If you want your organization to truly be part of the Membership Economy, start with the team and the culture. You need to have the right people and prioritize the right values.

Membership is at the heart of AARP. Dedicated to a mission that promises “to enhance the quality of life for all as we age, leading positive social change and delivering value to members through information, advocacy and service,” the AARP truly focuses on needs of members over any other goal. In fall 2014, I met with Kevin Donnellan, AARP Executive VP and Chief of Staff and his colleague, Senior VP, Membership, Lynn Mento. They were about to launch the RealPad by AARP, a new tablet device that the AARP had developed from the ground up for “tech shy” people over 50.

I asked them how they would feel if copycat products by companies like Amazon, Samsung, and Apple were to flood the market. Their answer surprised and impressed me. “We would be thrilled,” said Donnellan.¹ I was skeptical, thinking that they’d surely be frustrated about the competition. Donnellan and Mento explained that giving more choices to people 50+ was their reason for existing, and that they truly judged their organizational success by achieving that mission, rather than short-term revenue impact. This kind of mission-driven organization exemplifies the culture of the Membership Economy. When an organization wants to have a long-term relationship, they can’t be blinded by short-term financial metrics.

Of course, nearly every organization admonishes employees to put the member at the center of all decisions. But there’s a lot more to consider. Communication is critical; the language used in the organization when talking about members really matters. And, most importantly, marketing and innovation need to be priorities.

Promote a Culture of Marketing Innovation

Organizations dramatically underspend on marketing, research, analysis, and planning, thinking they are doing enough just because they can check the boxes around key types of campaigns and activities. (Website refresh? Check. Newsletter? Check. Loyalty program? Check.) It’s not enough to do the campaigns and treat the marketing department like an outside agency. Organizations need to constantly confirm that they are reaching the right people with the right campaigns for the right offerings—and using the metrics that track long-term relationships with customers. Marketing is more than campaigns—it’s about focusing on the market. This is always true, but especially in the Membership Economy, where retention matters more than acquisition.

Marketing should ensure that the offerings the organizations create meet the ongoing requirements of the target buyers and that those prospective buyers know about the benefits of the offering, sign up, and become loyal. Each of these goals has metrics, and marketing should be tracking them to be sure it is building the right kind of relationships.

Good marketing is honest. Sometimes people have the idea that good marketing is about tricking people into buying things they don’t need. Not only is this approach unethical, but in the Membership Economy, with the need for ongoing relationships, it simply doesn’t work.

Gainsight, a Silicon Valley technology company, provides an excellent example of the mindset needed to succeed in the Membership Economy. Gainsight has made its mission ensuring “customer success” for its subscribers. Its software helps organizations in the Membership Economy strengthen ongoing relationships with their members. CEO Nick Mehta believes that you shouldn’t have a customer satisfaction department; you shouldn’t have a customer support department; you should have a customer success department. All employees need to be empowered to make a difference, and Nick follows these guidelines in his own company, giving his team members latitude to take care of his customers.

In contrast, think about the typical customer service call: “I didn’t get what I ordered,” or, “It arrived broken,” or, “I’m not happy with the way it works,” or some variant. Organizations often train customer support people to get callers off the phone as quickly as possible. Companies sometimes measure performance by the number of calls fielded.

Customer success-oriented employees will be more consultative. Their task is to help callers use the product—more effectively, more efficiently—so that they will be increasingly loyal. A staff that supports customer success builds loyalty. Gainsight’s mission of customer success supports the Membership Economy with its emphasis on the role of the people and the culture.

Frontline, operational employees who work for membership businesses need to understand that their unique business model depends on intimate, lasting relationships with members that often go well beyond the expectations of typical customers. This starts with employees using a personal touch with members, calling them by name, but it goes further. Customer support needs to be given more latitude and training (and probably more pay) so that the front line is fully equipped to build rapport with members and to resolve issues and concerns as they arise. Product developers and managers need to carefully consider product changes that might disrupt current member expectations. The entire organization needs to be aligned with the membership strategy.

Another role that can be useful in the Membership Economy is that of “community manager,” the person who attracts, manages, and leverages the powerful community that can develop around an organization. Tim McDonald, former director of community at news community website Huffington Post and founder of My Community Manager (myCMGR.com), a community for community managers, says that the community manager needs to be both “the voice of the brand to the community and voice of the community to the brand.”² The challenge is keeping the business’s best interest in mind, while tapping into what the community says. Having a dedicated person to connect with and manage the community can pay dividends, not just in building loyalty, but also in gleaning insights about what members value in the offering.

Building a membership organization isn’t just about the offering, the execution, and the product. It’s also about the culture. It’s about all the people you hire and how you acculturate them; what you expect from them.

