Pricing Strategies to Maximize the Membership Economy

The Membership Economy fundamentally changes how organizations engage with their customers – shifting ownership to access, from a transactional, anonymous focus to more of a long-term known relationship.

Recurring revenue models support the Membership Economy by allowing customers to pay for services over the duration of the membership. While many businesses limit their pricing models to basic subscriptions, there is room to layer in more value. Here are seven common pricing and monetization strategies that should be considered before launching the product or service.

  1. Subscriptions: Figuring out how to price subscription models can be complex. There are 3 variables in the offering:
    1. Access to product features: Are some features “greyed out”? Can you only access limited content?
    2. Depth and breadth of usage: How many people can access the membership and how much can they consume?
    3. Service layer: Do they get white-glove service or is this a DIY kind of experience?

In addition, consider whether you should have one option for everyone or if multiple tiers of service makes more sense.  These tiers can be optimized for light, medium, and heavy customers or for a different type of person or use case.

For example, many professional societies have an individual membership or a corporate membership, optimized for completely different types of membership. Many of the over the top (OTT) companies offer different packages based on consumer interests, like sports or movies.

  1. A la carte services: Sometimes there is something a customer needs one time, or occasionally, to augment their experience. These services can’t be mandatory because it would spoil the value of the subscription. Instead, they improve an already positive experience. For example, I might want help setting up my new TV in my home. While “set-up” is not necessary for me to enjoy a specific channel like HBO, it certainly removes friction between buying the TV and binge watching Game of Thrones.
  2. Ancillary products: Wouldn’t an additional WiFi router increase your enjoyment of the show? How about surround sound speakers or a Snuggy, for that matter?
  3. Partnership streams: There may be other services and experiences that your organization can’t offer but you know your customer is likely to need. Maybe you can introduce your partner to your subscriber and share the revenue.
  4. Aggregated analytics: You’re gathering all kinds of intelligence about member behavior and preferences. When you put it all together, you start to see patterns. Are there other organizations that would value that data? Or maybe your members would like to benchmark their behavior against that of their peers? Maybe it can also be used to get media attention for your organization.
  5. Advertising: People complain about advertising, but when done well, it works. (And by “done well” I mean it’s entertaining, informative and timely.) Sometimes, when people are actively shopping for something, they even welcome the ads. Can you use the learnings from the data you are collecting to actually advise your advertisers on the kind of ads they should create?
  6. Free: I know, free isn’t a revenue stream. But it is a source of value. You can trade services or content access for referrals or unlock stored value by encouraging free members to create content for their peers in the form of reviews, commentary, or advice. And free samples or a freemium option can drive trials which convert to paid membership.  Don’t forget about Free.
Monetizing the Membership Economy

Monetizing the Membership Economy

You want to make it easy for a subscriber to join. To reduce friction between the decision and the time that they start getting value, there are dozens of ways you can build in flexibility for the subscriber, including offering special packages, one-off experiences, and useful assessments to augment their experience.

By building your offering around the customer’s bigger mission (family entertainment, maximizing revenue for the business, doing more effective market research) and not forcing the customer to build their usage around your vision of the product, you form a deep connection with the customer, which can serve as a guiding light as you continue to map out your product strategy.

Common Pricing Challenges

While subscription pricing has many benefits companies should be on the lookout for potholes in the road to revenue success. Let’s look at three of the most common:

  1. Usage variability. The hardest thing about subscription pricing is getting the number right for most people. There will always be customers that use their subscriptions more frequently, and it may seem like they derive more value. In addition, sometimes certain subscribers are more expensive to serve. Recently I spoke to a bookkeeper who promises that he will answer “every question”. Some people ask a lot more questions than others.
    Just like some people listen to more music, or eat more food at the buffet. The best way to manage the distribution of usage behavior is to focus on providing “so much value” that the cost becomes irrelevant. Just because one person watches two movies while someone else watches ten, it doesn’t mean that the heavier user is happier with the service.
  2. Too much choice. Make it easy for the buyer to buy. Because of the variability in usage, organizations often try to get very specific about who is paying for what, and establish a detailed menu of options and variables in pricing. For example, you might charge more for frequency of usage, depth of usage, breadth of usage, number of people engaged in the service, region etc. In some cases, the organization keeps a complex algorithm and then quotes a price (think airlines). In other cases, the organization provides a detailed menu with dozens of options and asks the customer to figure out what they need (think telcos). Neither is optimal. Ultimately, the customer wants you to make it easy for them to buy. They want you to guide them to the solution that’s going to work best for them, and they want the value to be so high that it justifies the cost. Ideally you want to have three or fewer options, with only a couple of variables. And you want to keep incorporating improvements to the product without charging for every new feature or benefit.
  3. Price Increases. In a forever transaction, sometimes subscribers expect the pricing to stay constant forever. Raising prices can lead to pushback. Being honest about the drivers for the price increase can mitigate the pushback. If your costs of gone up, let your members know. Better yet, grandfather in your most loyal subscribers and raise the price for new subscribers. Another thing to consider is to look at your most engaged customers and determine what else that they might want from you. Often it’s the most active subscribers who are most likely to upgrade. Consider a new option for them.

Parting Words

The time for big reveals with “Jazz Hands” is behind us. Today, organizations need to continue to test and iterate, evolving as they gain customer knowledge and as markets and technologies transform.

The goal is to provide customer value for the long haul. You want to understand what problem you’re solving for your customer and continually evolve the offering to keep solving it. The Mail Newspapers in the UK introduced the Dailymail.com as part of their evolution into a digital model and as a means of achieving two goals: going global and attracting millennials. Impressively, they did this without interfering with their highly successful print paper. American Express continues to add new benefits to its platinum card, going beyond its famous concierge services to include its own airport lounges and GlobalEntry. Not every member uses every feature, yet these new features appeal to an increasingly sophisticated traveler.

 

Editor’s Note: To learn more, join Robbie Kellman-Baxter and Aria’s Sean Rollings on Wednesday April 27th at 1pm EDT/10am PDT for a one hour webinar as they explore Pricing Strategies for the Membership Economy.

Click here to reserve your spot.

About the Author

Robbie Kellman Baxter
Robbie Kellman Baxter is the founder of Peninsula Strategies LLC, a management consulting firm, as well as the author of the The Membership Economy: Find Your Superusers, Master the Forever Transaction & Build Recurring Revenue. She coined the term "Membership Economy" and has worked with clients from 20 different industries including Netflix, the National Restaurant Association, and The Mail Newspapers in the UK, as well as dozens of Silicon Valley venture-backed companies.

The Forrester Wave: Subscription Billing Platforms, Q4 2015

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