San Francisco, CA (July 2017)—In recent years, the Membership Economy has been disrupting the old methods of doing business in a major way. Essentially, companies focus on long-term relationships rather than short-term profits, and customers respond with "forever transactions." It's all part of a major paradigm shift in which many businesses are rethinking how they fit into the lives of their customers and leveraging the power of network and community in entirely new ways. Subscription-based companies are at the center of this change—and no one is more excited about what they're achieving than business consultant Robbie Kellman Baxter.
"The former video rental empire Blockbuster gave way to Netflix, and we haven't ever looked back," says Baxter, author of The Membership Economy: Find Your Superusers, Master the Forever Transaction, and Build Recurring Revenue (McGraw-Hill Education, ISBN: 978-0-071-83932-7, $28.00, www.membershipeconomy.com). "In the digital era, the subscription model is a fascinating game-changer whose power is only now being recognized."
Everyone wants to crack the subscription code for loyalty and predictable revenue. The "winners" will be those brands that are disciplined and consistent. And to really succeed, Baxter insists that organizations must put the customer at the center of everything they do. These are the brands that are thriving and will likely continue to thrive.
"Lots of brands rush to get a piece of this burgeoning market, but without finding ways to serve their target consumers for the long-term, their success will always be short lived," says Baxter. "There's so much competition for customer attention, and it's so easy for customers to discover and evaluate new options if they're dissatisfied. And venture capital has enabled all kinds of new and disruptive businesses to reinvent big markets and beat entrenched industry leaders. The age of 'captive markets' is over."
Baxter says the best subscription companies do a few key things right: First, they either solve a subscriber's ongoing problem or help them achieve a goal—from I never want to run out of toilet paper to I want to stay current on the news to I need the latest design tools and connection with the best designers. Plus, subscription pricing feels low compared to the value of goods or services offered. For instance, with a Stitch Fix clothing subscription box, you save 20 percent when you keep all five items in your shipment, and you enjoy free shipping both ways, should you need to return anything. And with Amazon's "Subscribe and Save" program, you get a discount in exchange for committing to regular deliveries of a particular item.
Keep reading to learn about eight of Baxter's favorite subscription model brands that are excelling in customer satisfaction and loyalty.
Amazon: For service, innovation, and popularity, Amazon is hard to beat. The retail giant has disrupted everything from publishing to retail to consumer products with Amazon Prime. The beloved subscription-based membership program was a "Trojan horse" that first changed consumer behavior by offering "included shipping" and then giving away access to many other great benefits like a Kindle Lending Library, Amazon Prime Instant Video, and Amazon Prime Music.
"Amazon Prime forever changed the way customers access the things they want," says Baxter. "Now countless other companies are jumping on board by offering their own subscription models."
Blue Apron: You'll never have to wonder what's for dinner with Blue Apron's meal planning services. They deliver fresh ingredients for recipes you prepare at home. Plus, they personalize their options by offering a two-person or a family subscription to help customers achieve their goal of healthy, "fancy," homemade food made easy. And while their subscription cost is slightly higher than grocery store-sourced ingredients, subscribers love that Blue Apron allows them to prepare homey, high-quality, delicious dinners quickly and conveniently.
"Blue Apron makes dinner prep easy for busy people—and everyone is busy these days," says Baxter. "And because they peg their cost not to homemade, but to restaurant pricing instead, customers who would normally just order take-out can have a better quality, interesting, and easy-to-prepare meal at home. However, while the company recently went public, a key milestone for any startup, their offering received a lukewarm response from the market, due in part to higher-than-expected churn numbers. Their model appeals to many, but most people cancel after a few months. It's not yet a 'forever transaction' for their audience, although they are working on it."
Spotify: Digital music service Spotify is changing the way we consume music. Spotify's strategy is to get as many consumers as possible using their music-discovery-and-consumption service, changing behavior from ownership of specific songs and albums to unlimited access. To expand their footprint of loyal subscribers, Spotify has been willing to give away their service in a freemium model. They also provide the premium service at a bulk discount for family subscriptions. Specifically, a subscription allows you to access millions of songs in the cloud instead of having to store your own music files or albums.
"Spotify needed to change the behavior of its users, and it succeeded," says Baxter. "Customers needed to move from listening to CDs or digital singles to adopting Spotify's subscription model. Spotify knew that once customers became used to the idea of accessing music instead of owning it, they would become addicted and eventually be willing to pay for access. Now other companies like Apple and Pandora are competing by offering their own subscription services, each with slightly different approaches."
Salesforce: Salesforce.com is the original Software as a Service (SaaS) company and is still a perennial member of Fortune's "most admired companies" top 20 list. Today, Salesforce.com is the corporate standard for customer relationship management, purchased at enterprise level. It began as a scrappy startup but has since grown to look more like a traditional enterprise SaaS company, with a big sales organization and big annual subscription contracts. But it has always maintained its membership orientation.
