When customers are members: Customer retention in · PDF fileWhen Customers Are Members: Customer Retention in Paid Membership Contexts C. B. Bhattacharya Emory University This article

When Customers Are Members: Customer Retention in Paid Membership Contexts

C. B. Bhattacharya Emory University

This article seeks to gain an understanding of how members' characteristics relate to lapsing behavior in paid membership contexts. Literatures such as social identity theory are used to propose hypotheses that are tested using a hazard rate model on archival data pertaining to 7, 798 members of an art museum. The results indicate that the hazard of lapsing is lowered with increasing duration, participation in special interest groups whose goals are related to those of the focal organization, gift frequency, and increasing interrenewal times. Conversely, members who have downgraded their membership level in the past, those who have participated in special interest groups whose goals are unrelated to those of the focal organization, and those who received their membership as a gift are more likely to lapse.

INTRODUCTION

Among the many marketing tools that have witnessed proliferation in recent years, "membership programs" oc- cupy a prime position. According to one survey, the top 50 organizations that sell individual memberships represent some 165 million people ("ASAE's Top 100" 1994). Not unlike most other marketing contexts, one of the major challenges faced by managers of membership programs is member retention. A variety of articles in the trade press have emphasized that renewal is less costly than acquisition (see, e.g., Benjamin 1993; Pritchard 1991) and sub- sequently have appealed for models that will aid managers with the retention task. Similar motivation also comes from academic research that has applauded the benefits of

Journal of the Academy of Marketing Science. Volume 26, No. 1, pages 31.44. Copyright �9 1998 by Academy of Marketing Science.

improved customer retention and its impact on the bottom line: some studies show that, on average, retaining existing customers is 6 times less expensive than acquiring new ones (Rosenberg and Czepiel 1984), and reducing customer defections by as little as 5 percent can, in some circumstances, double profits (Reichheld 1996).

Broadly speaking, the membership renewal decision in the case of paid memberships falls under the rubric of repeat buying. Traditionally, research on repeat buying has almost exclusively focused on the context of brand choice (e.g., Cunningham 1956; Ehrenberg 1988; Fader and Schmittlein 1993; Raj 1985). More recently, the increased importance accorded to customer retention has prompted researchers to understand the linkages between satisfaction, retention and market share (Rust and Zahorik 1993), drivers of loyalty in continuous service providers such as cellular phones (e.g., Bolton 1996), the impact of service quality on behavioral intentions (Zeithaml, Berry, and Parasuraman 1996), and disadoption in subscription services (e.g., Lemon and Winer 1996). But no attempt has yet been made to understand renewal ofpaid memberships. My goal in this article is to initiate such an understanding by looking at lapsing behavior.

Paid memberships consist of two types: (i) access-- membership is required to obtain access to the organization's goods (e.g., American Automobile Association, the Citibank AAdvantage program), and (ii) full-choice---the good or service is available to the customer regardless of whether she or he is a member (e.g., YMCAs, art museums) (Gruen and Ferguson 1994). A further distinction within paid memberships is whether the organization is for profit (e.g., as in Sam's club) or nonprofit (e.g., professional associations such as the American Marketing Asso- ciation). I believe that the study of renewals in paid memberships, particularly in nonprofit contexts, has the potential to enlarge the reach of research on customer retention because such memberships, although similar in many respects to the brand choice and service organization

32 JOURNAL OF THE ACADEMY OF MARKETING SCIENCE WINTER 1998

contexts studied to date, are different in some important respects.

First, paid memberships in nonprofit contexts provide structural opportunities for members to help the organization. Unlike traditional settings studied in the repeat-buying and customer retention literatures where the consumer merely purchases products/services and disciplines firms through exit or voice (complaints), members can help the organization by volunteering time and gifting money to support the mission of the organization. For instance, alumni association members often volunteer their time to recruit new students, and members of the American Asso- ciation of Retired Persons donate money to support the cause of the elderly.

Second, unlike traditional settings, such paid memberships also enable individuals to participate in special interest groups (e.g., the College of Marketing as a part of INFORMS). Taken together, these aspects of paid membership in nonprofit organizations suggest that although traditional notions of utility maximization, use of the organization's services, and satisfaction are no doubt rele- vant, such memberships are often characterized by greater "affiliation" with the organization. As a result, tenets of organizational identification (Bhattacharya, Rao, and Glynn 1995), role identity (Turner 1982), the extended self (Belk 1988), and the opportunity to develop social networks (e.g., Stryker 1980) may be likely to affect the decision to pay membership fees to a much greater extent than has heretofore been studied in marketing.

Indeed, the relationship between the member and the organization becomes especially crucial in the case of full-choice memberships because individuals choose to construct a formal relationship with the organization even when they have the opportunity to enjoy the product or service without such a relationship. Consequently, "product considerations," that are likely to substantially influence the renewal of paid access memberships, may be less important in the renewal of paid, full-choice memberships in organizations such as art museums or orchestra sub- scriber groups. Conversely, for the organization, members constitute an important, stable source of revenue.

