allowed
hundreds
of
thou-­‐
sands
of
small
business
owners
to
bypass
accounting
firms
and
bookkeepers
and
manage
their
own
finances,
with
access
to
shared
best
practices
and
a
large
community
of
like-­‐minded
peo-­‐
ple.
Intuit’s
stated
goals
around
becoming
a
destination
for
small
business
owners
to
meet
and
share
best
practices
is
jeopardizing

4. chambers
of
commerce
and
small
business
owner
associations
around
the
country.
Ten
Things
Companies
Should
Be
Thinking
About
Traditional
membership-­‐based
businesses
should
consider
the
following
tactics
that
are
being
successfully
leveraged
by
Membership
Economy™
leaders,
like
LinkedIn,
Salesforce.com
and
Weight
Watchers.
Here’s
my
top
ten:
1. Subscription
models.
Subscriptions
are
considered
the
holy
grail
of
business
models
because
they
provide
such
predictable
revenue
streams,
often
amortizing
a
fixed
cost,
and
with
low
variable
costs.
Subscriptions
appeal
to
members
because
they
provide
flexibility,
smoother
cash
flow
and
often
because
they
provide
access
to
some-­‐
thing
much
bigger
and
more
valuable
than
a
customer
could
build
or
own
themselves.
Most
membership
organizations
have
subscriptions,
but
very
few
have
relevant
tiers,
that
provide
ongoing
value
in
a
way
that
is
recognized
by
members.
Too
many
membership
organizations
have
static
benefits
that
are
not
used
by
their
members—and
then
are
surprised
when
members
unsubscribe.
• Ask
Yourself:
What
kind
of
value
can
your
organization
offer
members
on
an
ongoing
basis?
What
market
segments
would
be
interested
in
paying
more
for
additional
access
or
benefits?
2. “Free“
Value.
Marketers
have
long
known
that
trial
is
a
key
step
in
the
buying
process.
In
membership
businesses,
this
trial
component
is
even
more
important,
because
the
value
of
a
new,
loyal
customer
is
generally
so
high.
Consider
offering
a
free
trial,
maybe
in
the
form
of
limited-­‐time
access,
a
guest
pass
or
even
a
free
subscription
at
the
lowest
level
of
service.
Many
membership
businesses
focus
too
much
on
current
members
without
spending
enough
time
thinking
about
bringing
in
new
members.
• Ask
Yourself:
Is
there
a
“free
membership”
option
for
your
members?
What
are
you
offering
to
your
target
audience
that
does
not
require
payment?
3. Referral
Programs.
Existing
members
are
often
so
loyal
that
they
can
be
tremendous
sources
of
new
members.
In
addition,
they
under-­‐
stand
the
benefits
of
the
organization,
and
can
easily
show
their
friends
why
the
membership
can
be
so
valuable.
The
best
member-­‐
ship
companies
ask
for
referrals
from
their
members,
make
it
easy
for
members
to
bring
in
their
friends,
and
may
even
offer
special
benefits
or
status
to
members
who
bring
in
others.
Multilevel
marketing
or-­‐
ganizations
understand
this
behavior
and
have
built
their
whole
busi-­‐
ness
model
around
referrals
and
recruiting—but
there
is
plenty
of
room
for
nearly
any
kind
of
business
to
work
more
thoughtfully
with
existing
members
to
bring
in
new
members
and
make
them
feel
wel-­‐
come.

5. • Ask
Yourself:
How
easy
is
it
for
your
members
to
invite
others
to
join?
What
kind
of
reward
or
recognition
do
they
get
for
do-­‐
ing
so?
4. Network
Effect.
Belonging
is
core
to
membership.
You
want
your
members
to
feel
connected
to
other
members,
but
also
to
the
organi-­‐
zation,
its
employees
and
to
any
physical
or
electronic
gathering
places
for
your
members,
whether
that’s
a
store,
a
website
or
a
hotel.
Knowing
their
name,
preferences,
friends
and
history
with
your
orga-­‐
nization
can
all
help
members
feel
like
they
belong.
Facilitating
this
sense
of
belonging
is
critical.
It
also
contributes
to
building
a
“net-­‐
work
effect”
which
is
the
value
that
each
new
member
adds
to
the
community
by
joining.
For
example,
the
more
members
can
learn
from
one
another,
the
more
valuable
the
community
is
for
each
new
member.
• Ask
Yourself:
How
does
the
value
of
membership
increase
with
each
new
member?
Are
you
providing
unique
ways
and
lever-­‐
aging
technology
for
your
members
to
benefit
from
their
peers.?
Are
you
enabling
these
connections
and
shared
value?
5. Consistency.
With
event-­‐driven
businesses
where
a
good
customer
engages
in
multiple
transactions,
keeping
the
customer
off-­‐balance
and
enticing
them
with
new
and
different
offers
can
be
effective.
However,
in
the
Membership
Economy™,
consistency
trumps
excite-­‐
ment.
Any
time
that
the
customer
considers
changing
their
relation-­‐
ship
with
the
organization,
there
is
a
risk
of
losing
the
customer.
Changing
the
price
or
the
offering
can
cause
the
customer
to
pause
and
reconsider
their
membership.
Even
a
pause
in
the
autopay
proc-­‐
ess
due
to
poor
handling
of
an
expired
credit
card
can
result
in
lost
trust
and
ultimately
in
attrition.
So
changing
pricing
or
packaging
should
be
done
carefully,
and
technology
should
be
used
to
minimize
friction,
complemented
with
a
human
intervention
when
there’s
any
possibility
of
losing
a
member.
• Ask
Yourself:
Where
are
you
losing
customers?
Are
there
leaks
in
your
membership
experience
that
can
be
fixed?
6. Sharing.
People
are
growing
increasingly
comfortable
sharing
their
own
content.
Online,
this
can
translate
into
shared
expertise
and
ad-­‐
vice,
product
reviews
and
stories,
or
videos.
In
strong,
trusted
com-­‐
munities,
members
also
appear
willing
to
share
their
physical
belong-­‐
ings—sports
equipment,
cars,
and
even
homes.
Sharing
creates
unique
value
within
the
community
and
creates
stickiness,
with
minimal
cost
to
the
organization.
• Ask
Yourself:
Do
you
provide
both
physical
and
virtual
oppor-­‐
tunities
for
your
members
to
connect
and
share
content?
7. Status.
There
are
some
memberships
that
people
take
pride
in—their
country
club,
the
Young
Professionals
Association,
or
even
the
latest
online
community.
In
other
cases,
it
is
one’s
status
within
the
organi-­‐
zation
that
confers
status—president
of
a
professional
association,
Black
Card
holder,
or
Amazon
top
reviewer.
Some
organizations
have

