Three Ways Membership Models Can Erode Customer Loyalty


On Marketing, Contributor

May 9, 2015

This article is by Lisa Nirell, is chief energy officer at EnergizeGrowth, a marketing consultancy; speaker; and author of The Mindful Marketer: How to Stay Present and Profitable in a Data-Driven World.

Last fall, at the conclusion of my keynote in Puerto Rico, my husband and I escaped to a private resort near El Yunque National Forest.

Our intentions to disconnect and relax were quickly thwarted. Within a few hours of arriving at the spacious, secluded condo, the air conditioning failed. Our golf cart—our only means of transport within the expansive beach resort—broke down. The resort management cared little, so we sprang into action. At the risk of experiencing a trip from hell, we reserved a room at the Ritz-Carlton and evacuated the condo.

As we sauntered into the lobby of the Ritz, a pleasant young woman bearing champagne said “Welcome to our resort family, Mr. and Mrs. Nirell.” I felt so special that I immediately joined the Ritz-Carlton Rewards program. I immediately felt bonded to other travelers who appreciate extra pampering. I felt as if I belonged to a special club.

Marketing leaders who understand this power of belonging are on the vanguard of true customer connection and are defining an entirely new way of creating more loyal, profitable customer relationships. That is why the membership economy (often called the “subscription economy”) has blossomed in recent years.

Over 20 years ago, futurist John Naisbitt, author of Megatrends and High Tech/High Touch: Technology and Our Search for Meaning, predicted that “the more technology we have in this society, the more people want to be with people.” As we are seeing people suffering from “Facebook fatigue” and struggling to find harmony in their lives, that concept has come full circle. One-time networking events, Pinterest pursuits, and clever content for your customers are akin to playing a high-octane video game: They feel good when they are happening, but leave little lingering satisfaction when they have ended.

These one-time transactions have one major shortcoming: They have a limited ability to express empathy. Expressing empathy not only bonds people in social relationships. It also binds people to our brand.

Humans can express two types of empathy: cognitive and affective empathy. With affective empathy, you feel others’ pain, joy, and sorrow. Neuroscience is teaching us that systems and social structures play a very important role in emotions, and our brains are often designed to synchronize with other humans. Author Douglas Van Praet, author of Unconscious Branding, taught me that “When we see someone fall down, we feel their pain at some level. When you feel people’s emotions, you are much more willing to help them.”

The second type, cognitive empathy, is expressed when someone says, “I understand how you are feeling, but I don’t feel it myself.” Cognitive empathy is the bedrock of most marketing research initiatives. Think of all the times marketers have been the detached observers of a live focus group or pored over reports for common themes and “buyer personas,” a trendy term that business-to-business companies use to identify their ideal customer.

Van Praet believes “we are hard-wired for both types of empathy, yet…business leaders generally choose the cognitive route. This makes us more inclined towards aggressive, competitive behavior—which is from our evolutionary days where we needed to survive and dominate others.” In my experience, heavy dependency on cognitive empathy (as witnessed by our appetite for big data) at the expense of affective empathy creates a one-dimensional brand and negates a customer’s need to remain loyal.

Membership business models provide one avenue for helping companies demonstrate both types of customer empathy—and have generated big returns. CMOs can learn much from today’s successful membership models. They appear in many flavors: loyalty programs (Caesars Entertainment and Starbucks); professional and nonprofits (AARP and Sierra Club); mainstream (American Express and Verizon); and online communities (such as, Pinterest and LinkedIn).

During my recent CMO reception in Washington, author Robbie Baxter shared her insights from her newest book, The Membership Economy: Find Your Superusers, Master the Forever Transaction, and Build Recurring Revenue.

Baxter sees the membership economy as “a significant, transformative trend that is changing how organizations engage with their customers. It is a three-way shift: from ownership to access models; from transactional to relational interactions, and from one-way customer communication to multidirectional and peer to peer conversations.” She has helped companies such as Netflix, SurveyMonkey, Zuora, and the National Restaurant Association create enduring membership marketing strategies and models.

Unfortunately, several companies that have experimented with membership models ignored some key strategies and watched their membership models collapse. These are some common mistakes they share in common:

  1. Building a membership model based on old customer buying preferences. Netflix made a conscious decision to shift to streaming content because they anticipated the precipitous decline in DVD rentals. They were right—today, the number of Netflix DVD subscribers has fallen from 14 million in 2011 to less than 6 million at the end of 2014. The ubiquity of online access, coupled with the precipitous decline in storage costs, has given way to higher customer expectations. Blockbuster evaporated because it ignored this trend.
  2. Thinking tactically versus philosophically. Caesars Entertainment re-launched their TotalRewards program in 2012. Baxter notes that CMO David Norton wanted “to build its casino business into a relationship-driven star of the Membership Economy.” They never considered improving the system by investing in one area. They poured resources into sophisticated data analytics and tracking to segment their members, track pricing, and improve customer experience. Operations teams made decisions based on that feedback. They also tied employee rewards to metrics such as lift, retention, and engagement. As a result, their new member growth grew 20 percent within the first year and saw their purchase volumes double.
  3. Foolish funnels. If your marketing organization is designed to move a prospect through a metaphorical, cone-shaped funnel, you will fail in the Membership Economy. The funnel assumes that marketing’s job is complete when the customer/member makes a purchase. That is no longer true. Pitching products and promoting content is no longer enough—and often lacks any empathic gravitas. Memorable customer experiences are about delivering on your brand promise as your products and services continue to evolve.

Today, an inordinate percentage of marketing’s budget gets allocated to lead-generation (top of the funnel) activities. Baxter highlights Cathi Nelson’s contrarian approach to lead generation. Out of economic necessity, Nelson launched the Association of Personal Photo Organizers (APPO) by focusing first on the bottom of the funnel by “making sure that people saw value in the membership and on retention. Once she had a great offering, the acquisition was easy—people came through word-of mouth.”

Beware of analysts and vendors who sell hammers (or demand funnel models). They see every customer relationship cycle as a nail. Envision your customer relationship as an infinity image, not a one way funnel with a revenue “end goal.”

Do your marketing strategies emulate one-night stands or five-star lodging? If you chose the former, it may be time to consider a membership model excursion. And the first leg of the membership journey must include affective empathy.

This article was written by On Marketing from Forbes and was legally licensed through the NewsCred publisher network.

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