In this episode, I talk with Robbie Kellman Baxter, the world’s leading expert on subscription pricing and membership models.
Robbie is a bestselling author, speaker and consultant with more than twenty years of experience providing strategic business advice to major organizations including Netflix and other notable brands.
She is the author of The Membership Economy and The Forever Transaction and host of the podcast, Subscription Stories: True Tales from the Trenches.
Robbie has spent many years encouraging brands to cultivate a must-have, “craveable” programme that customers and users simply cannot live without.
In this episode, we explore why retailers, brands and businesses – large or small – absolutely must consider offering subscriptions or memberships as an additional “bow in their quiver” if they wish to remain competitive in their markets.
Speaker 1 (0s):
Welcome to “Let’s Talk Loyalty” an industry podcast for loyalty marketing professionals. I’m your host, Paula Thomas and if you work in loyalty marketing, join me every week to learn the latest ideas from loyalty specialists around the world.
This show is sponsored by Comarch – a global provider of innovative software products and business services.
Comarch’s platform is used by leading brands across all industries to drive their customer loyalty.
Powered by AI and machine learning, Comarch technologies allow you to build, run
and manage personalized loyalty programs and product offers with ease.
For more information, please visit comarch.com.
Hello and welcome to today’s episode of “Let’s Talk Loyalty” featuring author consultant, podcaster, and speaker Robbie Kellman Baxter.
Robbie is best known for her first book entitled “The Membership Economy” and in it,
she explains the power of subscriptions and membership programs lessons she learned from over 20 years, advising industry leading clients like Netflix on the power and potential for recurring revenue.
This book was way ahead of its time and earned Robbie multiple awards,
including one of the best marketing books of all time. And now Robbie has just released her second book entitled The Forever Transaction.
In today’s episode, you’ll learn how subscription programs and membership programs differ from each other, as well as Robbie’s top tips for success with these exciting models in 2022.
So Robbie Kellman, Baxter. Welcome to let’s talk loyalty. How are you today?
Speaker 2 (2m 7s): Great. Thanks. I’m excited to talk to you. Speaker 1 (2m 9s): I’m super excited as well. Robbie, you know, we only met very briefly in fact, for the first time last week. And since then, I have immersed myself in all of your work in preparation for our call today. And to be honest with you, I can’t believe how much similarity there is between the messages you’re sending out and the messages we’re sending out. So very excited to get into the conversation and learn all about your amazing expertise. So I’ll explain to our listeners exactly more about that in a moment, but before we start, please tell me, what is your favorite loyalty program? Robbie? Well, Speaker 2 (2m 45s): Timing is everything. And the one that’s front of mind for me today is taco bell because, you know, taco a day, every day for 10 bucks a month, really, really interesting way of tapping that loyalty of their most engaged customers. My, my son happens to be one of those very engaged customers, and I think it’s actually saving us a lot, but also increasing the number of times that he and his friends stop. Speaker 1 (3m 19s): Yeah, absolutely. And would you say you were surprised Robby? Because for me, I certainly feel like the explosion of subscription. I’m going to use that term for now the explosion in a, whether it’s Panera bread, utopia about sweet green. I didn’t realize they had also launched and press a module in the UK, for example, espresso house in Europe, everybody’s just getting into this model. So it probably wasn’t surprising to you. Was it? Speaker 2 (3m 48s): Well, it’s funny Paula, because I’m like you I’d seen all of the ones that you’ve been talking about, which are mostly coffee subscriptions, which is, you know, a known habit that that many people have including myself. And when I saw taco bell basically doing the same thing, but with tacos, I thought my first thought honestly, was who in the world is going to get a taco every single day or even three times a week or twice a week, which I think is what you need for it to be, you know, to, to be valuable. And, and then I mentioned it at dinner to my family and I realized that, you know, you should never make the mistake of, you know, judging something by what I buy it. Right. It’s it’s do they know who their audience is and how that audience behaves? And so, while I wasn’t surprised I’ve seen a lot of premium loyalty programs for, you know, retail hospitality, and of course, you know, fast food and quick serve restaurants. I was, it took me a minute to really put my myself in the shoes of a, of a major fan, a consumer of, of taco bell. Speaker 1 (4m 51s): Sure, absolutely. And I will credit, first of all, Alex Brown and from London business school for actually introducing us Robbie and I wanted to get straight into like, your positioning is incredibly clear. And also I’m going to say you’re probably one of the leading thinkers in this entire field, but there are some really important distinctions. So I think subscription is the term that I’ve been using in the, I’m going to say very short period of time that this concept has been on my radar. So, you know, subscription loyalty, I will credit also actually the guys in liquid barcodes, a company I was consulting for for really understanding the potential for subscription in convenience retail. But you started working well, certainly even writing about this book in 2014. So I’d love you to tell us how did you become aware of the sheer power of the subscription model way back in 2014? Speaker 2 (5m 50s): Well, actually I really started to fall in love with subscription pricing and the bigger concept of membership as a tool in building loyal, trusted relationships with customers around 2001, which is what I started consulting. I know, I know