“The Membership Economy is my name for the massive trend among organizations to tap into the value of long-term, formal relationships through subscriptions,” writes Robbie Kellman Baxter in her latest book, The Forever Transaction.
“It means moving from an ownership model to one of access, from a single payment to multiple recurring payments, from an anonymous transaction to a known relationship, and from one-way—or even two-way—communication to a full community gathered under the umbrella of the organization.”
Baxter has extensive experience consulting with membership-based companies like Netflix, SurveyMonkey and Yahoo. The Forever Transaction is a followup to her seminal earlier book The Membership Economy, which is an in-depth exploration of membership strategy, and why it matters for businesses across industries.
While The Membership Economy was about why organizations were moving to this new model, The Forever Transaction is about how they can be successful with it.
In the last 10 years, membership has reinvented nearly every industry. Companies like LinkedIn, Amazon and Salesforce have created forever transactions of their own with their customers by using many of the tactics that are core to the deep relationships trade groups, professional societies and other not-for-profit associations have been building for decades.Robbie Kellman Baxter, Author, The Forever Transaction
The membership economy appears to be a viable model for publishers favoring direct reader revenues. It has the potential to assure profitable growth in the long run.
Subscription businesses are growing revenues about 5x faster
Baxter refers to McKinsey’s 2018 whitepaper, “Thinking Inside the Subscription Box,” which states that the subscription eCommerce market alone has grown by more than 100% a year during the five years from 2012 to 2017.
Zuora’s Q4 2018 Subscription Index report states, “an average company in the Subscription Economy has grown its revenue by 321% since the launch of the index in January 2012, a compound annual growth rate of 18.1%.”
Additionally, it has found that overall subscription businesses are growing revenues about 5x faster than S&P 500 company revenues and US retail sales.
“Many of these new Membership Economy organizations employ tactics like subscription pricing, premium loyalty clubs, and mobile apps, but the unifying attribute of Membership Economy organizations is the establishment of a forever transaction with the people they serve,” writes Baxter.
Organizations treat customers like members. And customers trust that the organization will continue to evolve products and services to deliver on that forever promise. As a result, customers stop considering alternatives to achieve their goals.Robbie Kellman Baxter, The Forever Transaction
“Loyalty doesn’t come cheaply”
To earn a “forever transaction” a company must offer a “forever promise.” That means, it should commit to deliver a result, solve a pain point, or achieve an outcome for members forever, in exchange for their loyalty.
“Loyalty doesn’t come cheaply. It requires a commitment to continuous innovation, a culture that treats customers like members, and an emphasis on retention,” comments Baxter.
“But organizations that optimize for engagement, as opposed to chasing the transaction, will find success and profitability in the long term relationships they develop.”
The Forever Transaction is designed like a blueprint for getting successful in the membership economy. It takes readers through every step of the subscription business process—from initial start-up or testing of a new model, to scaling the operation for long-term growth and sustainability, to revamping an organization’s culture so that it supports membership strategy.
The book covers all the essentials like subscription pricing, Software-as-a-Service, digital community engagement, and freemium incentives as a way to turn casual browsers into cash-paying superusers.
It also features first-hand insights into subscription superstars like Amazon and Spotify. Most importantly, it shows readers how to build lasting relationships with their customers that are the very foundation of business success.
The Forever Transaction is divided into 3 sections. They are:
“Retention drives referrals, learning and lifetime customer value”
The first section, Launch, presents tips, examples and questionnaires that help readers assess where they are vis-a-vis the membership economy and where they need to invest early on. It lays down ideas for launching an initial test and conducting basic research to ascertain potential for joining the Membership Economy.
Baxter recommends focusing on retention as the starting point. And that it should be baked into the culture of the organization.
“Mastering the forever transaction depends on a core culture that is focused on the long term,” she writes. “Many companies pay lip service to the importance of loyalty while rewarding team members for new customers, logos and building awareness. But retention drives referrals, learning and lifetime customer value.”
If you want your organization to win with subscriptions, you need to work backwards. Start with retention. You want to have an offering designed so that newly acquired customers don’t leave. This means you need to focus on attracting not just people who will “sign up” but people who will stay—maybe a narrower audience, but a more profitable one.Robbie Kellman Baxter, Author, The Forever Transaction
She suggests starting small and shares examples of Netflix which began with the forever promise of a “broad selection of professionally created video content delivered with cost certainty in the most efficient way possible.” This was new and compelling at that time, notes Baxter.
But as more companies like Amazon Prime, HBO and Hulu came up with similar promises, Netflix moved to adding unique content as well. Similarly, Amazon began by selling only books, and expanded over the years to include other categories.
“Most companies, even those with the biggest promise of a forever transaction, start small,” she writes. Companies can scale up as they get feedback from their initial experiments and see positive returns.
Going grocery shopping, without a list
The second section, Scale, shows readers how they can build on small successes to create a full-scale forever transaction. It looks into the foundational systems and processes an organization needs for rapid business growth.
These include nurturing a supportive organizational culture, building the right infrastructure, pricing strategically, tracking the right metrics and accelerating growth through acquisition and iteration. The section also gives an overview of common setbacks and mistakes and how they can be tackled.
“One of the most common scaling problems arises when organizations start by looking at products, without mapping out the bigger requirements first,” writes Baxter. “It’s kind of like going grocery shopping when you’re hungry, without a list.”
