Does It Make Any Sense to Turn Your Business Into a Club?

“Dear fellow artists, why so free / With every sort of company, / With every Jack and Jill? / Choose your companions from the best; / Who draws the bucket with the rest / Soon topples down the hill.” – William Butler Yeats

I was hoping it would never happen, but it did. And now that it’s happened, I am glad. Because it’s given me a good idea.

I got a letter from AARP (the American Association of Retired People) today inviting me to join. They said their “records show” that I hadn’t “registered for the benefits of AARP membership,” even though I am “fully eligible.”

Registering is easy. All you have to do is fill out your date of birth and send them a check: $12.50 for a year, $21 for two years, or $29.50 for three years. The benefits? “The resources and information you need to get the most out of life over 50.”

Specifically, you get a bimonthly magazine on health, fitness, food, money, travel, etc., an AARP Bulletin that “keeps you informed on current legislation and issues that affect you most,” free health guides, travel discounts, a low-interest credit card, and lots of insurance offers.

AARP might be one of the most successful direct-mail operations in existence.

Founded by retired high school principal Dr. Ethel Percy Andrus in 1958, it evolved from Andrus’s National Retired Teachers Association, which helped its members get health insurance in the days before Medicare. So many non-teachers contacted the group that Andrus decided to change its name and open it to all older Americans.

Today, with 35 million members and counting, AARP claims nearly half the 50+ U.S. population in its membership. Retirement is not a requirement for joining. In fact, the organization says that 44 percent of its members work full- or part-time.

Shira Linden of WebProNews notes that AARP has recently moved away from a mass approach to member acquisition, and has also adopted a more targeted approach to marketing its products to members. Instead of using the same standard direct-mail packages (which attempted to appeal to everyone), they are taking a segmented line of attack. The organization has started testing and tweaking products, offers, topics, and language in an effort to better reach specific groups, such as new or longtime members, the 50 to 59 population and other age groups, and others that they consider to be distinct markets.

In preparation for the baby boomer boom, AARP is trying to shake off its old, stodgy image. Chief Brand Director Emilio Pardo calls his company “an organization for vigorous working people,” not old timers on the shuffleboard court.

Changes include a revamped logo, a blog, and the centerpiece: a $100 million+ ad campaign, including TV ads with a punk rock soundtrack that are geared partly toward baby boomers and partly toward the next generation of prospective members, those currently in their 30s and 40s.

I am sure the membership fees don’t begin to cover the cost of the marketing, let alone the fulfillment of AARP’s benefits (mostly publications).

AARP The Magazine has – at 22.5 million subscribers – the largest circulation of any U.S.-based magazine. Full-page, four-color ads cost nearly $450,000. Advertising revenues are great, but, according to AARP’s 2005 Annual Report, the cost to produce and send out AARP The Magazine,as well as secondary publications, to members was $165 million, with only 65 percent covered by advertising.

The real money for AARP comes from the fees and/or commissions they get by introducing members to various insurance and annuity programs. At $379 million, the 2005 Annual Report lists royalties and service provider management fees as its top revenue source, followed by membership dues at $229 million.

The bottom line: AARP is a very successful business that works because its customers perceive it to be a friendly, benefit-oriented club.

What’s So Good About Clubs?

I like clubs. In fourth grade, I started the He-Man-Women-Haters club, which provided mostly moral benefits for the boys who joined (at a nickel apiece). A few years later, I was able to get a dollar a year from boys who wanted to join my Junior Police Club. In high school, I was president of a fraternity (gang/social club) that raised money not just through monthly membership fees but also with illegal door-to-door raffles.

Those early experiences taught me a valuable lesson about the psychological benefits a club can offer:

1. Fraternity: the camaraderie of like-minded people
2. Purpose: the sense that, by merely being a member, you are advancing a good cause
3. Status: the immediate social standing conferred by acceptance into a limited group

As a marketer, I incorporated those deeper benefits into the many clubs I started as businesses, including several that ended up servicing tens of thousands of members and generating revenues of tens of millions of dollars per year.

Direct marketer Edward Nash and David Frey, a marketing consultant, know the power of what I did. Nash, author of Database Marketing: The Ultimate Marketing Tool, says that “there is a sense of recognition [with club memberships that] reinforces the customer’s relationship with the company and makes them feel special.”

Along similar lines, Frey wrote in Business Know-How (a small business-advice website and newsletter) about his wife’s reluctance to close a bank account she hadn’t used in years because she was a “charter member” of the bank. She was paying fees for services she wasn’t using because, said Frey, “belonging” made her feel appreciated on a deep level.

Certainly, before a club can work, all the benefits extended to its members have to pay off. Arthur Hughes, in Strategic Database Marketing, says the first step is to calculate the lifetime value of each customer to figure out if what you’re spending on maintaining a database, mailing out letters, and sending e-mails will bring in enough sales.

Once you’ve taken those issues into account, turning your ongoing business into a club can have substantial economic benefits. For example:

• Upfront marketing can be easier and more effective because of the perceived added value of membership.
• Repurchases should increase because of customer loyalty.
• Higher-end ancillary products can be introduced as part of an upper-echelon level of membership by taking advantage of the customers’ desires to rise up the club’s hierarchy.
• Membership fees can create an additional source of revenue.
• Endorsement opportunities for related and ancillary products can be significant. (Customers are more likely to buy an advertised product if their club recommends it.)
• Membership renewals (including lifetime renewals) can provide a predictable and substantial stream of revenue.
• Referrals can create extra business.

The bottom line: A club can mean more new customers and more money from existing customers.

There are two things to consider when looking at turning your business into a club: Should your business make that change… and, if so, how could you actually do it?

Here’s an example of a club you could start: a restaurant with a VIP diners’ club that offers members exclusive invitations to a monthly dinner and wine tasting featuring exciting new recipes.

You’d offer a fixed-price menu for $75, although Gold Level members would pay only $50. You would invite only members of the club. And the head chef, sommelier, and restaurateur (you) would act as hosts for the evening. You could also offer a single VIP table on a particular weekday, which would help boost sales on a usually slow night. This exclusive table would garner interest as everybody else in the restaurant craned their necks, checking out the table and wondering what is going on.

The basic elements of a club that are at work in this example:

• Association with like-minded people

This is the fraternal aspect of the club. If you sell gourmet food, for example, it makes perfect sense for your customers to share their similar interests with each other. You reinforce this camaraderie with a forum for your members to keep in contact.

• A sense of social advancement

Clubs provide a sense of exclusivity, a sense that their members have more refined tastes than regular people. This only works if there is a natural way to provide a more sophisticated, not just more expensive, version of your product or service.

• Financial benefits

Your club members are presumably your best buyers. You already know that 20 percent of your buyers contribute 80 percent of your profits. So your club should cater to that 20 percent. Your back-end sales increase when you accommodate those frequent and loyal customers.

• Hierarchy

You can create different levels of exclusivity within your club. In other words, the more a club member is willing to spend, the higher level she can attain. (Think silver, gold, and platinum memberships.) You can create an incentive to move up in the club by setting up a visible hierarchy that is reinforced through well-advertised discounts for members at higher levels.

The type of club I’m talking about is a new kind of back-end product or service you can add on to your existing business. But, sometimes, it is possible to convert your whole business into a club. And in that case, all the same rules apply. You have to create the sense that you’re appealing to like-minded people, that you’re going to give members privileges regular people don’t ordinarily get, and that you’re raising their social status in some way.

Turning your business into a club could forge stronger – and more profitable – relationships between you and your customers. How can you start changing your business into a club?

[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]