Despite the popularity of paid membership programs, research in this area is surprisingly sparse and has mostly been confined to the development of taxonomies (see, e.g., Cross 1992; Gruen and Ferguson 1994; Levin 1993; Lovelock 1983). To my knowledge, the only empirical study in marketing so far has been conducted by Bhat- tacharya et al. (1995) who conducted a survey of art museum members to investigate the correlates of organizational identification. To date, there has been no reported study relating member characteristics to lapsing in paid membership contexts.

My goal in this article is modest--we seek to gain a better understanding of whether and how members' joining, affiliation, and helping characteristics relate to lapsing in paid, full-choice membership contexts. The research setting is an art museum and the data used to estimate the model are archival data that are readily available to membership managers in such organizations: duration of mem-

bership, level of membership, history of membership level changes, history of contributing behavior, and so on. These characteristics of members can be systematically related to the observed pattern of lapses. For example, are members who belong to higher price tiers less likely to lapse than members who belong to lower price tiers? Is lapsing duration dependent, that is, are longer standing members less likely to lapse?

If joining, affiliation, and helping characteristics are indeed related to lapsing behavior, membership managers striving to increase retention rates can work on making the organization a more central source of self-definition for its members. In light of the bleak financial future in terms of federal support for the arts (cf. Urice 1990), such analysis related to member retention is particularly critical for nonprofit organizations of the type I am studying in this article. In the next section, I propose the conceptual framework and hypotheses. Section 3 describes the research setting, the data, and estimation issues. I discuss the model findings in Section 4 and finish in Section 5 with implications of the findings and conclusions.

MEMBERSHIP AND RETENTION

Before delving into the specifics of the model, it is helpful to understand the distinctions between the general customer retention problem in services and the case of paid memberships in nonprofit organizations. In terms of the classification of service organizations proposed by Lovelock (1983), this study is concerned with services that are continually delivered and where individuals have a formal membership relationship with the organization. Membership programs offer the opportunity to create customer segments--this is often accomplished by estab- lishing different membership tiers and interest groups that allow members to give self-expression to their motives and perhaps develop social networks. Second, typically, the services provided by organizations such as museums and public broadcasting are categorized as intangible services that are directed at people's minds. Note that members of these organizations do not necessarily have to be physi- cally present to enjoy the service. Generally, these contexts are such that members' contact with the organization's personnel is fairly low. Third, paid membership programs typically have little room for customization and need- based judgment on the part of the contact personnel. In many of these organizations, an important part of the product experience is sharing the experience with other people. Finally, in terms of service delivery, depending on the motivations for membership, the customer could go to the organization o r he or she could transact at arm's length (e.g., a member could visit the zoo or be kept informed of its activities either via a Web site or the mail).

The above discussion illustrates that the motivations for membership in these types of organizations and the services members consume are quite different from the ones that researchers have studied thus far. To further exemplify the contrast, Hendon (1979) analyzed members of an art

Bhattacharya / WHEN CUSTOMERS ARE MEMBERS 33

museum (a full-choice membership context) and reported that a general interest in "supporting the arts" was the prime motivation for membership. Similarly, Bhattacharya et al. (1995) reported that art museum members feel a sense of "identification" and a sense of "prestige" from their affiliation with the organization. Glynn, Bhattacharya, and Rao (1996) observe how membership in cultural organizations is a means of acquiring "cultural capital." Overall, full-choice memberships and paid access memberships in nonprofit settings seem to be driven by a different set of motivations and are marked by a greater sense of affiliation and greater reciprocity between the member and the organization, compared to settings studied in the traditional services literature.

My model proposes that members' hazard of lapsing their membership with a focal organization is related to a set of joining, affiliation, and helping characteristics. Clearly, all of the affiliation characteristics and helping behaviors do not occur simultaneously: membership is a temporal process. Typically, based on a set of personal characteristics and motivations, an individual joins the membership program at a particular level. Over time, depending on his or her attitudes toward the various membership benefits, he or she may decide to join an interest group. Similarly, depending on his or her expectation levels and disconfirmation of such expectations, he or she may decide to change his or her membership level (i.e., upgrade or downgrade), gift money, and/or time to the organization. The length of time for which one has been a member provides an indication of the base level of satisfaction with the membership.

Embedded in the model is the notion that membership is an important aspect of an individual's social identity (Tajfel and Turner 1985). Social identification is the per- ception of belongingness to a group (i.e., I am a member). Organizational identification is a specific form of social identification where the individual defines himself or herself in terms of membership in a particular organization (Mael and Ashforth 1992). In general, stronger identification levels with the focal organization will be indicated through a lower hazard of lapsing.

