Relationships and Transactions in the Membership Economy
I recently spoke to Robbie Kellman Baxter, a bestselling author of The Forever Transaction and The Membership Economy, named a top 10 marketing book of all time by BookAuthority. Robbie has worked as a strategy and marketing consultant to major organizations including Netflix, Consumer Reports and LinkedIn, as well as leaders in industries including Software-as-a-Service, Media, Retail, Consumer Products, Healthcare, Financial Services and Hardware, for more than twenty years.
Adam: Thanks again for taking the time to share your advice. First things first, though, I am sure readers would love to learn more about you. How did you get here? What experiences, failures, setbacks or challenges have been most instrumental to your growth and success?
Robbie: In 2001, I was laid off from my role as a Product Marketing Director the day I returned from maternity leave. I decided that I needed greater control over my career, and hung out my shingle as an independent consultant. I needed to contribute to our mortgage, and independent consulting seemed like a more direct and flexible way to be paid for my contribution. At the time, what felt like a huge setback has turned out to set my career in a new direction.
Adam: What inspired The Membership Economy? For those who haven’t read it, what are the key points you would like them to understand?
Robbie: About two years into my consulting career, I was doing some work for Netflix, and I fell in love with their business model. And as I was falling in love, everyone else was too, and I started increasingly getting requests from companies that wanted to “be like Netflix”. I noticed that there were some shared principles that the best companies were using to build recurring revenue relationships, and that a key one was treating customers like members, and focusing on the long-term. These companies prioritized lifetime customer value over short-term revenue targets or number of new customer acquisitions. I described this new way of engaging with customers as a membership economy.
I have notes for what became The Membership Economy book dating back to 10 years before the book launch in 2015. I was trying to identify the shared principles of companies like Amazon, LinkedIn and Netflix, and the kinds of companies that could benefit from them. The more I researched and wrote, the more I realized how powerful the model could be.
Ultimately, I came to realize that virtually any business that valued having customers return again and again, and whose customers had other options, could benefit from joining the Membership Economy. So if your business only sees a customer once—you sell wedding dresses for example—or if your customers have no choices and you have a geographic, patent or regulatory advantage, you are probably fine for now. But everyone else, who benefits from building trust with customers, can join. I was so excited to help companies build these mutually beneficial, highly profitable models. But at the time, most executives and entrepreneurs didn’t think tactics like subscription pricing, digital community and the use of membership models could work in their space. It was my one pound business card, mapping out my point of view.
I wrote The Membership Economy book to define the approach and demonstrate how it could work for big and small organizations, digital natives and long-time businesses, and even in the public and nonprofit space.
Adam: What drove you to write your most recent book, The Forever Transaction?
Robbie: Five years ago, when I published my first book, I was trying to share what I saw on the horizon to people who didn't see it yet. Today, everyone understands the power of subscription pricing and going direct to the customer. But organizations struggle to implement this new model.
In The Forever Transaction, I get into the nitty-gritty explaining what I do with my clients at each stage of maturity.
The first section is called LAUNCH. It’s for both entrepreneurs with a great idea for a subscription-based business and for more established organizations experimenting with membership models and subscription pricing.
SCALE, the second section, is for organizations that have had some initial success and are ready to grow—they need to determine the right technology infrastructure, the right culture, the metrics and pricing that will allow them to go far, fast.
And LEAD, the third section, is for organizations that have been in the Membership Economy for a long time and are struggling to maintain their focus. Media companies that have long had subscriptions, gyms with their month-to-month memberships and professional societies and trade groups are among the many organizations with well-established customer-centric models, and they have their own challenges. They are at risk of listening too much to today’s members while ignoring tomorrow’s. They aren’t looking on the horizons at new organizations that are solving the same challenge for members but in a totally different and disruptive way, as Paypal disrupted banking, as Netflix disrupted tv and film, and as Amazon disrupted well, everything.
I want to help organizations realize that they need more than subscription pricing to build a forever transaction, and avoid the bumps and bruises of the organizations that have tried before them.
Adam: In your view, what are the key elements to creating and building a winning long-term business model?
Robbie: Customer-centricity. Everyone says they’re customer-centric until they need to hit a short term financial goal, or until the product team wants to build something that is exciting to build but not what customers need.
Adam: How can and should entrepreneurs with more traditional business models evolve their companies into subscription businesses? What are best practices entrepreneurs should comprehend and ultimately follow?
Robbie: They should start by taking a step back and identifying their forever promise. What is the problem or opportunity that drives customers to buy from them in the first place, and that a customer might have forever (or a long time)? For example, I go to the car wash because I like when my car is clean, not because I want a carwash.
Then the company should consider how they can best deliver on that promise, not limiting themselves just to their product—what about if the carwash sent a valet to my office parking lot to pick up my car and run it through the wash and then bring it back on a regular schedule.
Adam: What are the biggest misconceptions about subscription businesses?
Robbie: The biggest misconception is that all you need to do to have a subscription business is to take whatever products and services you already have and slap a subscription price on it. You need to really consider product-market fit, not just a product that gets people to sign up for the subscription but that gets people to engage and continue paying on an ongoing basis. The moment of purchase is the starting line, not the finish line. And every functional team in the organization will need to change their processes to deliver a true subscription business.
Adam: What are other key lessons you hope readers take away from your book?
Robbie: I’d like people to see that the most important thing to do is to change your mindset to focus on helping your customers achieve their goals, for the longterm. We’re in the midst of a global crisis right now, and many of the most successful businesses are the ones that use subscriptions—because they’ve invested in trust. They needed to establish trust to justify automated payments and now, consumers are sticking with them. Meanwhile, too many companies are chasing short term cashflow and destroying the relationships they had with their customers.
You don’t need a fancy subscription program or billing software or digital community to build a forever transaction. Those tools can help, but at its core, it’s about the mindset of your team.
Adam: In your experience, what are the defining qualities of an effective leader? How can leaders and aspiring leaders take their leadership skills to the next level?
Robbie: Clarity of vision. Clarity of communication. The ability to make decisions in times of ambiguity. Willingness to walk into the dark cave first, carrying the flashlight.
During business school, most students weren’t that interested in organizational behavior because it was “too soft” but I remember the professor telling us that 10 or 15 years out, this would be the class we’d remember, and these would be the challenges we’d find most daunting as leaders. Marketing, finance, even engineering have clear rules, but leadership, making tough calls, and communicating in a way that makes people want to follow you—that’s hard!
Adam: What are your three best tips applicable to entrepreneurs, executives and civic leaders?
Robbie:
When in doubt, take a step back and look at the bigger picture.
Hire people who have the skills you need, when you need them. There has never been a more flexible talent market.
When you want to take the easy way out, imagine your life playing out as a movie. Are you acting like a bit player, a villain, or a hero?
Adam: What is the single best piece of advice you have ever received?
Robbie: Aim high.