To succeed in the Membership Economy, the organization must build a culture that is centered around the long-term evolution of the member relationship. The CEO and the head of marketing may know what the members need and how those needs change over time, but the head of HR must make sure that everybody believes it and lives that way. Table 4.1 shows the changing roles in the Membership Economy.

Table 4.1 Changing Roles of the Membership Economy

For example, in an ownership economy business, it’s the salespeople who are after the big contracts. In the Membership Economy, the sales department’s goal is to plant hundreds of seeds and then water them, knowing that over time, they will pay off. In an ownership economy business, the support staff’s goal is to minimize customer anger. In the Membership Economy, the goal is to maximize loyalty.

Staff members at Caesars Entertainment, for example, are actually empowered to do special things for special members. They can upgrade a member, comp a drink, or make an exception to a rule, usually without manager approval.

The airlines, by contrast, generally do not have as much flexibility, although there are certainly exceptions as Virgin, Southwest, and others have put a lot into differentiating themselves over the past few years. For most airlines, there are still ample opportunities to incorporate more of a “say yes” culture to complement their loyalty programs. They call what they offer a loyalty program, but they don’t have the roles and culture to support true relationships with their members.

A typical conversation can go:

    Airline customer service representative: Oh, I see you have 14,513 points. You’re eligible for a free first-class upgrade.

    Customer: I don’t want a first-class upgrade. I want my daughter on this flight with me.

    Airline customer service representative: We don’t do that.

Nobody is empowered to actually help a recognized member.

Not long ago I talked with a venture capitalist who invests only in subscription businesses. One of the things he said that surprised him is the very different organizational structure needed for Membership Economy enterprises. These new enterprises have a different staffing model. They have different titles. They need a different set of skills. Some people will become redundant, and some other people will need to be hired when an organization transitions to a Membership Economy model.

Membership Economy organizations need to extend the relationship with their members to partners. Relationships with developers, vendors, and suppliers in the broader community can be structured to provide further benefit for members. For example, early on, Salesforce.com invested in building a community of vendors of related products who were developing apps that extended the value of being a Salesforce.com user.

Today, Salesforce.com has a whole team of professionals who recruit, vet, and publicize these app developers in the broader Salesforce community. As a result, Salesforce users are even more entrenched in Salesforce-related products, thus increasing the value of their membership while also increasing switching costs. And the developers in the greater community, not the salesforce community itself, participated in the vast majority of investment in this initiative.

Commit to Continuous Innovation Supported by Marketing Insights

Innovation is motherhood and apple pie in nearly every type of organization, but for the Membership Economy, continuous innovation is especially important. The best Membership Economy organizations are constantly tinkering with their offerings. For example, American Express has offered all kinds of evolving benefits to its members over the past several years, ranging from discounts to exclusive access to special services. And Amazon continues to add features to its prime membership.

Innovation is not an event. It’s a process which needs to be ingrained in an organization’s culture. Innovation is described as the act of introducing new ideas, devices, or methods. In the Membership Economy, innovation is continuous. It must be, because the relationships are continuous. Most organizations think of innovations as nouns, as in, “This innovation really differentiates us from the competition.” But it needs to be thought of as a verb. Organizations need to innovate constantly and always look for new and better ways to provide value.

Still, membership organizations often fail because of their lack of tinkering. Here’s a complaint I’ve heard from leadership more than once. In this case, the executive director of a well-known nonprofit for children told me, “Members just don’t behave the way they used to. They expect more from our organization. What’s wrong with them, and why are they so selfish?”

For this executive director, the changing attitudes of new members were surprising and frustrating. But change is inevitable, and organizations need to assume that constant innovation is the norm. Too many organizations demonstrate an unwillingness to tinker and to be flexible. Many organizations invest heavily in a single big effort to set up a program to bring in members and then rely on it. Think of NPR with its pledge drives. It has only recently begun tinkering with 48-hour “double your pledge drives,” which are short and sweet—responding to member feedback. And there are always dozens of other ways to attract and retain members.

Once you bring in a new member, the member is likely to stay for a long time. And since retention is so important to revenue, it sometimes becomes the only thing organizations really focus on. So unless you are tracking new member acquisition as carefully as you track overall revenue, you might find yourself with an aging population—and no awareness or relevance to prospective members. Constant tinkering to bring in new members while retaining the ones already there can minimize this risk.

Members are more forgiving than customers with regard to their loyalty. Every time a customer transacts with an organization, customers have to make a decision to open their wallet and engage with the organization. But with membership, payments are automatic, and it’s the act of unsubscription that requires an action. As a result, members stay engaged much longer than transactional customers.