Figure 1 provides a diagrammatic illustration of the model. I model two joining characteristics--whether the membership was received as a gift and whether there is a professional association between the member and the organization. Affiliation characteristics include the level of membership, changes in membership level, participation in special interest groups, length of membership, and interrenewal time. Finally, helping behaviors include gifting and volunteering.

At every renewal opportunity for each member, we observe whether the membership is renewed or lapsed. If a membership is renewed, the history of the membership gets updated by the activities undertaken by the member till the next renewal opportunity--this process continues until we come to the end of our observation window. By the end of the observation window, some of the members will have lapsed and others will have continued to be members. Thus, the model relates the hazard of members

lapsing their membership to their profile in terms of the joining characteristics, affiliation characteristics, and helping behaviors.

Note that there are other factors such as the utilization of services and lifestyle of members that may also impact lapsing behavior but are not included in our model because they are either not key drivers of renewal in this context or they are factors largely beyond the control of the organization. Hendon's (1979) analysis of lapsed art museum members suggests that some of the major reasons for falling to renew include moving out of town, being too busy with other things, and locational disadvantage of the facilities----essentially factors that are beyond the control of the organization's management. To assess the situation firsthand, I interviewed current and lapsed members of the museum to assess the role of utilization and lifestyle events as antecedents of lapsing. My interviews with current members revealed that many of them did not use the tangible benefits such as "free admission" and "gift shop discount" and, more important, did not view the utilization of these benefits as necessary conditions for renewing their membership. My interviews with lapsed members verified that lifestyle events such as job changes, marriage, and buying a house often precipitated lapses---events that are beyond the organization's control.

In the following sections, I discuss how each of the factors in our conceptual framework relates to lapsing behavior.

Received membership as a gift. Attitudes toward membership benefits, expectations of the organization, and commitment toward the organization may all vary between members who join the museum of their own volition and those who receive membership as a gift. Individuals who join of their own accord have clearly self-selected themselves into membership and thereby revealed a base level of affinity for the "product" surrounding the membership. On the other hand, Sherry, McGrath, and Levy (1993) suggest that intangible gifts (such as memberships) are more appropriate for nonsignificant others so that they disappear rather than linger in the recipient's life. If this is indeed the context in which memberships are gifted, the chances of the recipient renewing his or her membership to keep the memory of the gift alive (Kleine, Kleine, and Allen 1995) is remote. For the membership to be kept alive, the gift requires an incorporation into the self of the recipient, and this may or may not happen depending on the characteristics of the (recipient) member. Thus,

Hypothesis 1: All else being equal, members who receive their membership in the focal organization as a gift will have a higher hazard of lapsing their membership than members who do not receive their membership as a gift.

Professional association. An individual characteristic that may influence lapsing behavior is whether the member also shares professional interests with the organization. For example, the attitudes toward the benefits offered by a symphony, and the subsequent evaluation of outcomes,


FIGURE 1 Factors Affecting Lapsing

eristics

I : Membership Received as GiR (+) I

Affiliation Characteristics

�9 Membership Level (-) �9 Changes in Membership Level

�9 Upgrade (-) �9 Downgrade (+)

Interest Group Membership �9 Related (-)

�9 Unrelated (N.S.) Membership Length (-)

�9 Inter-renewal Time (+) I

Helping Behaviors

�9 Gifting (-) �9 Volunteering (-)

I Hazard /

Lalfsing /

may be different if the member is also a musician. Organi- zational identification researchers (e.g., Dutton, Dukerich, and Harquail 1994; Mael and Ashforth 1992) have observed that the higher the overlap between the identity of the member and that of the organization, and the more effective the organization as a source of self-definition for a member, the higher the member's loyalty toward an organization. Moreover, the professional linkage may also enable a member to better use the organization's offerings and to network with fellow members of similar stature. Thus,

Hypothesis 2: All else being equal, members who share a professional association with the focal organization will have a lower hazard of lapsing their membership than members who do not share a professional association.

Current level of affiliation. A number of alternative reasons may underlie why members join an organization at different levels. These may range from simple af- fordability or cost-benefit analysis to a need for visibility or prestige, motivations for developing social networks, or even different levels of identification with the focal organization. If membership tier is indeed a surrogate for one's identification level, then I expect that higher level members, who view the organizations to be more effective sources of self-definition, would be less likely to lapse than lower level members. Along similar lines, Dutton et al. (1994) argue that when people are visibly associated with an organization, they are more frequently reminded of their membership. Their argument is based on the notion that by serving as vivid reminders of membership, visible affiliations increase the effectiveness of the organization as a source of self-definition. For example, in cultural organi-


zations, higher category members (e.g., patrons) have their names published in the museum's brochures and have exclusive events organized solely for their benefit. This line of thinking also suggests that individuals who have self-selected themselves into higher levels of membership would be less likely to lapse their membership.