that makes me pretty old. It’s amazing. It was Netflix, it was Netflix. And so I live in Silicon valley in the United States, in California, not too far from the Netflix headquarters and they were a client of mine right around the time they went public. And just to bring you back there to that time, they had a strong following on the east and west coast of the United States. They were moving rapidly to penetrate the entire us, but they weren’t fully able to hit every market with the three-day turnaround that they were promising for physical DVDs in the mail. And when you think about where they are today, it’s sort of hard to remember that like every other company, they started small, but I fell in love there with this concept of treating your customers like members treating your best customers the best. Yeah. And building trusted, predictable recurring relationships with them, which honestly has a lot of overlap with what traditional loyalty programs have always tried to do. Building, building those habits, building that engagement building that kind of trusted special preferential relationship. And, you know, that was where I really started, started to see it. And what happened with Netflix is I started making connections between what Netflix was doing and what traditional loyalty programs were doing with what Netflix was doing and what had been happening in news with, you know, newspaper subscriptions, what was happening with gym memberships, what was happening with software as a service. And I really started seeing that there were certain shared techniques that worked across almost any industry. If you wanted to build trusted, engaged relationships with your best customers. Wow. Speaker 1 (7m 49s): Wow. You’re absolutely vice Robbie. And thank you for bringing us back to 2001, because I definitely had, you know, a CD subscription and popping it back in the post and all of the, you know, the offline equivalent or the predecessors, probably a better word. And for them to transition, it’s incredible that you were consulting with them. And I did see one of your speaking engagements. And I think it’s absolutely brilliant that what people now seem to come to you for is they want to be the Netflix of hairstyle owns or the Netflix of carwash or the Netflix of whatever. So, so it’s amazing that that model has become so clearly understood, adopted, and, and dare I say, loved that every business seems to be all over it, particularly where Speaker 2 (8m 37s): You’re working. Yeah, it’s, it’s so interesting because when I first started working on it and I would tell people, you know, that I worked with subscriptions and that I believed in the power of what I call a member mindset for organizations to treat their customers like members, you know, say if they’re going to be with me for a long time, what does that mean for business model and how that could really impact lifetime customer value, whether it was with a loyalty program or a subscription pricing or some other tactic people kind of scratch their head and looked at me, you know, that doesn’t really apply to what I do. You know, you’re from Silicon valley. Yeah. Maybe that works in, in, in, you know, software as a service, or maybe that works at Netflix, which is a really unique company or a company that’s starting from scratch to Denovo company. They don’t have the legacy and the history and the challenges we have. But you know, that was, you know, 2014. And I wrote my book, the membership economy, and really the purpose of that book was to tell people, Hey, what I’m doing at Netflix, what Netflix is doing, yes. What, you know, Intuit is doing with their QuickBooks online, what these companies are doing. This can be applicable to you in your business, whatever that is. If you care about having a differentiated relationship with your best customers. And I wrote that book, it was kind of like, you know what? I was Paula, it was like a one-pound business card that said, this is what I believe. If this sounds crazy to you, great. Let’s not waste each other’s time. But if this sounds interesting to you let’s have a conversation. Yeah. And five years later, I don’t have to explain to anyone anymore. Okay. The power of subscriptions, why loyalty is so important, but today, you know, the bigger issue is how do you do it? Well, Speaker 1 (10m 18s): Yes, absolutely. Absolutely. And I would love to go back to the title and this point that I alluded to you, didn’t call the book, the subscription economy. You did really very clearly focus on this concept, which you talk about the mindset of membership. So to me, this wasn’t a distinction I had pulled through before and again, having immersed myself in your work. Now I’m very passionate about that difference. So for everyone listening, who hasn’t really experienced or understood, and maybe that distinction the way I didn’t, when you explain the difference between a subscriber and a member for any business. Speaker 2 (10m 56s): Sure. Well, the way I think about it, and this has been a helpful distinction for me in, in understanding what makes some, some subscriptions work and others not work subscription is a pricing decision. And it, there is no implication of loyalty or trust or anything. It’s just paying on a regular basis. It’s a contract membership is the way that you treat the people you serve. It’s much more about a mindset, whether or not you price as a subscription, you can treat your customers as members. So I’ve seen subscriptions where the company does not really invest in trust. They’re not trustworthy in my opinion, but they do use subscription pricing. And I’ve seen the opposite. I’ve seen companies like apple is a great example, especially, you know, apple, when you think of their hardware, they weren’t selling their hardware on a subscription, but people would say I’m an, I’m an member. When something breaks. I go to apple. If I need to buy a piece of hardware, I go to apple. If I need a phone, I go to apple. I say, tell me what phone I should buy. If I need a computer, what computer should I buy? If I need a printer, this is, you know, for 20 years I need a printer, apple, what printer should I buy? Apple says, well, we