Thought Leadership

Embracing Experience Design in the Membership Economy

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The Valley knows change - engineers, creatives, and business people alike fuel the tide of innovation that permeates the tech industry. Ideally, these groups collaborate with each other to bring the next big thing to market. However, this kind of synchronicity remains a rare feat to achieve in product design, rollout, and development. Sustainable innovation requires alignment and constant communication between disparate business departments; disconnect occurs when these relationships aren’t maintained.

Success in the “Membership Economy” parallels this internal process. Companies are chomping at the bit to capture long-term revenue streams from their customers via annualized payment contracts, but often struggle to make the shift from a transactional to a service-based business model. Corporations must continuously create meaningful and emotionally significant experiences for their customers to secure a foothold in the membership economy. To do this, businesses should develop a bidirectional relationship with consumers, focus on retention, and leverage their unique competitive advantage in the marketplace. If done correctly, companies can design a holistic customer experience that brings lasting (and profitable) value to their product offering.

Communication is Key

Communication develops lasting interpersonal relationships; it follows that companies must also communicate with their customers to establish a durable bond. Previously, most businesses didn’t need to invest as much time and effort into maintaining such a connection. Without the same means of technological access to companies, far fewer customers vocalized feedback after making a purchase. Corporations also had less of an idea of how to communicate with their customers, since far less data existed to help determine how or why a customer used a product.

The membership model carries along an integrated feedback loop within its consumer base. Because companies derive revenue from their customers on a continual basis, they must listen and communicate with them, or else risk attrition from dissatisfied customers who will find another company that better attends to their needs. This observation begets a rhetorical question that cuts to the meat of the issue:

If two products were equal in quality and price, why would a consumer choose one product over the other?

Because the product better appeals to them from an emotional standpoint.

Emotional needs are powerful and complex factors for a business to consider when designing, positioning, or presenting their product for consumers. Without actively listening to and managing how customers engage with and experience a good or service, companies can’t expect their customers to continually pay for a product that doesn’t meet their standard of service. Corporations that are serious about capturing value in the membership economy should allow the customer experience to be open-ended. Given a voice, consumers help companies build better products and place more trust in a company’s business decisions. As a result, communication-oriented businesses win the right to take risks and innovate, creating the opportunity to win more business than more insular competitors.

Long Tail Mentality

Building rapport with customers takes time, but nets compounding returns for businesses that commit to the process. Consider the scenario below. Admittedly, the example is idealistic and simple (it assumes that both companies involved only acquire customers during their first operational year), but the process behind it illuminates the value of “lifetime customers”.

  • Company A acquires 10 customers who each pay $100 for a year’s worth of service and leave after one year. The cost to acquire each customer (CAC) is $30.

  • Company B acquires 5 customers who each pay $100 for year’s worth of service and leave after five years. CAC is this instance is $50, because Company B invests more money into customer service and feedback than Company A.

  • Company A nets $1000 in revenue during the first year, spends $300, and is left with a $700 profit.

  • Company B nets $500 in revenue during the first year, spends $250, and is left with a $250 profit. However, Company B nets $2000 more in revenue during the following 4 years, and is left at $2250 profit when all is said and done.

The simplistic example above illustrates the value of customer retention in the Membership Economy. Companies must typically spend more to acquire a customer if focused on securing lifetime revenue, but enjoy larger (and more predictable) returns if they’re able to connect with consumers and provide continual value.

Embrace Change

Embracing change may seem antithetical to the points made above, but great companies that operate in the membership economy leverage change and diversity to continue to innovate and fulfill their “forever promise” to their customers.

Companies that maintain a deep connection to their customers will naturally begin to consider their competitive advantage in a new light. Because these businesses focus on long-term value creation with their constituents via open communication, they should be able to collect reams of data on who their customers are, what their problem is, and why they buy their good or service in particular. Savvy companies will pare down these observations into a core structural framework that provides them with the backbone for their positioning in the market. With more differentiation, these firms will be better equipped to secure a permanent foothold in whatever market they occupy.

This kind of specific positioning attracts customers and allows companies to stay competitive, but businesses must also recognize that differentiation coincides with the perceptions of their customers - that it is fluid. Companies that manage customer experience design with their product must actively manage that experience, according to how consumers interact with their product on a day-to-day basis.

It’s safe to assume that new users may experience a product in a different way than older ones, even if they both occupy the same demographic cohort. Accordingly, companies should not only design their products to have multiple-use functions (keeping their product offering diverse enough for retention), but encourage this behavior from their customers by taking these differences into account during consumer outreach and customer success. Again, companies shouldn’t aim to appeal universally with their product offering, nor offer too many choices or complications in their product - consumers perceive both of these efforts as confusing (and in some cases predatory, if pricing is involved). Instead, keeping company-customer dialogue open, simple, and constructive will allow for necessary accommodations and additions to a given product - otherwise known as development. By adhering to maintaining the best customer experience, membership-based companies can ensure that they grow with their consumers.

Where to Begin

Companies must know themselves and their customers inside and out to successfully shift from a transactional to a membership-based business model. Communication helps jump-start this process, but isn’t the first step. Instead, companies should listen to their consumers to understand what problem they are trying to solve by using a specific product. Getting to the purpose of any value statement will illuminate which direction a company should pursue in establishing a deep and lasting relationship with their customers.

Robbie Baxter, Expert and Author of “The Membership Economy: Find Your Superusers, Master the Forever Transaction, and Build Recurring Revenue” is a fellow of FutureBrand Speck and is fully equipped to work with clients of FutureBrand Speck to incorporate the membership economy into their business plan.  Contact us for more information.

Written by Jack Wiefels, Content Strategist