Hypothesis 3: All else being equal, members who belong to higher categories of membership in the focal organization will have a lower hazard of lapsing their membership compared to members who belong to the lowest category of membership.

Change in membership level. In tiered membership organizations, members may renew either at the same level or at higher (i.e., upgrade) or lower (i.e., downgrade) tiers. These level changes are essentially triggered by members' satisfaction/dissatisfaction either with the organization or with their existing membership level. Organizational behavior researchers (e.g., Hail and Schneider 1972) have shown that satisfaction with the institution's contributions to the attainment of personal goals is associated with identification. Under the assumption that upgrades and downgrades are volitional (i.e., not driven by income changes), they could reflect changes in satisfaction with the organization as a source of self-definition. Thus, by moving into higher levels of membership, individuals indicate higher levels of satisfaction and/or identification and lower hazard of lapsing, and vice versa. More formally,

Hypothesis 4(a): All else being equal, upgrades in membership level will be negatively related to members' hazard of lapsing their membership with the focal organization.

Hypothesis 4(b): All else being equal, downgrades in membership level will be positively related to members' hazard of lapsing their membership with the focal organization.

Interest group participation. Belonging to a special interest group (SIG) within an organization is yet another affiliation characteristic that relates to membership renewal. Many membership organizations (e.g., the Ameri- can Marketing Association) have SIGs to which members can belong by paying extra fees. Conversely, however, the member cannot belong to the SIG without being a member of the focal organization. The decision to belong to a SIG is an indication of the member's attitudes toward the membership benefits--which, depending on the member, may reflect a desire to learn more about a particular domain or to develop specific social networks (Campbell and Wilson 1996). I believe that the goals and missions of the interest groups and their congruence with the member's identity play a crucial role in the decision to lapse one's membership. If the goal of the SIG is linked to the goal of the overall organization, then the interest group is also likely to be a source of the member's identification with the organization. Thus, in this instance, belonging to the SIG will diminish one's likelihood of lapsing his or her membership with the focal organization. If, on the other

hand, the goals of the SIG are divergent from that of the organization, the interest group will not act as an identification-fostering mechanism and the identification of these individuals will be no different from those who are not members of such interest groups. Therefore,

Hypothesis 5(a): All else being equal, members who participate in special interest groups that are closely linked to the organization's goals will have a lower hazard of lapsing their membership with the focal organization.

Hypothesis 5(b): All else being equal, the hazard of lapsing will be unrelated to members who participate in special interest groups that are not closely linked to the organization's goals.

Length of membership. This factor concerns the length of time an individual has been a member of an organization. A variety of reasons suggest that the hazard of lapsing will be negatively related to the time for which one has been a member. On one hand, the length of the relationship, in and of itself, may lead to inertia (Kelly and Thibault 1978) or status quo, which would lower the hazard of lapsing. More likely, however, the length of the relationship is a surrogate for satisfaction (Bolton 1996) or the value derived from membership. Bhattacharya et al. (1995) found that members' identification with the focal organization is positively related to membership length. Because higher levels of identification likely lower the hazard of lapsing, I would expect longer membership tenures to be associated with a lower hazard of lapsing as well. Beyond a point however, the "honeymoon period" of the membership is likely to be over and membership length is likely to decrease the hazard of lapsing at a diminishing rate.

Hypothesis 6: All else being equal, the length of membership in the focal organization will be negatively related, at a decreasing rate, to members' hazard of lapsing their membership with the focal organization.

Interrenewal time. Because membership organizations typically send multiple renewal notices (Herron 1997), the promptness with which the membership is renewed may be an indication of how certain the member is that he or she will renew his or her membership, which, in turn could stem from satisfaction with the organization. The literature that deals with measuring nonresponse bias in mail surveys (of. Dillman 1977) suggests that late respondents are more like nonrespondents. Extending this argument to the membership context would imply that late renewers are less com- mitted to the organization and thus more likely to lapse.

Hypothesis 7: All else being equal, members' interrenewal times will be positively related to the hazard of lapsing their membership with the focal organization.

Helping behaviors. Our notion of helping behavior is similar to that of Bendapudi, Singh, and Bendapudi (1996): behavior is deemed helping when it enhances the recipient's welfare. I choose to study two such behav-


iors--volunteering time and gifting money to the focal organization.

Support for the link between helping the focal organization and lapsing can be found in the consumer behavior, organizational behavior, and social psychology literatures. Once members have had a chance to experience their membership and compare the outcomes with their a priori expectations, evaluations of the organization and their experiences as a member lead to gifts of time and money. For instance, some members may help the organization because the organization falls short of their expectations and they want to play a role in raising the standards, whereas others may help the organization because they want to maintain the positive evaluation of their affiliation with the organization. In either case, a sense of identification with the organization increases the likelihood of such helping behaviors. O'Reilly and Chatman (1986) show significant linkages between identification and actions for which the individual receives no immediate reward and that benefit the larger organization. Similarly, Mael and Ashforth (1992) found that alumni donations are significantly related to their identification toward their alma mater.