don’t sell printers. And then I say, oh well, but I’m an apple person. I’m an apple member. Totally apple didn’t have a membership in what, what do you recommend for me? What should I buy? Because I trust you solve an ongoing problem for me, my, my, my tech footprint, my hardware footprint. Yeah. So membership is really about how you treat your customers. Subscription is a pricing decision. It’s a tactic. Speaker 1 (12m 34s): Okay. Okay. I got it. And the word that definitely came to mind as I was doing the research with the positioning of the membership economy was almost like, and I hope I’m right in saying this Robbie, but it felt interchangeable with community. So that sense that I belong and identify with this particular brand and the other people, perhaps that also identify. So we’re all members of a community. Am I taking it too far? Or does that make sense? Speaker 2 (13m 5s): I, you know, it’s funny, this is something that I thought a lot about too. You know, what’s the difference between membership and community. And I kept bumping my head up against certain organizations. One of which is, is Netflix another one, you know, here in the United States, AAA, which is, you know, the biggest, you know, kind of emergency roadside service for automotive owners. I’m, I’m a member of AAA. I’ve been a member. My parents gave me a membership when I turned 16 and got my driver’s license. I’ve had it ever since I’ve been a member of Netflix almost since they started, but I don’t feel any affinity with other Netflix subscribers. And I don’t really feel any affinity with other AAA, you know, subscribing. So if, if you were sitting next to me and he said, oh, you have Netflix. So do I, that wouldn’t make us better friends in the same way that if you said, are you a member of, you know, whatever the, the American medical association, the, the, you know, this church. So, so I don’t think it’s a requirement of a membership model. Not every membership that we have. Yeah. It feels like a community just cause we both go to the same library does not make us feel like we’re part of something together. I, I don’t think, but I think it’s great that you bring community is a really valuable element of a lot of memberships. It does layer in, I think a lot of stickiness, right? If you can, like, I know Netflix has tried different things and we’re on community, many of which haven’t really taken off. But the reason that that organizations even try is because you might come for the initial products or features, but you stay because you build friendships. That’s what people tell me all the time. For example, professional associations joined 20% discount, or I joined to take this training program, but I stay because that’s where my people meet twice a year. And that’s how I stay connected and how I stay current and hear about new job opportunities. It has nothing to do with the training programs they offer. It has to do with who else is there under the umbrella of that brand. Speaker 1 (15m 6s): Okay. Okay. So again, another, I suppose, important distinction. I could be a member of a professional organization, but never connect with them, you know, in a community way. They may not invest in that type of strategy and that type of relationship, but I could be a member again, but not as connected. So almost like there’s a degrees of loyalty if I’m right. So going from transactional to emotional, to full community type relationships. Speaker 2 (15m 34s): Yeah. I think that’s a, that’s a good way of saying it, you know, for me. But when I do come up with is that there are really successful membership businesses and organizations that have no plans to ever use loyalty. So it’s not like, I mean to use a community. So it’s not like, okay, we did this first, we’re doing that next. And then we’re getting to community, but it’s always something worth considering like if you have a subscription yes. At some point you should take a step back and say, is there any value in community? Yeah. That would make this a more meaningful relationship with our, with our members. Can we relay your in some form of community? Sometimes you might say, no, no, it doesn’t make sense. We’ve looked at it, but at least consider it Speaker 1 (16m 16s): For sure. And, and one of being them, I suppose, mulling over myself because I know for example, Ikea have been on this show and they very much believe in, you know, the, the power of community. And that was very interesting and, and just lovely to hear. And I suppose when you think about the people who are loyal or potentially loyal to Ikea, they’re looking for inspiration. So there are things that the products themselves, you know, alone, maybe buying a piece of furniture might be able to deliver, but somebody else might be able to showcase to you how that can become something greater. So you have to be a member of the community. And then the community itself, I suppose, builds that loyalty on top of it as well. So, so I thought it was a really good example, but the one that I was thinking as well, I wanted to just kind of, you know, see if you had any thoughts on was we have a lot of people say in the airline industry and that I think has, you know, probably the longest legacy of loyalty overall as an industry. So I know there were things like, you know, green shield stamps, for example, that predated it. So there are loyalty models earlier than, than kind of points within airlines. But I think the airlines have done an extraordinary job of, you know, building on these layers of benefits. And, but I don’t see yet that many of them have cracked the idea of subscribing or becoming a member. So I just wanted to see, do you have any thoughts or have you ever seen within the airline sector where there’s an opportunity within subscription or membership putting you on the spot now? No, no, no, Speaker 2 (17m 52s): No. This is great. I love this. I love talking to an expert because it really, you know, it pushes me to, and, you know, learning from you is, is a big part of the reason why I’m so excited to be on your, on your show. So there’s surf air here in the bay area, in, in California where you pay a fixed price and you have access