A membership economy changes everything

12 January 2018

With anything from software to bicycles delivered as a service today, it is easy to forget how different things were just a few years ago.


Software was sold in boxes to buyers that companies knew little about – unless they voluntarily signed up for customer support or warranty. Bicycles were rented to people who paid a small fee and went home after that, with little exchanged except for money.


That has all changed with the so-called membership economy. Today’s situation means that companies are engaged in long-term relationships with customers. No longer is the transaction one-off, but part of a lasting engagement over years.


First, what is this membership economy? According to Robbie Baxtor, who coined the term in her book of the same name, this is a situation where companies have to engage customers as “members” who are connected for the long term.


They have to know these customers even better than before, added Baxter, who is the founder of consulting firm Peninsula Strategies. Key to this is a shift from ownership to access, from anonymous transactions to known relationships and from one-way messages to open conversations, including among customers, she explained.


Companies that fail to do this are going to be on the losing end, as competitors put the customer in the centre of what they do. Even more important than the product itself or the underlying technology, the customer as a member should set the direction for a company.


The key difference today is that technology has enabled the new member economy to an extent that it will become the normal and expected outcome. While understanding a customer’s needs has always been central to companies’ missions, the infrastructure needed to build a relationship is relatively new.


Mobility enables them to connect with customers all the time, understanding their routines and preferences. At the same time, artificial intelligence (AI) enables companies to better predict what customers might want – even before they ask for it.


One example is Netflix. Rather than simply sell a monthly service with a huge catalogue of videos, it also tries to constantly improve by building on its relationship with a customer. It considers each customer a long-term commitment.


Viewing habits are analysed and videos are recommended to viewers depending on what they watch. Before they have to browse through a long list of shows, they are given options that track closely to what they may like.


The same with Amazon, when one logs in to shop at the e-retailer. A shopper gets smart recommendations based on what he has browsed or bought in the past, so he doesn’t aimlessly search through millions of items.


Indeed, today’s platform companies have all succeeded on this level. Knowing the customer better and designing a friendly interface that runs in real time have given them a march over traditional players. Taxi hailing app Uber is the best example of a company winning in the membership economy.


And it is not just digital natives that are doing so. Many companies, such as Adobe, that used to sell boxed software to users, have switched to the subscription model. More than that, they deliver offers to customers based on what they are using.


So, the mindset change towards a membership economy applies to companies from different industries. Essentially, the challenge is to turn customers into permanent “members” of their product or service by connecting much better with them, understanding their needs and delivering the solution they desire.


To do so, the key is to speak to customers. This could be through regular feedback from various online channels. The feedback has to be collated and analysed, for a coherent strategy to transform into a nimble organisation ready for the membership economy.


This involves not just one-way traffic but also member-to-member interaction. For example, customers speaking to one another can spark the growth of a new product or service that a company may not yet have conceived. There is no more valuable feedback than a group of customers coming together to find a new way forward together.


In the same way, data analytics will play a big part. As the Uber and Netflix examples show, knowing a customer based on his micro transactions and daily interactions with a product or service can make a huge difference in delivering a service that makes a customer a permanent member of a company’s offerings.


For companies seeking to compete in the member economy, it is imperative that they start thinking how they can discover, engage and retain these members. In transforming into a digital business, the challenge is knowing their customers as well as a Uber or Amazon would in their respective fields.


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