Whatever the motive for helping the organization, the organizational behavior literature suggests that helping the organization is expected to increase a member's readiness to categorize and define herself as member of that particular social group (Dutton et al. 1994). As a member experiences greater contact with the organization--which would happen through gifts of time and money to the focal organization--the organization becomes a more important source of self-definition for the member. That is, gifts to the focal organization can serve as a way to extend the self (Belk 1988). Overall, the more important the organization for the self-definition of the member, the lower the hazard of lapsing.

Hypothesis 8: All else being equal, the number of gifts to the focal organization will be negatively related to members' hazard of lapsing their membership with the focal organization.

Hypothesis 9: All else being equal, members who volunteer with the focal organization will have a lower hazard of lapsing their membership compared to members who do not volunteer with the focal organization.

DATA AND METHODS

Research Site

The research site was the preeminent art museum of a major southeastern city. The museum currently has a membership base of 18,000, with several categories of membership, ranging from basic "individual" or "family" memberships ($40 and $50, respectively) to higher levels such as "contributing" ($100), and a variety of "patron" memberships ($200 to $5,000). These membership categories and the attached dollar amounts did not change

during the study period. Members receive standard benefits such as free admission to the museum, priority entrance to special exhibitions, subscriptions to the monthly Members Calendar (which gives advance notice of all exhibitions, lectures, gallery talks, films), and a 10 percent discount at the gift shop. In addition to these general membership benefits, higher level membership categories (e.g., patrons) receive additional free guest admission passes, free admission to museum parties and receptions, and recognition in the biennial report published by the museum.

Data

I used data developed from the museum archives to analyze the lapsing hazard of members. The data consist of membership episodes where the renewal opportunity pertaining to each member composes one episode. I have information on the day, month, and year of joining as member; whether membership was received as a gift; whether the member was an artist (our indicator of professional association); membership level; interest group participation; number of gifts given to the museum; volunteering activity; and the exact day, month, and year on which a member renewed and/or lapsed. My observation window started from January 1, 1989 (from a new member database management system started by the museum) and ended on December 31, 1994.

Given that I needed lagged data (i.e., data for the previous renewal opportunities) to construct some of our independent variables (e.g., interrenewal time, upgrade/downgrade), each episode began on the day the second renewal opportunity was exercised by a member and ended on the renewal opportunity on which a lapse took place or the observation window ended. If the member did not lapse during the observation window, the episode was treated as right-censored (Allison 1984) because the observation terminated before the event of interest occurred. A lapse was defined as the nonrenewal of membership by an individual member--this was the way in which a lapse was coded by the museum. Typically, the museum sent out renewal notices from the ninth month onward and treated a member as lapsed if the member did not renew within a month of the fourth renewal notice.

Note from the above description of the sample selection that the data excluded members who lapsed during their first renewal opportunity; I simply did not have enough of a history for these individuals to test my hypotheses. Moreover, I also excluded members who had joined the museum prior to January 1, 1989. Although I knew the date on which these individuals joined the museum, I did not know the level of membership, interest group affiliations, and gifting behaviors prior to the start of the observation window. Hence, including them in the sample may have potentially biased the model findings. A few cases where there were missing data on the exact start and ending dates were also excluded. The museum also coded certain members as "unknown," which were cases where the renewal notices came back to the museum undelivered by the post


office--I removed these observations as well. As a result of these filters, the final data set comprised 7,798 member episodes (pertaining to 4,632 members). Of these episodes, 2,504 were lapses.

Modeling Approach

Based on the preceding discussion, the hazard of a member lapsing (LAPSE) should depend on whether the membership was received as a gift (MEMGIFT), whether there was a professional association between the member and the organization--in this case, these were self-de- clared artists (ARTIST)--membership category (MEM- CAT), participation in interest groups related to the museum's mission (RIG), participation in interest groups unrelated to the museum (URIG), volunteering (VOL- UNTR), gift frequency (GFTFREQ), change from a lower to a higher membership category (UPGRADE), change from a higher to a lower membership category (DNGRADE), length of membership (LOGDUR), and interrenewal time (IRTIME). Hence, at a generic level, the hazard of lapsing can be expressed as follows:

LAPSE = f(MEMGIFT, ARTIST, MEMCAT, RIG, URIG, GFrFREQ, VOLUNTR, UPGRADE, DNGRADE, LOGDUR, IRTIME)

(1)

I used survival analysis techniques to investigate this general model. Survival analysis methods enable us to model the timing and occurrence of events in the social and natural sciences. Scholars in marketing have used survival analysis methods to analyze interpurchase times, the duration of customer relationships, and job duration (e.g., Bolton 1996; DuWors and Haines 1990; Gupta 1991; Helsen and Schmittlein 1993; Jain and Vilcassim 1991; Vilcassim and Jain 1991).