to certain routes, unlimited access. It’s a small number of routes and they’re mostly short hops, but it’s almost like having a bus pass except that their airplanes. Wow. Great. So that’s one model. That’s kind of interesting, another model and I can’t think of, who’s done this. I think United has, has experimented with this, but I’m sure that there are others as well, which is you pay upfront for access to a bundle of benefits. So kind of like that taco bell or Panera bread or example, but instead of paying upfront to have coffee or, or, or tacos, it’s, you pay up front and that gives you the privilege of always sitting in the premium section of the plane or being able to board early or having another kind of bundle of benefits that you’re paying for. So it doesn’t come with your credit card or, or come with the number of miles you accrue when you achieve that status through your purchases. But rather you say upfront, you know, I’m going to pay a premium to have access to this bundle of benefits, whether I fly once a year or, or every day. Yeah. Those are two options that I could see being really interesting for, for airlines that are trying to differentiate and, and build deeper relationships with their most active travelers. Speaker 1 (19m 27s): Yeah. And you used that term earlier, actually the whole, you know, the, the intention of the leadership team to have a differentiated relationship that seems to underpin the, the overall, I suppose, decision to invest in this strategy in the first instance, and then whether it works or not. Speaker 2 (19m 46s): Absolutely. And you know, one of the things I really struggled with when I was writing my first book, because you know, like you do, you know, I really wanted to get clear on the terms and who was in and who was out. And, you know, one of the things that I, that I get asked all the time is, is there ever a kind of business or organization that shouldn’t invest in membership that shouldn’t treat their customers like members and what, what came up for me after, you know, sort of really thinking about this a lot was if you don’t have competition, okay. If your customer has no choice yeah. Then you don’t really need membership. You don’t need to treat them specially because they have no choice. Yeah. Most cases, eventually somebody comes up with an alternative if there’s no choice. So you can see, you know, taxis in most parts of the world have enjoyed a monopoly and Uber and Lyft and all of the other ride sharing services have come in because the experience was so bad in so many places. But, you know, if you think about companies that have a geographic advantage, a patent advantage, or, you know, that are, that are only going to be used once in someone’s life. So, so for example, you know, the, the last gas station, you know, for a very long distance, you know, doesn’t matter if the restrooms are dirty and they treat you badly and they charge a lot because you don’t have a choice, right. If your tank is empty, you’re going to buy from them. If, if one company has the vaccine that you need. Yeah. You’re not, you’re, it doesn’t matter if they charge a high price treat, you badly require you to drive three hours to get it because you don’t have a choice any time that the customer has alternatives, not just for your product category, but to achieve the goal. Okay. Solve the problem. That’s when membership really becomes interesting. Speaker 1 (21m 38s): Sure. And I saw you, I suppose, focusing a lot in your own terminology, rugby, and I love it. And it’s all about the inside. So that underlying human needs that you’re trying to satisfy. So I feel like you really do go very much back to basics as a marketeer, you know, to really understand that before recommending if it’s a subscription or a membership or any other model, I thought that was a lovely way to work. Speaker 2 (22m 3s): Thank you. Yeah. I mean, for me, that’s, you know, a lot of times, you know, working with companies, right, we’ve been talking about these huge companies, right? The airlines and, and these, these large quick serve restaurants and, you know, Netflix that have so much money and so much data that these are things that you can do, even if you’re just running your own. Cornershop right. Take a step back and say, who am I serving? What is the ongoing problem that brings them to me repeatedly? What is the ongoing goal they have that brings them to me repeatedly, whether that’s, you know, I run a gym and I, and the people are coming because they want to feel fit. Or if I have a, you know, a shop and it’s people never want to run out of their basics. Sure. If you start with that, which you don’t need any data for, and you don’t need a huge amount of sophistication for just understanding who’s coming and why, and then you say, if that’s what I’m optimizing for, what would I do differently to give them more value? That’s where the lights start to go on with what kind of subscription you can buy offer. Yeah. Speaker 1 (23m 4s): And honestly, you are on my mind all day, Robbie, and aside from this recording, I am looking for what next to do with let’s talk loyalty. And I think I alluded to this when, when we spoke the last time, because again, I really want to get a good understanding of everyone listening to this show. You know, what is it that they’re coming for because they are listening. So thank goodness it’s found an audience, but I love that idea of being am more and more curious and more inviting, I guess, to bring in that research and feedback, to understand what my customers need so that I can create the right content so that they’ll keep listening and get more and more value. Right. Speaker 2 (23m 47s): And I would even, you know, since we’re talking about your business, I would even take that one step further. So, you know, you said, you know, what can I do? How can I listen to provide them with more better content, but they might be seeing, you know, what, Paula, we love that your content is fantastic, but what we’d also like is to meet the other people that are listening to this, because those are my people totally right. Or what I’d also like is a survey of the other people that are listening