Jim’s response to Robbie Kellman Baxter… Below is an email response I sent to Robbie Kellman Baxter. Robbie is a bestselling author of The Membership Economy and, her newest book, The Forever Transaction. I have read and studied both her books extensively. If your goal is to learn more about the opportunities of membership and how to create a membership business, then her two books are the very first ones you should start with.
It’s important to point out that Robbie gave me the okay to publish this part of our email exchange and that she may not agree with everything in my response. She also said I was a little too harsh in my criticism of Netflix. Maybe, but I will let you decide for yourself.
For over four years, our company has been trying to figure out how to make a membership model work for our industry, which is the out-of-home entertainment (bowling centers, entertainment venues, movie theaters, fun centers, arcades, go-karts, trampoline parks, laser tag, etc.) and more specifically our own entertainment venues, which include large, multi-level LASERTRON arenas, Cyber Sport, Arcade, Food and Bar, and eventually a few other key services that we think will make our venues much more resilient and, hopefully, even antifragile in the markets we operate. We are also a manufacturer of LASERTRON laser tag equipment and arenas, and we develop management and operational software for our industry.
Since we are a software developer, we created our own proprietary membership and recurring payment software. This was necessary because the guest value received has to be integrated into the point of sale software in order to keep track of the value used throughout our entertainment venue. This is also a critical feature for our clients who use our Center Manager Pro software. To be honest, the software has been the easy part.
The one thing that took us too long to figure out was that the word “membership” was a huge roadblock to generating recurring revenue.
As an example, our guests were much more concerned about cancelling their monthly membership than using the great value that came with their player cards. Most people really don’t like monthly, recurring charges on their credit cards – no matter how significant the value.
I personally stopped going to a car wash that went from pay as you go to 100% membership with a credit card required. I didn’t want to get hooked into the membership trap, because number one – I didn’t go to the car wash very often, and number two – I didn’t want to deal with the cancellation process, which I knew would require me to call a person whose main goal was to keep me from cancelling my membership. I knew I wasn’t going to get enough of a benefit – so I figured out how to make room in my garage for my car and now I rarely get my car washed.
Once we realized the idea and, more specifically, the word “membership” was a huge negative, we eliminated the word membership from all of our offers and promotional copy. We also went through a very long and iterative process of testing all kinds of monthly and extended offers.
We have tested well over 100 offers and pricing variations – some offers only lasted a single day due to immediate negative feedback. Our signage in our lobby is digital and we have in-house design capabilities so it was easy for us to change our offers quickly. Our current two offers are below (but we used to have as many as six options that our guests could choose from):
1. $25 for our 1-Month player card (no credit card required and the player card auto-ends after one month)
2. $20 per month for our 2-Month player card (credit card required, guest can cancel any time after 40 days, and if a player doesn’t play in their second or future months, the monthly auto-renewal stops)
We also have a monthly, recurring player card guarantee. After a new monthly payment is made, if a guest doesn’t use their recurring, monthly player card at least one time during their new month, the software automatically adds $20 onto their player card and the auto-renewal stops. The $20 value we put on their player card never expires and can be used to purchase anything within our center the next time they return. I think it’s interesting to point out that this feature would put a significant number of gyms and fitness centers out of business and probably many other types of membership/subscription businesses. Gyms and fitness centers rely too heavily on their guests not showing up AND they need to continue to charge their non-user members to make a profit. What we developed is a very customer centric feature and yet how many membership/subscription businesses have implemented something similar?
It took us a while to figure out and understand all the pros and many cons of offering recurring memberships or subscriptions from our guests’ perspective. Unlike most membership and subscription businesses, we no longer continue to take money from our guests unless they actually use the value they purchased from us every month. And, if they don’t use the value we sold them, we give them the opportunity to use the value on a future visit and, most importantly, we stop charging them for a service they are not currently using.
Unfortunately, there are many companies that continue to give memberships and subscriptions a bad reputation. Even supposedly good companies, like Netflix, still charge their non-user customers for 12 months before stopping their credit card charges for providing zero value – how nice of them.
As you know, this is a new thing for Netflix, but isn’t Netflix still a thief for 12 months before they finally stop stealing money from their non-users?
Netflix promoted their decision to only steal from their customers for 12 months as a good and ethical business practice and even received positive press about it. So what were they doing before this decision? They simply continued to steal from their non-using subscribers month after month after month – forever!
The vast majority of gyms and fitness centers continue to steal from their non-using members. I guess we could call this the “The Steal Forever Transaction.” In fact, for most gyms and fitness centers, their business model only works if a significant portion of their customers don’t show up. Car Washes, Satellite Radio, Music subscriptions, and many others do the same (i.e. charge their non-user customers forever even when they never use their services).
Is it any wonder why most people HATE the idea of being required to sign up for a membership that they have to figure out how to cancel or they fear they will forget to cancel after the first month or after their free trial expires?
By the way, I’m a Netflix subscriber and our family really likes the value we receive from it, but that doesn’t mean Netflix is a company that doesn’t still screw a percentage of their customers knowingly. Yes ‘buyer beware’, but Netflix can easily fix their current unethical ongoing practice of stealing from their non-user customers for 12 months in the blink of an eye and yet they don’t do it – why? If it’s a meaningless amount of revenue, then why don’t they just do it? My guess is that the 12-month window of stealing from non-users is probably not a meaningless revenue stream, which means they are going to continue to be a thief for financial reasons. I suspect there are a few additional reasons for the 12 month window – such as the eventual release of a new season of TV shows, etc. So, instead of charging for the one month binge of House of Cards, they charge their customers for another 11 months.