Dependent variable. My dependent variable was the hazard of lapsing defined as

lim Pr (t < T< t+ At l T> t) (2) e =At o

where (~) is the instantaneous probability of member i lapsing at time t and Pr(.) is the probability of an event between time t and t+At, given that the member is in the sample at risk at time t. Three caveats need to be kept in mind. First, although the hazard is customarily defined as the instantaneous probability of an event at time t, it is not really a probability because it can be greater than 1.0. But although the hazard has no upper bound, it cannot be less than 0. Second, because the hazard is defivfned in terms of a probability (which is never directly observed), it is in itself an unobservable quantity that is estimated from the data using maximum likelihood techniques. Finally, because the hazard is a dimensional quantity that has the form number of events per interval of time, the hazard is also sometimes called the rate. 1

Therefore, the hazard rate of lapsing from origin statej (i.e., being a member) to destination state k (i.e., lapsing) can be described as follows:

rjk(t) = exp[bjkAjk(t- 1)1. (3)

In the above equation, [3 is a vector of parameters and A is a vector of independent variables observed at time t - 1. In our case, all the independent variables were lagged by a year to ensure that we modeled the impact of the prior affiliation and helping characteristics of an individual member on the current renewal decision. As per the above formulation, the transition rates are postulated to be log- linear functions of the variables in A, which precludes negative predicted rates. I used a well-known package called TDA (Transitions Data Analysis) developed by Rohwer (1993) to estimate the model.

Independent variables. The hypothesized independent variables described in the previous section were operation- alized as follows. MEMGIFT, denoting whether the membership was received as a gift, was coded as a dummy variable (1 if membership was received as a gift). Simi- larly, ARTIST was also coded as a dummy variable (1 if the member was an artist). Five dummy variables (MEM- CAT1, MEMCAT2, MEMCAT3, MEMCAT4, MEM- CAT5) were created to define members' belongingness to different strata of membership (MEMCAT). Although the museum had nine categories of membership, I conducted MANOVAs (multivariate analyses of variance) among the other independent variables of the model, and the results suggested that we could collapse the top three "patron" categories into one tier. Beyond the statistical criteria for combining the top three patron categories, note also that in general, patrons are a fairly distinctive group---they receive additional free guest admission passes, free admission to museum parties and receptions, and recognition in the biennial report published by the museum. When operationalizing the membership tier variables, the individuals who had access to discounted memberships costing less than $40 were used as the reference category. Separate dummies were constructed for the $40 (MEMCAT1), $50 (MEMCAT2), $100 (MEMCAT3), $200 (MEMCAT4), and $500 and above range (MEMCAT5). Both UPGRADE and DNGRADE, the variables that signify whether the member had changed his or her membership level in the past, were measured through dummy variables (each was coded as 1 if level had changed in the respective directions).

Interest groups dedicated to arts and photography were deemed to be interest groups related to the museum's goals, and membership in these interest groups was measured by a dummy variable called RIG (1 if member belongs to RIG). An interest group called Young Careers was deemed to be unrelated to the museum's goals because it was devoted to the needs of young singles. Participation in this interest group was also measured by a dummy variable called URIG (1 if member belongs to URIG). A separate dummy variable (VOLUNTR) was used to differ- entiate members who had volunteered time from those who had not (1 if member volunteers). The number of gifts


TABLE 1 Descriptive Statistics

Mean (N = 7,998) Standard Deviation

Membership received as gift (MEMGIFT) Artist (ARTIST) Membership Category 1 (MEMCAT1) Membership Category 2 (MEMCAT2) Membership Category 3 (MEMCAT3) Membership Category 4 (MEMCAT4) Membership Category 5 (MEMCAT5) Upgrade (UPGRADE) Downgrade (DNGRADE) Related interest group (RIG) Unrelated interest group (URIG) Membership length (LOGDUR) Interrenewal time (IRTIME) C-ifting (GFTFREQ) Volunteering (VOLUNTR)

0.05864 0.23496 0.00425 0.06507 0.32008 0.46654 0.48150 0.49969 0.05801 0.23379 0.03813 0.19153 0.00490 0.06960 0.13978 0.34679 0.11940 0.32428 0.03851 0.19244 0.08615 0.28060 0.91766 0.28834 0.16179 0.5298 0.11703 0.46999 0.00575 0.07562

NOTE: All means and standard deviations should be interpreted in line with the definitions of the independent variables provided on pages 37-38 (e.g., the mean for MEMGIFT suggests that 469 out of 7,998 member episodes had a value of 1 for MEMGIFT.

made by a member was cumulated over the time period of the study (GFTFREQ).