or what I’d also like our discounts or ranking and re you know, to the best, you know, supporting technology products. Yeah. If you say, what is the problem? This is the exercise always do what is the ongoing problem or the ongoing goal that brings them back. And if you were starting from scratch today, and you said, I am starting a company from scratch today that helps people who have the ongoing goal of X, what would that be? So if you were a newspaper, right, a lot of newspapers started because they wanted to help the people in their town, understand the world around them so they can make better decisions and feel more confident. Yeah. Right. And it used to be that we were limited to, you know, print printed paper was the best way to deliver on that promise today. That’s not the best way to help people understand the world around them. There’s all kinds of other, there’s different media, you know, there’s video and photography and audio, but also there’s, you know, access to a real person. Right. If I want to understand the world around me, I might call an expert and talk to them. Right. I might gather with other people that are grappling with the same thing, those are, I might take a class. So if you’re a news organization, you might take a step back and say, maybe we shouldn’t just be selling newspapers. Maybe we should be offering tours. Maybe we should be offering experts who are access to our journalists. Maybe we should be offering certainly video and audio and other media, but you know, you kind of turn it on its head by saying, what’s the thing that brought them here. And how can I provide more of that to them? Speaker 1 (25m 44s): Lovely, lovely Robbie. And I love that you mentioned newspapers because I listened to one of your own podcasts and again, today, and it was a fabulous guest. Again, talking about the membership concept, literally for newsrooms, who would never, I think of have considered themselves in this business. And so I learnt loads. I have, I don’t know how many pages of notes and even back to your own website as well, Robbie, you, you have a lovely manifesto. And again, hopefully everybody listening, who’s equally passionate. And I think as we are about these topics, you used a brilliant words, which to me was quite startling in and I felt it quite profound. And what you said, Robbie, is that people are craving membership. And that stopped me in my tracks because again, you know, it’s one thing to be, you know, me as a podcaster or an airline, you know, to be thinking about the transactional benefits, as you said, we can layer them on. But to come back to the fact that probably accentuated by the pandemic, people are craving to actually be members of things together. I thought that was a wonderful word. Speaker 2 (26m 52s): Oh, thank you. Yeah, I do think it’s true. I mean, right now subscriptions are getting a very bad rap because you know, you used to be that when I would tell somebody that I was kind of an expert on, on subscriptions, they would say, I don’t really understand why that’s relevant today. When I say I work in subscriptions, they say, let me tell you about this terrible subscription and that I couldn’t get out of. Let me tell you about this membership. I had this gym membership that required me to write them a letter in order to cancel my membership. And it was so hard. Yeah. So there is a lot of bad rap about, about membership and about subscriptions, but at the same time, people want to belong and they want to be known and they want their services to make sense for them. Right. There’s nothing better. I was just shopping for clothes the other day. And I was thinking, you know, I just want someone to tell me, these are the three items you need, Robbie. And these are the three versions of them that are going to fit you the best and fit what you need the best. And I’m going to charge you a hundred percent margin on those things. Sure. I would pay double, totally to have the right things and to have an expert really handling that for me. So there is room to be, to be known, to belong, to have somebody who has your goals at heart, to be connected with other people that share those goals or those challenges. So if you do it right, your, your members, your customers today that become members tomorrow, they’re going to thank you, but you have to earn their trust. I think a lot of bad loyalty programs. Yeah. They, they take advantage of the behavior. They say, my customer is so dumb. They’re not even going to notice if I change the pricing or my customer’s locked in, so I can add this extra fee and they can’t do anything about it. And you know, that is true. And for some period of time, when we’ve engaged and committed to one, one vendor for something, we may not notice it. And even if we notice it, it’s hard for us to leave. There’s a lot of inertia, but that doesn’t mean that we feel loyalty. It means that we feel trapped. Speaker 1 (28m 52s): I agree. And I think, you know, dare I say it as a cash agree, but I feel like in financial services, I feel like there, there can be a lot of that inertia, which leads to resentment and then people wonder why there’s disruption. So I agree. It may work for a certain amount of time, but human beings are very good at getting out of things. You know, if they’re determined to, and, and I love the point about loyalty and sorry about trust to build loyalty. The one that always struck me when I was writing about the same topic was the dollar shave club. And I’m sure many people know that again, it was a very radical, you know, FMCG brands doing shaving products on a subscription basis. And that company started from nothing and with some brilliant marketing and I believe was sold for about a billion dollars. And I think to Unilever, Unilever. Yeah. So an extraordinary, but the single most powerful thing that struck me on their homepage was here’s how to one subscribe. Here’s how to counsel. And immediately I went, okay, great. I can get in. I can get out. So, so it’s, it’s interesting that you’re now focusing on how to do it well, and I’m guessing that’s what led to the new book that you’ve written. So maybe tell us exactly what the transition