The REAL Problem Memberships are Solving

The REAL Problem Memberships are Solving

According to an analysis of Google Trends data, memberships are 33 percent more popular today than they were just two years ago.

We’re fortunate to have been involved in this space before the craze hit. Right place, right time to be the membership strategy, marketing, and technology thought leaders.

But whenever a trend gets hot, I like to ask: What is the real problem we’re solving? Doing so enables us to avoid the trap of focusing on a passing fad.

So in this case, the real problem memberships solve is that they create a direct and meaningful relationship with you best end customers. These relationships lead to higher lifetime value, higher margins, and lower customer acquisition costs.

Higher lifetime value comes from the recurring revenue nature of a membership model. The onus is on us to make the membership so valuable that members renew year after year.

Higher margins come from cutting out the middleman. When you go direct to your end users, you don’t need to give distribution channels a chunk of your revenue.

Lower acquisition costs come from the positive buzz that members create and spread. Do a good job with your membership, and develop a free advertising base.

Not too shabby, eh?

Memberships Can Help Any Industry

Because they’ve help media companies overcome the disrupted advertising market, memberships have gotten a lot of attention in the publishing space over the last few years. But memberships can benefit any company, regardless of their industry. Let’s look at four examples.

Media: Overcoming Advertising Revenue Strife

For years, most media companies made their money off of their advertisers, not their audience (readers, viewers, listeners). By shifting strategy and focusing on delivering value to the most engaged portion of their audiences—their whales—media companies have found new revenue streams.

Think of websites like the New York Times, or over the top streaming services like CBS All Access. The New York Times now generates nearly two-thirds of its revenue from readers, with online subscriptions jumping by 20 percent between 2017 and 2018.

Consumer Products: Getting Hold of Precious First Party Data and a Greater Revenue Share

Consumer packaged goods (CPG) companies can use memberships to improve their business models. Right now, most products are sold through distribution channels like Amazon and Target. Many product companies don’t have a direct relationship with their end consumer.

This is detrimental in a number of ways. First, they’re not able to collect first party data— information about the good people actually using their product. Second, they’re missing out on higher sales margins, with the distributor taking about 50 percent of all revenue. And finally, they’re not able to build as strong a bond with their customers.

Fortunately, a membership model allows brands to go straight to the consumer. This means they can collect first party data, keep a greater share of the revenue, and create brand advocates who will become their free marketing department and lower acquisition costs on all future members.

Dollar Shave Club knocks this strategy out of the park. They help their members “look, feel and smell [their] best.” They focus on real pain points and make members of the club feel better about themselves. Look at what one member said in a testimonial: “I have a new found love for shaving!!!! oH sO nIcE!!!!”

If a membership model can get someone that excited about the task of shaving, imagine what it can do for your business!

Retail: Snatching Up a Greater Share of the Market

Retailers are able to access most first party data—they can see who is buying what. But they are leaving a huge opportunity on the table. They should be turning this data into insights that could lead to a lucrative membership model.

About 18 percent of sales come from private label products, but why not have more things to sell to your shoppers?

Retailers have had loyalty or discount programs for decades, but a membership is different. Sephora is an example of a retailer who is nailing the membership model. Here’s a more detailed review of what they’re doing with their membership and why it works.

Insurance: Adding Services and Benefits with a More Direct Relationship

There are two different opportunities here.

Direct carriers like Progressive or GEICO do business, well, directly, with policyholders, so they are collecting a ton of first party data. The problem is that there aren’t many touchpoints with customers, unless there’s a claim. That makes for a price-competitive market (notice how most GEICO ads are about money savings…or camels, I suppose).

What if companies like Progressive or GEICO could explore their vast data sets to find an engaged affinity group within their customer base, and add more services and benefits throughout the year? This would turn their relationship into a membership rather than transaction.

Most insurance companies are indirect businesses, in that they go to market through a network of brokers and agents. These large indirect carriers face the same problem as CPG companies—someone else owns the first party data.

Membership programs could be effective for both brokers and the indirect carriers. Membership programs for brokers’ customers would allow them to better serve their client base. Alternatively, the indirect carriers could opt to create a program that would allow them to go direct to their policyholders.

Warning: Subscription Does not Necessarily Equal Membership

Who doesn’t love recurring revenue? However, subscriptions are just an example of a business model. By themselves, they do not necessarily constitute a membership. I’ve seen many companies claim to have a membership model, but in reality it was just a subscription to what they were already doing. Publishers are particularly guilty of this crime. They’re apt to say, “Hey, let’s throw up a paywall to gate what used to be free and call it a membership.” Sorry, that doesn’t work.

The two main differences between subscription and membership are:

  • Memberships focus on an engaged niche within your market. They can’t be everything to everyone. Get started by focusing on your whales—your best customers.
  • Memberships must provide meaningful tangible and emotional benefits to members. What problem are you solving, and how does that make members feel better—more entertained, more recognized, more appreciated, or more confident?

What other industries would you like to see us analyze for membership potential? Drop us a line at memberships@sterlingwoodsgroup.com

About the Author

Rob Ristagno, Founder and CEO of the Sterling Woods Group, previously served as a senior executive at several digital media and e-commerce businesses, including as COO of America’s Test Kitchen. Throughout his career, his focus has been on embracing technology and analytics to spur strategic development and growth.

At the Sterling Woods Group, he and the team are passionate about helping clients understand their best customers through data, and developing products and membership programs that exceed expectations – and generate impressive revenues.

Committed to spreading this message, Rob is the author of A Member is Worth a Thousand Visitors and is a regular keynote speaker at conferences around the world. He has been featured on ABC, NBC, CBS, Fox, and Digiday.

He holds degrees from the Harvard Business School and Dartmouth College and has taught at both Harvard and Boston College.

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