Subscriptions can lull organizations into a false sense of security, convincing them that they don’t need to adjust their offering or improve service because the members seem happy. However, at some point, if the discrepancy between the value the enterprise offers and the price charged becomes too great, not only does the organization lose existing members, but it also struggles to bring in new members. This kind of stumble can mean months, if not years, of poor results.

When people find out that I am an expert in subscription and membership businesses, they immediately want to tell me about the most unfair memberships they have encountered. They tell me about their frustrations as children signing up for BMG and Columbia’s music clubs long ago. (Remember? Those clubs sent unrequested CDs you had to keep unless you returned them within a tight timeframe.) Or they’ll complain about how the airline loyalty programs actually reduce loyalty. More recently, we’ve seen complaints about software companies that stopped selling packaged software the buyer can use for years in favor of monthly “subscriptions” that customers feel provide no additional value.

The fundamentals are what they always were: the customer-company relationship is based on good value in exchange for a fair price. You simply cannot run a long-term successful business if you don’t seek to improve the condition of your customers and members constantly.

Your organization should have someone strategically managing your product and marketing teams who intimately understands your buyers and your offerings, and who can explain how and why people choose to be loyal to you, as well as how and why to find new members. If this is not who’s onboard now, you may need to think about staffing changes. If you don’t know, consider bringing in an outside expert to evaluate your organization. Understanding the market need and environment is the single biggest determinant of a Membership Economy organization’s success.

Why Marketing Loves Membership

If you’re in marketing and sales, membership makes your job easier. You have to make only a single transaction to win a customer for life. If your model incorporates community and connections, the members will build loyalty themselves. Subscription payments further fuel long-term relationships.

Many membership organizations make the mistake of confusing retention dollars with new revenue. New revenue means the buyer made a decision based on today’s offer. Recurring revenue is passive. A membership or subscription cancellation is a sign of active displeasure. Innovation (or lack of innovation) can be seen in these two metrics—new members and lost members.

Membership is not a fixture to be taken for granted. You can’t just say, “There it is.” You need to be willing to tinker. Ironically, loyalty of members can lull membership organizations into thinking that their members are happy, when actually the offering is not providing the same value it once did, and organizations haven’t evolved the programming to keep up with the brand promise. One day the member “looks up,” maybe because her credit card expired or because she read something in the paper, and she realizes that her subscription is worthless.

A great example is AOL.

Initially AOL, with its friendly user interface and “walled garden” model, was a safe and comfortable introduction to the Internet. Over time many other offerings began providing a much cheaper (and faster, with broadband) point of access to the Internet. The Internet itself became easier to navigate because of great new browsers.

There was a point when people in the know knew that anyone who was an AOL customer probably just didn’t understand that there were much better products and deals out there. When AOL customers realized it, they felt AOL had been cheating them. AOL’s brand suffered and never really recovered. This is unfortunate, since AOL was really the first major brand on the Internet. It could have become a long-term success like Google or eBay or Facebook. Instead, in 2014, it is still trying to figure out who it is—having sold off or franchised most of its technology and evolved into a brand company that owns several content properties including TechCrunch, The Huffington Post, Moviefone, and MapQuest.

There’s a pull, which I have seen, between expanding a firm’s offering to provide great benefit and “sticking to your knitting.” eBay has tried many times to expand the utility of its huge and engaged community of merchants and traders. In 2005, eBay bought Skype for $2.6 billion, expecting that the voice-over-Internet protocol (VoIP) service would improve communications between its customers. Buyers could talk with sellers about items in which they were interested; sellers could build relationships with buyers via VoIP chats.

What eBay found, however, was that members were already comfortable using email and didn’t need voice or video. And even though there was tremendous overlap in target users, it turned out that people didn’t want to buy their audio/video communication service from their online marketplace. While eBay thought that there would be synergy between the two companies, the truth was that eBay members weren’t interested. Four years after buying Skype, eBay sold it in 2009 for $1.9 billion. eBay has since made many acquisitions, mostly better aligned with the eBay shopping and paying experience, and these have been generally more successful.

I encourage clients to explore expansion and creative tinkering even if they still decide to stick to their knitting because I see what happens when they don’t explore. If your product is really building traction—by all means, stick with it and don’t dilute your focus. But when you start to see acquisition slow, or, worse, you see retention decline, you might need to consider other offers. And it’s always worth exploring ways to provide increased value for loyal members.

Remember

If you want to be a true Membership Economy company for all the benefits it offers, you need to promote a culture of marketing innovation and technology. You need to use the language of membership. You need to empower your frontline staff to be able to recognize your members as individuals and take good care of them. You need to invest in your community and the people to manage the relationships and ensure their success. You need to compensate salespeople on the basis of customer lifetime value, not transactions, and you might need to rethink customer satisfaction and support.