When we started our membership program at our entertainment venue we copied what other existing membership businesses were doing. However, the more we learned about the dark side of memberships and especially recurring payments and how many of the most successful membership and subscription businesses trapped their customers, the more we worked on figuring out ways to modify our offers to be 100% aligned with serving our guests – including not charging non-user guests because they were unable to use or simply forgot to cancel their memberships.
I think it’s important to point out that we don’t push our 2-month recurring option. We just present our two offers and let our guests decide what works best for them.
Why don’t we try to sell our 2-month recurring option?
We realized our goal was NOT to sell memberships or recurring payment options. Instead, our goal was to create amazing entertainment experiences that our guests enjoyed so much that they wanted to come back again and again (i.e. “Forever Relationship”). In addition, if we did our job of providing our guest with great experiences, our second goal was to help them bring back even more of their friends and family on their next visit.
If our guests do make the decision to purchase our 2-month recurring option, which requires a credit card, then that is a great sign that we achieved our goal since they just want a convenient, no hassle way to experience what they love month after month!
We identified an interesting datapoint that helped us to understand that selling memberships was actually producing negative guest outcomes.
The offers we promoted strongly in the beginning were our monthly, recurring Memberships. These offers required a credit card and if a guest wanted to cancel, they had to go online to do it. It wasn’t difficult to cancel their membership and we never tried to convince them not to cancel, and yet, we were surprised how a small friction point (cancelling their membership) really pissed off some of our guests.
I think a lot of the negative reaction was because these guests were abused by other membership programs. One of the other common problems was that our guests just forgot about the automatic recurring monthly charges. That’s why we kept tweaking our software and finally added the software function that quickly auto-cancels any guest’s monthly, recurring player card when they don’t use it at least one time during any new recurring month.
It’s important to point out that our past monthly Membership offers had way more value than what we are currently offering. In fact, our lowest monthly membership was only $15 dollars, $10 less expensive than our current $25 dollar monthly option which requires no credit card and auto-expires, and was $5 less than our current $20 dollar 2-Month recurring option.
Here’s the interesting datapoint, the people who purchased our less expensive $15 dollar monthly membership only came back 10% of the time for at least one more visit. Whereas, the people who purchase our current 1-month option (no credit card required and auto-expires) come back 45% of the time for at least one more visit. A 450% improvement. What we realized was that when we were selling memberships, our guests were much more concerned about cancelling their monthly recurring membership than actually using the great value they purchased for a full month.
In addition, it’s important to point out that when a guest or group of guests come back to play, they often bring a new person with them about 25% of the time. These new guests then purchase their own monthly or 2-month player card. It’s important to note that these newly purchased player cards extend out beyond the expiration of their friend or family member’s player card, which means these new players may come back to play again and are likely to invite the same friends and family members who invited them and possibly one new friend or family member. These return visits often require one or more friends and family members to reactivate their player card for another month. For convenience, our guests can opt for our 2-month auto-renew option when visiting our venue becomes a monthly habit.
The epiphany for us was realizing our low friction monthly options were one of many tools we needed to help our guests increase the frequency of getting together with their friends and family to have fun and socialize at our venues. Our ultimate purpose or “forever promise” is to achieve the following,
To help our guests connect with Friends & Family more often at an affordable price
To play, laugh, eat, drink, socialize, live healthier, and be happier more often
In a friendly & safe environment.
I listened to another one of your Podcasts with Gina Bianchini and I thought it was great. Wow does she project an amazing amount of energy!
I think the main thing that sticks out the most from both Gina Bianchini’s and Mike Blank’s podcasts with you was that the conversations almost exclusively focused on the customer, player, or guest experience. Very little of the conversations had anything to do with membership or subscription.
To me, memberships or subscriptions are just payment methods and have little to do with creating an ongoing, long-term, forever relationship. I think most businesses fail to recognize that the ongoing improvement of the product, service, or overall customer/guest experience is what matters most.
I think the key, which you point out in both of your books, is creating products, services, and a community that our customers or guests not only want to be a part of, but need to be a part of forever. Only when we achieve this optimal product, service, and ongoing relationship fit can we legitimately offer our customers or guests the convenience of using a recurring payment method.
I think your second book did an even better job of focusing on the idea that it’s the ongoing products, services, as well as creating a community that really matters to our customers and guests. If you decide to do another book, it would be great if you went deeper and provided more detailed examples of how products, services, and a community are iteratively developed AND ultimately enable us to provide our guests with a “forever promise” that works for them today, tomorrow, and hopefully forever.
You were definitely ahead of the curve when it came to figuring out this new way of doing business. In fact, when I originally started digging into the idea of creating a membership option for our entertainment venues, your first book was the only book I could find about membership.
What kills me is that it took me so long to understand that the focus had to be 99.9% on creating the best attractions, services, and a community or “Third Place” that our guests would love and want to experience forever. A place that creates a forever habit of our guests coming back with their friends and family again and again.
By the way, the average out-of-home entertainment center is only visited a few times per year. The average movie theater guest only goes to the movies 3 to 5 times per year. This lack of visits is what triggered our quest to figure out how to provide our guests with such a great experience that they would visit our venues on a monthly basis instead of just a few times per year. We aren’t exactly there yet, but we are making more and more progress everyday.
Due to the ongoing pandemic and the more devastating digital streaming services like Netflix, Disney+, and many others, the out-of-home movie theater industry is likely to shrink by 50% and maybe even more. The same goes for the overall out-of-home entertainment industry, but hopefully not as bad. Understanding how to build the best out-of-home venues, and all that goes with it, is critical to our industry’s survival and future success.
Sorry for the long response, but I use writing to think and once I get going… well I think you see my point.
Again for a second time, thanks for doing what you do!!!