If you start with the end in mind, you’ll be ahead of the game. It’s wise to plan for your entire subscription architecture, even if you’re not implementing it all up front.Robbie Kellman Baxter, The Forever Transaction
An example shared is that of FabFitFun (FFF) which launched in 2010 as a newsletter. Today, it’s a $200M lifestyle brand. The company offers members a quarterly subscription box, access to a vibrant user community, and original content delivered via newsletter, magazine, blog, and a live TV channel, FFFTV.
FFF launched with a consistent mission which is described on its magazine site: “FFF aims to motivate, inspire and excite readers with a slew of great, healthy resources for every kind of woman—from the new college student to the new mom.”
According to Baxter FFF might have envisioned the following features at the beginning:
- Content (text, image, video, audio)
- Education (classes, trainings)
- Live events
- Global community of women inspiring women with user-generated content
- Coaching by professionals and/or by peers—everything from personalized styling to fitness to relationship advice
“Obviously, FFF didn’t implement this full vision initially, and you don’t have to either,” she writes. “Few companies know enough and have the resources and confidence to do everything at once.”
On the topic of technology, Baxter says, “selecting technology is not a fundamental skill of every businessperson, but it’s time to hone your expertise and play an active role in this area.
“You don’t need to be an engineer or know how to code. You do need to identify opportunities to employ emerging tech solutions to strengthen your business, and to assess when and how much to invest.”
Continue to evolve and remain relevant
The final section, Lead, suggests measures that companies can take to ensure that their model continues to evolve, and remain relevant and valuable to the people they serve. It delves into the common challenges that mature Membership Economy businesses face. These include focusing too much on an aging cohort, getting distracted by short term goals, going global, and dealing with subscription fatigue.
Many companies sacrifice long-term subscriber relationships for short-term revenue and as a result their business fails.Robbie Kellman Baxter, The Forever Transaction
There are lessons here for newspapers that have considerable investment in print media. Most of their readers that prefer the print edition are also old. But they are usually long time loyalists and are willing to pay more for the physical paper than digital consumers. So while demand for print media is declining, such publishers find it difficult to move on.
“The desire to maximize total revenue often prevents media companies from committing to new models. The same is true of advertising revenues,” explains Baxter. She suggests publishers to “assess the risk of cannibalization and, if possible, design early product offerings to minimize it.”
Even companies that know the future depends on transitioning to a direct-to customer recurring revenue model worry about this transition. They fear leaving money on the table by killing the cash cow prematurely with an abrupt move to a model that consumers prefer.Robbie Kellman Baxter, The Forever Transaction
Publishers can also get so used to serving their long time readers that they stop considering the changed requirements of new readers.
Amedia, Norway’s largest publisher of local media titles discovered that one reason younger audiences weren’t subscribing (or reading) their publications was not because they were not interested in the news.
The publisher learned that its millennial audience didn’t like how they we’re doing news. Most of the articles were about older people, dealt with topics older people found interesting, and featured photos of older people.
“Amedia had been serving its existing subscribers so well that it was ignoring its future,” comments Baxter. “As a result of this assessment and refocusing, the organization was able to attract a younger base of customers and identify new ways to generate revenue for formerly struggling local papers.”
When you’re exclusively focused on longtime members, you may miss the long-term benefits of forever.Robbie Kellman Baxter, The Forever Transaction
“Make forward-looking decisions”
A huge advantage of digital subscriptions and membership models is that companies offering them can see how people are engaging with their product. User data yields insights that can help adjust the product/offer to make it more useful for subscribers.
Baxter recommends evaluating the following three types of engagement data “to make forward-looking decisions”:
- Recency: when was the last time that the customer logged in?
- Frequency: how frequently do they engage?
- Depth: when they log in, how many features do they use and for how long?
Such data can unveil useful insights, for example, how readers behave before subscribing, or cancelling their subscription, the kind of articles that lead to subscriptions and so on.
The Financial Times uses these, and an additional metric called “quality reads.” It looks into the percentage of pageviews where the reader has read at least half of the article. That’s estimated by time on page, scroll depth, and the program’s record of how subscribers interact with similar content.
This metric helps the FT identify articles that were most valued by subscribers, as well as, which subscribers engaged with each article in a meaningful way.
“It can be tempting to incorporate freemium”
Baxter also recommends using free trials to whet the appetite of prospective subscribers. Many publishers relying on subscription revenues do that already, allowing readers to consume a limited number, or selection of articles for free.
“But it can be tempting to incorporate freemium without justifying the investment,” writes Baxter. She suggests, “Only give away news content, for example, if you can prove that those consuming the free content eventually pay to subscribe, create value for paying subscribers, or attract paying subscribers.
“If they don’t, there’s no reason to give content away, unless you’re doing it for altruistic or charitable reasons.”
Some publishers do lift their paywalls and allow free access in times of crisis, or extraordinary events that have readers frantically looking for reliable updates. This is happening right now. As the coronavirus pandemic creates global havoc, many publishers have not only made related updates free, but also created new products to better serve their readers.
While they are doing this for altruistic reasons, such actions help build loyalty among readers. In fact many publishers have reported a spike in subscriptions as well.
“What’s important is to know why you are offering more for free. Your organization might be doing it out of altruistic motivation, to share your expertise with your community when they need it most. Or you might be doing it as a business decision to build awareness and trial,” comments Baxter.
She adds, “Whatever you do, take a step back and reconsider the forever promise your organization makes to your constituents, and be sure you’re behaving in a way that aligns with that long-term commitment.”
And that holds not only for deciding about offering content for free, but for every decision that a publisher takes to serve its readers.
To order the book, visit Robbie Kelman Baxter’s website: The Forever Transaction