Operationalizing the length of membership variable presented a few challenges. Membership renewal is a "discrete time" process--members typically renew their membership around the 12-month mark. Because the process is not continuous, the hazard of lapsing really only varies across renewal opportunities rather than across months. Hence, I measure duration in terms of the number of years one has been a member. The second issue with regard to modeling duration is whether to have a single term or attempt a so-called piece-wise formulation where quadratic terms are also introduced (see Wedel, Kamakura, DeSarbo, and Hofstede 1995). I attempted to introduce linear, tog-linear, and squared terms into our model but observed severe multicollinearity among these variables. Thus, on balance, I decided to retain the log-linear term in that it allows us to test the diminishing effect of duration on lapsing. Length of membership (LOGDUR) was therefore measured as logarithm of the number of years that an individual was a member of the museum.

Finally, because renewal notices are mailed from the ninth month onward, and the organization malls up to four notices, there is heterogeneity in the renewal t imes--some members renew early, some renew on time, whereas others renew late. Thus, to model the phenomenon at hand more precisely, the duration variable measures the number of years for which one has been a member and the interrenewal time (IRTIME) variable measures whether a member renews early or late compared to the normal interrenewal period of about 12 months. The IRTIME variable assumed a value of -1 if the interrenewal time was less than 330 days, a value of 1 if interrenewal time exceeded 395 days, and 0 otherwise.

In sum (suppressing all the time subscripts for exposi- tional ease), equation (3) can be expressed as:

r~ = exp([3o + [31MEMGIFT + [3=ARTIST + [33MEMCAT1 + [34MEMCAT2 + [3sMEMCAT3 + [36MEMCAT4 + 67 MEMCAT5 + [38RIG + [39URIG + [310UPGRADE + ~HDNGRADE +[312GFTFREQ + ~3VOLUNTR + ~14LOGDUR + [315IRTIME),

(4)

where the [3s are parameters to be estimated and the variables are as defined previously.

Table 1 provides the descriptive statistics for the variables used in the study, and Table 2 provides the correlation matrix. In Table 1, some of the variables have large standard deviations relative to the mean (e.g., RIG, MEM- CAT4); this is because many members did not participate in these activities or did not belong to the respective categories and these observations were all coded as zero. The interpretations of the means of the variables are in line with the definitions of the independent variables. For instance, the mean of 0.03851 for the RIG variable implies that 308 of the 7,998 member episodes assumed a value of 1 for RIG.

Table 2 provides the correlations matrix for the independent variables. The statistical significance of these pairwise correlations are understandable in light of the number of observations. Similarly, some of these correlations are large (e.g., between MEMCAT1 and MEMCAT2) because the variables capture belongingness to comple- mentary groups. On a relative basis, two other noteworthy correlations are between the URIG dummy and MEM- CAT1 (.26) and between MEMGIFT and UPGRADE (.35). That is, individuals who participate in unrelated interest groups tend to belong to the basic "individual"- level membership category. Similarly, those who receive gift memberships seem to indulge in upgrade behavior.

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39


TABLE 3 Hazard Rate Model Results

Variable Coefficient (T Statistic)

Constant Membership received as gift (MEMGIFr) Artist (ARTIST) Membership Category 1 (MEMCAT1) Membership Category 2 (MEMCAT2) Membership Category 3 (MEMCAT3) Membership Category 4 (MEMCAT4) Membership Category 5 (MEMCAT5) Upgrade (UPGRADE) Downgrade (DNGRADE) Related interest group (RIG) Unrelated interest group (URIG) Membership length (LOGDUR) Interrenewal time (IRTIME) Gifting (GFTFREQ) Volunteering (VOLUNTR) Number of observations Number of events (lapses) Log likelihood Degrees of freedom Chi-square

--0.905 (-15.0919)** 0.2398 (2.3906)**

-0.4358 (-1.2863) -0.1947 (-2.7822)** -0.2576 (-3.8708)** -0.3743 (-3.3297)** -0.2103 (-l.6147) 0.0300 (0.1048)

-0.0054 (-0.1145) 0.1013 (1.7009)*

-0.2914 (-2.4164)** 0.3405 (5.1788)**

-0.7413 (-19.0394)** -1.0109 (--6.9801)** -0.1472 (-2.8032)** -0.2539 (-0.7596)

7,798 2,504

-5,171.68 15

482.1

NOTE: Figures in parentheses are t-statistic values. Significance based on one-tailed test. *p < .05. **p < .01.

RESULTS

Table 3 shows the results of the hypothesis tests as well as summary statistics of the estimated model. The log-likelihood of the model is -5171.68, which is a significant improvement (chi-square = 482.1) over a null model with only the intercept term. In terms of the coefficients, MEMGIFT has a significant, positive coefficient, which implies that members who received their membership as a gift have a higher hazard of lapsing compared to those who do not receive gift memberships; Hypothesis 1 is therefore supported. The second hypothesis proposed that individuals who have a professional association with the organization (in our case ARTIST) would have a lower hazard of lapsing. This hypothesis is not supported because, although the coefficient is in the right direction, it is insignificant (p < .10).