and the journey has been from the membership economy now through to your latest book. Tell us all about it. Speaker 2 (30m 12s): Yeah. Well, when I wrote the membership economy in 2014, yeah. I was really just trying to help people see what I was seeing that subscription pricing is powerful that treating customers like members drives up your lifetime customer value and that driving up lifetime customer value had a very direct impact on the value of, of the business of the firm. And that’s really, all I was trying to say is this is, this is a really powerful model. And maybe you should look at it. Maybe you should give it a try. That was all in, in 2020, or I should say by 2020 or 2019, even, I didn’t have to convince anybody anymore. I wasn’t having that conversation anymore where I was trying to explain why subscriptions were powerful. Instead, what was happening was people were saying, we tried subscription. It didn’t work. We’ve been talking about subscription for two years at our exec team. And we haven’t been able to really invest in it yet. We’re afraid it used to work really well for us. And for some reason we’re not growing anymore. We’re doing well with acquisition, but people are churning out and we’re losing money on every new customer. So I wrote the forever transaction. My second book, which came out in 2020 really is a how to want to launch a subscription if you already have a subscription. And you’re trying to scale it to operationalize what you’ve been doing in a more klugey way, or even if you’ve been doing subscription for a long time, but it’s not working as well. It feels dated. It feels long in the tooth. Your customers are complaining. How do you keep it relevant? And that’s really what this book is about. It’s, it’s very, very practical and it almost in the weeds too, to help the practitioners that are, that are in the trenches everyday building subscription models. Speaker 1 (32m 0s): Well, they’re exactly the people listening Robbie. So that’s certainly music to my ears. So, and practitioners, I feel at the end of the day where the only people like who really understand, I suppose, both the consumer mindset and then the operational piece, you know, I think it’s absolutely wonderful to have a practitioner led book that we can actually sit down with the whole, how to model, pardon me, and figure out literally the framework, because I know you’ve built a framework for the membership economy in the first book and sounds like you’ve just added to it. And the second one. Yeah. Speaker 2 (32m 33s): Yeah. Well, thank Speaker 1 (32m 33s): You, Dawn. Super exciting. And just on the point about dilution Robbie, because it’s a question I hear, I suppose, brands like, you know, maybe a coffee shop, for example, and then thinking outside the U S here, where for example, there mightn’t be the same level of expertise. Mightn’t be the same level of actual consumption of a product. And a couple of people have reached out to me from time to time and said, well, you know, maybe those people would have come in and paid full price for that coffee on a daily basis. So what do you say to somebody who thinks that they’re going to lose money by building a subscription model for their business? Speaker 2 (33m 13s): Yeah, so the, the thing that I would say to them is you have to know your customer and you have to understand their behavior. Okay. So if you’ve never many, many organizations that are moving to subscription, have never had to understand how any one customer behaves over time. So this can be really daunting. In fact, many of them sell through third parties. Like if you think about, you know, consumer products that are sold at stores, you know, like the, you know, the example you gave of, of dollar shave club, it was very, very hard for Gillette, which was, you know, one of the biggest manufacturers of shaving products to compete with this little upstart dollar shave club. Because even though they sold millions of razors and razorblades and shaving cream and all these things, they had never sold direct to consumer. So they didn’t know, they didn’t know who those consumers were really. And they didn’t know how they bought and they didn’t know how to handle the logistics. You know, how do I ship to one person, not on a pallet, but an individual box and yeah. Even worse. How do I handle returns? And how do I handle all of the little details about what you want in your kit versus what I want in my kit? Yeah. So, you know what I would say to somebody who’s thinking about this is first, understand your audience segment out and say, who am I designing this subscription for? And then if you have real variable costs, this becomes really important. So if you’re selling content, you can take more risks. But if you’re selling something where there’s a physical cost, you see like the coffee, the coffee costs me 50 cents. Yeah. And I’m, I’m selling it now for 40 cents. This is a terrible business. And what you need to do is experiment test, really understand what you want, understand his usage. For example, with, with the Netflix example, when they were doing three DVDs out at a time, they were dependent on the male, right. They actually had, you know, distribution centers where somebody would go and find the DVD that you asked for. And they’d put it in one of those red envelopes and they put it in the mail for you and they’d pay the postage and then you’d return it and they’d have to put it back on the right shelf. Yeah. And they had very real cost and they knew that people actually were very heavy users. They had more turns in the first two weeks, the trial period and the free trial period. So actually they were spending the most per subscriber during the period where that subscriber was providing no revenue. Yes. So it became very important to them that the people who were getting the trial where the right kind of customers coming for the right kind of reasons. So it actually changed how they marketed and changed how they tracked trials. So it wasn’t like you could have unlimited trials in the same way that if you walk by the bakery in your town, they might give you a taste the first time and they might not recognize you