6. levels
that
provide
increased
access
to
special
events
or
benefits
as
a
result
of
usage-­‐based
status,
common
in
hospitality
and
online
gaming
communities,
but
even
without
the
associated
perks,
having
a
publicly
differentiated
status
program
can
increase
feelings
of
loyalty
among
members.
Status
can
also
be
conferred
as
a
result
of
achievement,
such
as
hitting
success
milestones
within
the
organization—authentic,
earned
status
is
best.
• Ask
Yourself:
How
does
your
organization
confer
status
on
members?
What
kind
of
certification,
popularity
or
activism
do
you
track
and
reward?
8. Risk-­‐reduction.
A
key
benefit
of
membership
is
the
reduction
of
risk.
Certainly,
insurance
organizations
are
explicitly
structured
to
mini-­‐
mize
risk
across
a
membership,
but
there
are
other
ways
that
an
or-­‐
ganization
can
minimize
risk
in
exchange
for
loyalty.
For
example,
members
of
Zappos
can
return
items
for
up
to
an
entire
year,
reducing
the
risk
normally
associated
with
ordering
online.
And
AAA
exists
primarily
to
make
members
feel
safe
in
times
of
car
trouble.
• Ask
Yourself:
What
do
your
members
worry
about?
How
can
you
leverage
your
community
and
resources
to
minimize
that
risk?
9. Stickiness.
Companies
talk
about
stickiness,
or
features
that
make
it
difficult
for
a
customer
to
stop
using
a
particular
product
or
service,
usually
because
it
becomes
a
habit,
or
because
switching
costs
would
be
high.
Membership
organizations
are
uniquely
suited
to
creating
stickiness
because
the
actual
community
itself,
and
the
individual
member’s
status
within
that
community,
become
so
important.
If
you
leave
a
sticky
community,
you
lose
those
relationships,
and
the
earned
status
within
that
relationship.
Too
many
traditional
membership
or-­‐
ganizations
neglect
stickiness,
and
have
slowly
become
irrelevant
for
members,
with
members
feeling
disconnected
from
a
group
that
was
once
important.
• Ask
Yourself:
What
do
your
members
give
up
(if
anything)
when
they
leave
your
community?
What
might
they
need
to
rebuild?
How
can
you
make
your
community
part
of
your
members’
daily
routine?
10. Big
Data.
Organizations
built
on
membership
and
loyalty,
such
as
those
in
the
hospitality
industry,
can
be
quite
adept
at
gathering
and
analyzing
large
quantities
of
data,
which
track
demographic
and
be-­‐
havioral
information
about
the
consumers.
However,
most
of
these
organizations
stop
there,
and
don't
think
creatively
about
the
applica-­‐
tions
for
this
data.
In
many
cases,
the
data
is
valuable
to
the
members
of
the
organization,
who
are
interested
in
benchmarking
themselves.
The
benchmarking
data
can
also
be
sold
in
aggregate
form
to
other
organizations
trying
to
understand
certain
demographic
groups.
For
example,
the
aggregate
data
on
LinkedIn
is
tremendously
valuable
to
people
conducting
research
on
certain
companies
or
industries.
Data
can
also
be
used
as
a
starting
point
for
identifying
new
target
buyer
groups
around
whom
to
develop
new
products.
And
the
data
can
be

7. used
to
create
smaller
communities
of
members,
segmented
by
inter-­‐
est.
• Ask
Yourself:
What
data
are
you
tracking?
Do
you
know
how
to
take
advantage
of
it?
Conclusion:
Ignorance
is
Not
Bliss
What
got
many
membership
organizations
to
their
current
level
success
is
no
longer
enough
to
keep
them
at
the
forefront
of
their
industries.
Savvy
companies
are
thinking
about
new
ways
to
meet
and
exceed
the
needs
of
their
members.
What
does
this
mean
for
today’s
leaders?
It
means
they
need
to
find
ways
to
step
away
from
“business
as
usual”
and
explore
ways
more
boldly
to
meet
customer
need.
Sometimes
it
can
be
hard
to
let
go
of
this
monkey
bar
to
reach
out
for
the
next
one,
or
even
to
think
about
what’s
around
the
next
curve.
Winning
companies
must
be
willing
to
rethink
their
business
model,
community
and
methods
of
pro-­‐
viding
unique
value
to
their
customers.
The
Membership
Economy
offers
an
unprecedented
method
to
dramatically
enhance
customer
relation-­‐
ships.