In recent years, there has been an increase in both online and brick-and-mortar membership-based businesses – also called member services. Membership-based business models are gaining attention for the way their stability and growth depend upon meaningful relationships with customers.

Using examples of membership-based businesses in Japan, we’ll discuss the benefits of offering member services, the key points for success, and what to consider when implementing this business model.

What’s in this article?

• What is a membership-based business?
  
• Member services business model
  
• Member services billing method
  
• Advantages of a membership-based business
  
• Disadvantages of a membership-based business
  
• How to establish a membership-based business
  
• The keys to success in a membership-based business
  
• Examples of successful membership-based businesses
  
• Membership-based businesses: A summary
  

What is a membership-based business?

A membership-based business is designed to encourage customers to register before using a company’s services. Ideally, customers then continue using the services due to the benefits and convenience the membership gives them.

There are both free and paid member services that offer different benefits and features. While free memberships offer basic services, paid memberships offer more extensive services, such as priority access to events and members-only content.

Member services business model

Member services, which allow customers to take advantage of special offers and limited services in exchange for a fee, fall into five broad categories.

Facility-based

Facility-based services give members the right to use designated facilities such as fitness clubs, coworking spaces, luxury spas, and recreational facilities. The facility itself is the focal point of the service.

Facility-based member services require a facility to be physically located where members can access it.

Product-based

In this business model, users register as members and then purchase products from e-commerce sites or physical stores. This includes food and beverage subscriptions, regular grocery shopping services, and businesses where you pay a membership fee to purchase items in-store.

Information-based

Information-based services provide members-only news and articles, as well as highly specialised information such as stock investment data. If users find the information you provide to be accurate and valuable, you can build a long-term relationship built on trust.

Community-based

Musician fan clubs and online salons fall into the community-based services category. These types of businesses bring together people with common goals and interests to engage with each other.

Members typically receive exclusive benefits and information, connect with other fans, and participate in special events. For a service like this to be sustainable, it can require a certain number of members. Ensuring you get the right number of members can also help you to have an active community.

People-based

People-based is a type of service that provides direct support from employees with specialised knowledge. Specific examples include personal trainers at health clubs, private tutors at cram schools, and coaches and consultants who support career development and business success.

In this business model, the quality and skills of the service provider are important to success.

Member services billing method

There are two main methods of billing for member services. Business owners should choose the billing method that best suits their services.

Pay-per-use

With the pay-per-use, or pay-as-you-go, billing method, members pay for a service as they use it. This method is highly flexible and aimed at light users who do not intend to use services continuously. Specific examples include a one-time film rental, the drop-in use of a coworking space, and a one-time online course.

For business owners, revenue varies depending on the frequency of the services’ use.

Recurring billing

Recurring billing is a method with which users pay a fee at regular intervals. It is generally a good fit for heavy users who use services on a continuous basis. Typical examples include gyms, “Autoship & Save”-style subscriptions, and video or music distribution platforms.

The steady revenue generated from regular services tends to make business forecasting easier. This payment method is therefore more stable for businesses than pay-per-use.

Advantages of a membership-based business

There are many benefits to a membership-based business. Here are just a few of the key benefits for business owners.

Stable earnings

Subscription-based businesses that generate recurring revenue are easier to run because you can expect a steady stream of income. As a large number of users continue to use the service over a long period of time, the lifetime value of a customer (LTV) increases, which can translate to increased revenue and profits, and have a significant impact on business growth.

Improved customer satisfaction

Users receiving members-only benefits and services tend to feel more connected to a brand. The member services model also increases communication opportunities between you and the customer, making it easier to build relationships and increase trust.

Collection and analysis of customer data

You can collect data about members’ usage histories and preferences, and use that data for marketing purposes. This makes it easier to develop services and products that meet customer needs.

Disadvantages of a membership-based business

There are also some disadvantages to membership-based businesses that can be helpful to understand before starting one.

Cost of acquiring new members

The cost of acquiring new customers in a membership-based business is high due to the marketing costs involved. Getting customers to agree to sign up is also a big hurdle to overcome.

Cancellation risk

In a membership-based business, customer cancellations lead directly to a decrease in revenue; if the cancellation rate is high, it becomes a serious problem for the company. It is therefore important to try to prevent customers from cancelling their subscriptions. You can do things such as offer trendy products and consistently update the content of your services.

Too many services

That said, if you offer too many benefits and discounts to increase membership, your costs can spiral out of control, eating away at your profits. As users become accustomed to a wide range of services, they might develop expectations that cannot be met, resulting in decreased satisfaction and cancelled subscriptions.

How to establish a membership-based business

Select your services

Before starting your business, consider specific details, such as the types of services you will offer and the benefits that might keep members happy. Examples of benefits include discounted pricing, promotions, loyalty programmes, exclusive content, and special events.