the second time. But the third time they’re going to say, I think you’ve already tasted this cookie. And I think, you know what? It tastes like. You want more go buy one. So, so yeah. So, so you need to really understand behavior and your own costs and then experiment bit by bit to build your confidence level. I call it learning and leverage. What, what do you need to know? You’re more confident or so that you have more leverage either with your customers or your partners or your vendors so that you can make this change. Speaker 1 (36m 24s): Yeah. Wonderful. And I know, you know, Robbie that you’ve written for some of the, you know, biggest publications in the U S whether it’s Harvard business review or I think the economist, and I think it was CFO magazine. So plenty of editorial work that you’re doing. I know you’re a very well sought after speaker, obviously, in terms of going out and presenting at lots of conferences, your podcasts, so subscription stories. So tell us a bit about your podcast and what inspired you to get that started. Speaker 2 (36m 55s): Yeah, that was my, you know, I think that was kind of my, how I spent my COVID vacation project. I, I actually had just started it and was sort of playing with it. I think I had one, one episode before, COVID my first episode with Joanna Strober who at the time was at, at weight Watchers, WW. Oh, had my first guest. Yes. And, and I just had time and it was a way what I found was it was a way for me to learn, yes, it an excuse to talk to people. It was very much a continuation of the experience of writing the book. Right. I loved the part I love the most about writing a book is kind of gives you an excuse to reach out to people, to research, to ask questions, to learn more, to build relationships. Yeah. So subscription stories, which I now I’m going on my second year now is really, I call it true tales from the trenches. So it’s, it’s mostly interviews with practitioners. So people who work at companies building subscription models. And what I try to do is tease out some of the specific tactics that they use. And I’m always looking for what is applicable across industries and across business structures. And what is unique? What is unique to streaming? What is unique to consumer products? What is unique to wearables? And then what is, you know, all of them are dealing with churn. All of them are dealing with, how do we acquire the right people? All of them are dealing with onboarding. Yeah. So that’s really what I, what I try to do is go back and forth between, oh, that’s very unique to your funky little business versus yeah. Well, that’s something, you know, you might think you have to take from HBO, max, but actually if you have an intermediary, if you sell through a distributor of some sort, like one on listen to yeah. You know, how they manage going through all these telcos, but also having a direct to consumer business Speaker 1 (38m 51s): For sure. And it reminds me actually, Robbie, because when I started consulting is, was that same level of, you know, wanting to transfer knowledge because there was so much evident to me that I could see that could be transferred from one industry to another, but again, we’ve both ended up podcasting. And I think to me, I keep saying, I have more questions and answers, you know, it’s an extraordinary position that we have to be able to sit and have these wonderful conversations with people that we find fascinating. So I’m, so I love that you’re doing that show and definitely we’ll make sure in our show notes that we link to that for anybody who might want to listen, because as they can say, you’re a brilliant interviewer, by the way, so well done. I was listening to how you were doing it. Speaker 2 (39m 33s): Thank you for that. And it’s funny, we talked about this. I know a lot last week when we were chatting, you’re, you’re an excellent interview. You’re so prepared and so thoughtful with your questions and able to kind of jump in and follow the stream where it goes, but also stay on, stay on topic. And that is a lot harder than it looks. You see Oprah, you know, she has teams and teams of people to do all the research to help her set up with questions. She’s been doing this for 30 years. She was good when she started. It’s her only job. Totally though. It’s not easy to, to kind of be in the moment to be thinking about where you want to go. And then of course all the, all the heavy lifting of, you know, the, the editing afterwards and the, you know, the follow up and all of that, it’s, it’s, I’m impressed with your work. Speaker 1 (40m 23s): Oh, thank you. Thank you, Robbie. And clearly it’s mutual. And so we’re doing great work and long may it continue, but listen, my final piece then is around, I suppose, the advice you were just giving Robbie, which is excellent about really understanding your customer and clearly the, the other work that you do really is the consulting work. So, so am I right in saying that anyone listening, if they wanted to reach out and, you know, get your help on understanding what to expect in their category, whether it’s the crawl sale or the upsell or the dilution that you can at least offer again, you know, I really think a global perspective on what they can expect in their industry so they can get, I guess, the expert guidance as well. That definitely plenty of people need. So is that fair? And that’s available that you do for people? Speaker 2 (41m 13s): Yeah, absolutely. I’ve worked with a really broad range of companies from, you know, really big organizations like Microsoft or Netflix, which are, you know, huge, huge companies with, with very sophisticated teams working on subscriptions, as well as, you know, traditional businesses that are moving into subscription. A lot of newspapers around the world magazines and, and also startups. You know, I am in Silicon valley, in Northern California where, you know, my business for many years was, was focused on venture backed private companies and some of the newly public digital natives. So, you know, wherever an organization is, what I try to do is help them with their, you know, identify what their specific opportunities are for improvement. Okay. Based