By Robbie Kellman Baxter
Robbie Kellman Baxter is the founder of Peninsula Strategies LLC, a consulting firm based in Menlo Park, CA, that helps companies excel in the Membership Economy.
Membership is a powerful concept, invoking trust, connection and loyalty. By investing in ongoing relationships with customers, rather than anonymous one-time sales, many subscription-based companies are building “forever transactions” and disrupting industries from software to content (video, audio and text) and services.
When the Subscription Economy is working well, it’s truly a win-win. For customers, they have one less thing to worry about (Where to exercise? How to upgrade the software?) Prospects stop considering alternatives and start behaving like members who trust organizations to evolve to serve their needs on an ongoing basis, and move on to other things. Companies enjoy predictable recurring revenue, deeper engagement, and excellent behavioral data which can be used to further strengthen the business model.
When I wrote my book, the Membership Economy: Find Your Superusers, Master the Forever Transaction & Build Recurring Revenue, there weren’t many successful physical subscriptions beyond continuity programs. This was mostly due to technical limitations.
But that is changing rapidly. Here are some evolving trends:
1. New business models across retail, CPG and Durable Goods
- Subscription Boxes like StitchFix, Ipsy and Blue Apron
- Replenishment models with heart, like cult-classic Dollar Shave Club and The Farmer’s Dog pet food, which features personalized pet surprises in every shipment.
- “Internet of things” subscriptions like Peloton bikes with companion subscriptions (my new addiction!), Nest thermostats that adjust to personal preferences, or Tovala steam ovens that come with subscriptions to food
- Shared access to hard goods like DriveShare, Hagerty’s classic car sharing membership and 3dP Printing disruptor Carbon offering subscription access to printers rather than traditional ownership
2. Outsourced services for all parts of the complex operations required to manage ongoing relationships with consumers including packing of customized boxes, sophisticated customer success teams, optimized shipping and return systems and of course recurring billing and churn management. Now an entrepreneur just has to come up with the value proposition and the offerings—vendors can handle the rest.
3. An increased emphasis on customer experience not just before the moment of transaction, but after, to ensure engagement and success with the products and services the customer has paid for. It’s not just about the product being delivered, it’s also about how the product is packaged, what the follow up is like, and whether there’s an opportunity to connect with like-minded people around that product. For example, the Peloton Facebook community has created deep friendships among people doing similar workouts, even as most people report not having any friends at the gyms they frequent in person!
4. Use of emerging technologies like artificial intelligence, machine learning and incorporating internet services into physical products (known as the Internet of Things or IoT) to build a more personalized experience for members. The idea is to provide as much value as possible in exchange for the data being collected, simulating digitally the kind of relationship that naturally develops in the physical world.
5. The rise of a functional expertise of Customer Success (CS), which differs from Customer Support by being proactive. Instead of waiting for customers to have a problem, CS teams focus on how to optimize the customer’s experience in the long term. They start their work at the moment of transaction, taking the ball from the Salesperson, and onboarding the new customer. From there, they monitor that customer, through behavioral data and by periodically reaching out to ensure that the customer is happy and to identify changes in need. Key metrics of CSMs include referenceability, retention, and expansion of the relationship.
6. A rush across companies in virtually every area of manufacturing, from automotive to clothing to agriculture, to rethink the value proposition they provide to their customers, moving away from a product-focus, like “we sell soap” to experience-focus “we provide self -care to relieve our stressed-out members”
Consumers appear to like this model and it’s gotten easier to execute, as you can now outsource parts of the complex operations, so there is a lot of opportunity here.
However, this race to membership and obsession with subscription models is a double-edged sword.
On the one hand, it can lead companies to move too quickly to be “the Netflix of our industry” and create a new business model that doesn’t make sense for the customer, resulting in cannibalization of current businesses without driving engagement and loyalty. This results in subscriptions with minimal content, or discovery boxes that quickly result in subscription fatigue (how many months of a tie-of-the-month club does one dad need?)
On the other hand, a membership mindset can be a springboard to catapult a company forward. It forces organizations to think about the long-term value they can create for the people they serve if only they put the customer (and not the product) at the center of their business model instead of their own products and processes. When you truly understand the mindset of your members and the concept behind the forever transaction, sustainable growth will happen organically because you will focus your energy on the right things. While this is true in any business, it is the heart and soul of any subscription-based business.
Learn how Zuora helps membership companies succeed with seamless customer experiences and new member acquisition. And check out our latest Subscription Economy Index to learn more about the rapid growth of the subscription business model.