Create a customer persona

It can be helpful to create a persona to determine the type of customer you are targeting. Analyse who is likely to become a member by assuming things like gender, age, educational background, annual income, occupation, lifestyle, values, and behavioural patterns.

Choose a billing method

The content of your member services should determine whether you charge on a per-use or recurring basis. If the service is used infrequently or only once, it makes sense to bill for the service on a per-use basis, but if it is a service that customers want to use continuously, it should be billed on a recurring basis. For services that combine monthly subscriptions and one-time purchases, it is common to use both billing methods. In any case, it is a good idea to choose the billing method that best suits the content of the service.

Pick a platform

Implement a membership payment system so you can manage members and track billing and usage. If you have a small number of members, you might be able to handle things manually, but to minimise human error and be prepared for when membership grows, you should try to automate things from the start.

There are several platforms to choose from, but Stripe is a payment system that has the features necessary for membership-based businesses. In particular, Stripe Billing is useful for recurring billing services, because it can automate different billing cycles, handling both monthly and annual fees. It also supports a wide range of payment methods, so you can expand your business globally.

Attract customers through marketing

Advertising is important for member services, especially for attracting new members. You’ll want to use effective means of marketing, such as your company’s social networking sites, listing ads, and email marketing.

The keys to success in a membership-based business

Ensure appropriate pricing

The price of products and services is a very important factor that directly affects customer satisfaction, retention, and revenue. Conduct market research and set price ranges that will ensure profits, taking into account your competitors’ prices and the cost of providing services.

Provide high-quality service

Providing a quality service is important to keep members using that service. Differentiate members from general customers by planning members-only events, providing special content and services, and so forth.

Conduct efficient member management

Analyse member demographics, frequency of use, etc., and send reminder emails to customers who use your service infrequently. Be sure to perform thorough member management to build long-term relationships.

Examples of successful membership-based businesses

Below are some specific examples of membership-based businesses that have been successful in Japan.

Rakuten

Rakuten Group offers a wide range of services including Rakuten Ichiba – one of Japan’s largest e-commerce malls – Rakuten Travel, Rakuten Bank, Rakuten Card, Rakuten Mobile, Rakuten Securities, and Rakuten Rebates, and membership with the company comes with various benefits.

When someone becomes a Rakuten member, they are issued a single login that they can use to access the various services listed above. Anyone can use Rakuten’s services – not just Rakuten members – but by becoming a member, a shopper can earn more Rakuten points and participate in various promotions.

Rakuten has succeeded due in part to its user experience, allowing customers to use multiple services with a single login. In addition, Rakuten has introduced members-only benefits which have been able to increase its number of repeat customers.

Amazon Prime

Amazon Prime is a subscription-based business model that allows customers to choose an annual or monthly plan. Customers can access digital benefits, such as free or expedited shipping, videos, music, and e-books, at no additional cost.

One of the keys to Amazon’s success is that it offers multiple services at a fixed price that covers a wide range of customer lifestyles. Also, by getting people to sign up as members, Amazon has increased the frequency of purchases on its site.

Tsutaya Books

Tsutaya Books is a large retail store that sells books, stationery, sundries, and games, and also rents and sells music and video software.

To rent from Tsutaya, a person must first register as a member. There are also services that allow members to watch videos and rent DVDs and comics as much as they want for a fixed fee.

Part of this company’s success is due to members having the ability to enjoy services and products, such as comic books, that are closely linked to Japan’s unique culture. Members can also collect points with their purchases, which tends to keep them coming back to the store.

Costco

Costco is a membership-based supermarket that lets customers buy large quantities of products at a discount, either in the company’s warehouse-style stores or online.

Costco’s greatest strength is its unique low-price strategy, which offers cost-effective pricing on bulk goods for a membership fee. The company also has a customer-friendly return policy that allows members to return items without a receipt if they are not satisfied with their purchased products, and not just if the products are defective.

Overall, Costco seems to have positioned itself well with low wholesale product prices, quality service, and proper management.

Netflix

Netflix is a subscription-based business model that specialises in video distribution. It is a member service that provides unlimited access to films, television shows, and more for a fixed fee.

The company has differentiated itself from others by creating original works and providing content that can only be viewed on its platform. The business also focuses on global development by broadcasting things like Japanese anime and dramas in other countries.

Membership-based businesses: A summary

Membership-based businesses are gaining attention as business models that build long-term customer relationships and stabilise revenue. But starting a membership-based business doesn’t necessarily mean you’ll be successful. The key to success is to add value to your company’s services and increase member satisfaction.

To keep customers coming back, you also need to understand their needs, deliver a personalised experience, and regularly update service content. Remember to develop services that meet (and hopefully exceed) customer expectations to fully explore the possibilities of a membership-based business and find success.