"Salesforce is the granddaddy of SaaS companies," says Baxter. "They popularized the idea of creating a marketplace for applications that would help their customers, and created an incredibly popular annual conference, Dreamforce, that always sells out nearly every room in the city of San Francisco. Salesforce is a brand that has truly created its very own ecosystem and community around its subscription product."
Stitch Fix: Who wouldn't love having a personal stylist to surprise and delight you with new outfits delivered on a regular schedule? Stitch Fix keeps your wardrobe stylish and updated, based on your unique fashion preferences. And it cashes in on the element of surprise as subscribers look forward to their new clothing box each month.
"Stitch Fix solves a clear problem by keeping your wardrobe updated, no matter what your budget is," says Baxter. "So, if you like jeans priced around $200, and I never pay more than $100, we get different jeans in our boxes. They're also great because they combine the 'subscription box' model with customization options and access to a stylist—a real person who chooses items just for you! Customization is an emerging trend in subscriptions.
"Finally, Stitch Fix packages the items like a present, which has a positive emotional effect; the best subscription boxes pay attention to packaging, unlike the cardboard boxes sent by traditional retailers that are difficult to open."
Peloton: Peloton, the new high-end smart bike, is disrupting the fitness industry by offering class-style workouts in your own home. They blend their top-tier stationary bicycle with a built-in digital screen streaming live classes that rival SoulCycle. (Baxter observes that in the tradition of Blue Apron, Peloton pegs their pricing to high-end SoulCycle classes and not to the cost of cheap stationary bikes.) Further, Peloton taps into the emerging Internet of Things technology to allow students to compete with others in real time during the class.
"The bike has a fixed price, set around $2k," says Baxter. "But they're going to make even more money on their classes subscription, priced at $39 a month 'forever.' This is an example of the subscription model at its finest."
Fuzzy: Fuzzy is the new frontier of pet wellness. This San Francisco-based company provides subscription access to quality pet healthcare services, delivered in-home, and supplemented with telemedicine. All your pet's records are made available online, and flea, tick, and heartworm meds and vaccines are included. Their "Ask a Vet" service allows you to get your questions answered anytime via mobile chat. What's especially great is that you have cost certainty about preventative care—and the most convenient service available.
"Fuzzy brings high-quality pet care to your door, tailored especially for your pet's needs," says Baxter, who is an advisor to the company. "They are more convenient and cost effective than other veterinary care advisors—and your pets can get their checkups in the comfort of their own home."
LinkedIn: With a clear forever promise to improve career success and provide connection for the world's professionals, LinkedIn continues to add services to help white-collar workers thrive. While the majority of members utilize a freemium membership, there are several subscriptions available to serve recruiters, job seekers, and salespeople.
"In addition, LinkedIn acquired educational subscription company Lynda.com," says Baxter. "Now known as LinkedIn Learning, they provide a new way to subscribe, by allowing access to thousands of skill-building courses ranging from data science to body language to my own course on membership businesses. LinkedIn is hot because they've created the largest community of professionals in the world and can monetize that community through direct premium subscriptions as well as indirectly through ads."
"It's clear that subscription companies are here to stay," concludes Baxter. "People are busier than ever before, and they need services that are convenient to use, fairly priced, and that deliver ongoing joy and satisfaction. These particular brands have mastered the Membership Economy because they never quit excelling in order to earn customer loyalty. And because of this drive, they are experiencing great success."
About the Author:
Robbie Kellman Baxter is the author of The Membership Economy: Find Your Superusers, Master the Forever Transaction, and Build Recurring Revenue. She is the founder of Peninsula Strategies LLC, a consulting firm based in Menlo Park, CA, that helps companies excel in the Membership Economy. Her clients have included large organizations like Netflix, SurveyMonkey, and Yahoo!, as well as smaller venture-backed start-ups. Over the course of her career, Robbie has worked in or consulted with clients in more than 20 industries.
Before starting Peninsula Strategies in 2001, Robbie served as a New York City Urban Fellow, a consultant at Booz Allen Hamilton, and a Silicon Valley product marketer. As a public speaker, Robbie has presented to thousands of people in corporations, associations, and universities.
Robbie has been quoted in or written articles for major media outlets, including CNN, Consumer Reports, NPR, and HBR.com. She has an AB from Harvard College and an MBA from the Stanford Graduate School of Business.
For more information, visit www.peninsulastrategies.com.
About the Book:
The Membership Economy: Find Your Superusers, Master the Forever Transaction, and Build Recurring Revenue (McGraw-Hill Education, 2015, ISBN: 978-0-071-83932-7, $28.00, www.membershipeconomy.com) is available from major online booksellers.
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