Disruptor brands such as Amazon, Netflix and Dollar Shave Club are upending traditional business models with membership and subscription-based offerings. Technology is driving changes that make on-going subscription relationships possible – and customers are embracing the opportunity.
Though 70 per cent of business leaders predict membership revenue will be core to future growth, only 7 per cent of brands are so far monetising products this way, according to recent research by Manifesto Growth Architects.
So how can businesses truly identify, capture and prosper from the opportunities in the membership economy? To find out, Manifesto Growth Architects and Management Today hosted a breakfast with Chris Duncan, managing director, The Times; Katie Vanneck-Smith, co-founder of Tortoise Media; and George Robson, head of premium products, Revolut.
What is the membership economy?
The membership economy is based on ongoing relationships rather than transactional selling. It is driven by experience and engagement, and is designed to deliver greater value over time for both the customer and the business, explains Sam Jordan, EVP at Manifesto Growth Architects.
There are two ways of generating revenue in the membership economy: direct revenue from subscriptions and transactions, or indirect revenue, which monetises the customer relationship through third party advertising, sponsorship or affiliates.
Unlike in traditional, transactional business models, you will lose money when you acquire a new subscriber, but you might make money if you can keep them. However, it takes time to build loyalty, warns Jordan. You have to be good at creating clear reasons for increasingly savvy customers to stay with you in the long term, not just relying on reasons for them not to leave.
A famous example is Amazon Prime. The tech giant’s subscription service costs £8 per month - for that you get free delivery, access to Amazon Prime video and music among other things. Most customers get the value back from their subscription in deliveries alone. Prime is only profitable because of its ability to generate other types of revenue such as transactional advertising and affiliate opportunities across the whole Amazon ecosystem.
The Times pivoted to a membership-based strategy over a decade ago when news first went from being a physical print product to being a digital service, explains Duncan: "The future for us is digital subscriptions on a national and global scale."
It’s the same story for ‘slow news’ media start-up Tortoise, which relies on its partners rather than carrying ads. "We’re focused on membership first. Pricing is based on customers, and our model is customer based not product based," says co-founder Vanneck-Smith.
It’s even catching on in finance. Digital app-based bank Revolut is building its business around subscriptions in both retail and business banking, says its head of premium products George Robson. "We are bringing people into more financially sophisticated products earlier, introducing people to things like investment and credit but crucially, we can demonstrate lasting value for financial services products that people have heard of and understand." The vision, he says, is to interact with consumers in the same way retail brands do, offering paid upgrades to ‘premium’ or ‘metal’ accounts for access to tiered benefits.
Build lasting relationships
A common mistake businesses make when building a subscription model is neglecting the human side – focusing on buying behaviours rather than unlocking genuine behaviours of belonging, says Vanneck-Smith. "The difference between subscription and membership is a great opportunity. If you truly build a membership business, you can unlock not just subscription revenue but all those other streams."
This means you need to think about emotions and the emotions of your customers, says Vanneck-Smith, highlighting the importance of keeping customers at the heart of the economic model. Think of it as a lifetime relationship and root yourself in customer empathy, adds Duncan.
Four ways to unlock value from customer relationships
Product and product experience – what you sell and how you sell it. End user experience is the most important thing. If the customer feels that evolution then you’re probably doing something right, says Duncan.
Marketing - engagement is what powers those different revenue opportunities. It’s the thing that keeps somebody being a subscriber, it’s the platform that creates opportunities for transactional revenue and it magnifies the value of an advertising or affiliate business. In the case of the membership economy, it also creates and drives experience alongside the product experience.
Data - data is the driver of any engagement you do. As a membership or subscription based business, you have lots of data about your customers but that data is only valuable when you can turn that into actionable customer insight. You can probably do more with what you have than you realise.
Partnerships - it is impossible to deliver those complex customer propositions and generate revenue in all those different ways without being part of the partnership ecosystem. Embracing partnerships and making ‘frenemies’ with your rivals is integral to your success.
For more tips on how you can be successful in the Membership Economy download the full report here.