on all the work that I’ve done and then help to prescribe some, some tactics that they can, that they can take to improve their model, or if they’re starting out to help them get to a point where they can make a go no-go decision or be confident that their, that their plan is going to get them where they need to go while also providing, you know, what I think of as guardrails so that you don’t, you know, if you’re switching from transactional to subscription, like you were saying, and you don’t want them to sell your coffee for the less than it costs you to make it, how do you put those guard rails in the, that you don’t, you know, bet everything you have on a model that you haven’t fully figured out Speaker 1 (42m 36s): For sure, because none of us has all the answers. And I think what I said to you, Robbie as well is because you are in, you know, such a wonderful country with, you know, so many, you know, leading edge thinkers, that it is very well established in the U S but I don’t have that same expectation of my global audience. So I think there’s a lot of people that are still, you know, catching up with this brilliant idea, you know, and just they’ve seen it done well. And yes, they’ve seen it done badly, but I don’t think everybody has even kind of thought it through fully for their own businesses because there might still be of that mindset of, oh, that’s not how we work. You know, I might be a pizza company or whatever, or a taco business. Speaker 2 (43m 19s): Yeah. I’ve worked with, I’ve worked with dairies in Africa and, you know, streaming services in Asia and supermarkets in Latin America, you know, the, the, and of course, software companies everywhere and financial services firms everywhere. You know, there’s, there’s so many interesting business models and entrepreneurial thinkers, both, you know, operating on their own around the world and operating. I mean, one of the things, you know, I have a bunch of courses on LinkedIn learning that I’ve developed with, with them there, you know, video courses. And one of them is about entrepreneurship. So intra with an eye, meaning you can have that same level of creativity and vision to do something completely new inside a large company. And, you know, I spent a lot of time there too, which is, which is fascinating. And it’s, you know, it’s very high stakes because yeah. You know, I used to feel, it’s funny. I used to feel that, you know, all these Silicon valley companies, they’re so fast, there’s so much better than these slow cargo ships of old lie and big companies. But then one day it occurred to me as listed. I was thinking about that, that metaphor. And I was like, well, of course the speed can run circles around the cargo ship because they don’t have any cargo. Yeah. They’re actually not carrying anything of value. So if you make a mistake who cares, nobody’s going to fall off the side of the boat and you’re not gonna lose your precious cargo. Whereas for these big companies, like you said, making a big change is, is very risky because there’s real money involved. There’s real customers involved. And if you make a misstep, yeah, it has, it has very real, real implications. Speaker 1 (45m 0s): And for the person who might make that recommendation as a strategy, there’s also career risk for sure. Speaker 2 (45m 6s): Oh, absolutely. Which often either accelerates their ability to take risks or pulls them way back to say, I don’t want to go anywhere near to value business opportunity. I’m going to move as slowly as I can because you know, Speaker 1 (45m 21s): Totally, totally, well, listen, Robbie, I have loved our conversation and I feel like I’ve learned absolutely loads. And I definitely want to make sure that everyone can M you know, find all of your books, listen to your podcasts, reach out to you on LinkedIn. But before we give all of those details, do you want to just ask, is there any kind of final closing thoughts or words of wisdom as we come into 2022, if anything’s changing with subscription that people should be thinking of, or do you think all of the principles just need to be understood and I suppose to make it successful for this year? Speaker 2 (45m 58s): You know, it’s such a good question, Paula. I think that, you know, where we are with subscriptions right now is it’s, it’s on the verge of being completely mainstream. So every business, if there has a subscription has considered having a subscription and made a decision not to have it, or is actively working on it, or is stressing about the fact that they have no strategy. So if you are not building something or at least evaluating whether or not there’s a place for subscriptions in your business, you can be sure that your competitors are. So what I would advise anyone listening, whether you run a Cornerstore or a large airline, or a big hospitality chain, thinking about subscriptions as an additional tactic and additional, what do they say in digital bow, in your quiver? I think that’s the metaphor. One more tool in your toolkit, something to consider. And then the second thing that I would say is to consider it in service of loyalty, what are you, how can you use subscriptions as a tactic to help you build deeper and more meaningful relationships with the customers that are most important to you? Speaker 1 (47m 15s): Wonderful advice, Robbie. Wow. On that note, we will end, and I will say Robbie Kellman, Baxter, author of the membership economy, author of the forever transaction and host of the fantastic podcast called stories, true tales from the trenches. Thank you so much from let’s talk loyalty. Oh, thanks so much for having me. It’s been a pleasure. This show is sponsored by the wise market here. The world’s most popular source of loyalty, marketing news insights and research. The wise marketeer also offers loyalty marketing training through its loyalty academy, which has already certified over 170 executives in 20 countries as certified loyalty marketing professionals. For more information, check out the wise market, tier.com and loyalty academy.org. Thanks so much for listening to this episode of let’s talk loyalty. 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