The results with respect to the membership tiers are quite interesting. Whereas, as per our expectation, MEM- CAT1, MEMCAT2, and MEMCAT3 are significant and negative, MEMCAT4 is only marginally significant and MEMCAT5 is insignificant. Thus, I have mixed support for Hypothesis 3. It appears that the membership categories have a U-shaped relationship with lapsing: note that the lowest level that was the reference category is assigned a coefficient of 0, the coefficients for the two highest levels are insignificant, and the lapsing rate seems to decline from level 1 to 3. 2

Changes in membership level seem to have an asym- metric effect on lapsing. The hazard of lapsing for members who have upgraded in the past does not seem to be

affected compared to those who did not upgrade their membership level. Hypothesis 4(a) is therefore not supported. In contrast, the coefficient for DNGRADE is significant and positive. Thus, Hypothesis 4(b) is supported: members who downgrade have a higher hazard of lapsing.

The impact of the related interest group on lapsing is significant and positive, thereby supporting the hypothesis (Hypothesis 5a) that members of interest groups related to the mission of the focal organization have a lower hazard of lapsing compared to those who do not belong to such interest groups. Interestingly, contrary to my hypothesis of no relationship (Hypothesis 5b), the impact of the unrelated interest group dummy is significant and positive. That is, these results suggest that membership in groups peripheral to the mission of the focal organization actually increases the hazard of lapsing.

Membership length exerts a significant negative effect on the lapsing rate, thereby endorsing the hypothesis (Hy- pothesis 6) that the hazard of lapsing declines, at a diminishing rate, with increasing duration with the museum. Finally, I observe that the interrenewal time variable, IR- TIME, has a significant, negative coefficient; Hypothesis 7 is not supported.

The effect of gift frequency is significant and negative, thereby supporting Hypothesis 8. Members who give a greater number of monetary gifts to the organization have a lower hazard of lapsing. However, the coefficient for VOLUNTR is insignificant, therefore the hypothesis (Hy- pothesis 9) that members who volunteer have a lower hazard of lapsing compared to members who do not volunteer is not supported.


DISCUSSION

The result that membership length significantly diminishes the lapsing rate adds to an emerging debate on duration dependence in repeat buying. On one hand, Du- Wors and Haines (1990) found, in the packaged goods area, that brand loyalty increased with time. On the other hand, Lemon and Winer (1996) found that increasing duration had an insignificant effect on the probability of continuing a service subscription. By contrast, the study of paid membership shows that duration diminishes lapsing and parallels the finding reported by DuWors and Haines (1990). Possibly, the effects of duration may be very con- tingent on the context being studied.

The coefficients for the membership categories seem to suggest that the relationship between membership categories and lapsing may be nonmonotonic. In our case, the coefficients of MEMCAT1, MEMCAT2, and MEMCAT3 are not statistically different from one another; however, this result may be driven by the relative size of the categories in this specific instance. At a broader level, the sug- gestion of the U-shaped nonmonotonicity is an interesting one that merits investigation in other membership contexts. The basic membership categories may attract variety seekers who switch organizations, and the higher level patron categories may suffer from disconfirmed expectations in terms of their need for visibility and recognition in the organization. Thus, motivations for membership may well differ across levels. Attitudinal research on art museum members suggests analogous differences in motivation levels (see Hendon 1979).

The relationship between downgrade and lapsing suggests that exit decisions may actually occur in a step fashion. These downward movements could signal a change in the member's commitment toward the organization. In contrast, members who upgrade do not have longer tenures than those who do not upgrade. It is possible that members' motivations for upgrades are heterogeneous, and when aggregated, the effects of these multiple proc- esses on lapsing cancel out.

Contrary to the hypothesis of no relationship between membership in the unrelated interest group and lapsing, we found evidence of a positive relationship. This result could be an artifact of the specific interest group we studied in this article. Young Careers is a meeting place for singles: a population possibly marked by greater mobility or more varied interests compared to the regular member. On the other hand, in addition to the identification explanation advanced earlier, the negative coefficient for the related interest group may also be attributable to the additional insulation from competitive membership programs en- joyed by members of such interest groups.

On a more general note, the role that interest group affiliations play in the decision to lapse conceptually parallels the role that brand extensions and family branding strategies (Rangaswamy, Burke, and Oliva 1993) play in customer retention. Given that in the membership context, one can partake of the privileges of the interest group only by being a member of the central organization, an interest-

ing research question relates to the evolving pattern of identification: over time, does the interest group become the primary source of self-definition for these members? Research in this area could potentially have important implications for customer retention in multiservice organizations such as banks and credit card organizations, which have financial services, travel agencies, and insurance services.

The significance of the gift frequency variable may possibly be explained by theories of organizational identification. For instance, Mael and Ashforth (1992) found a positive relationship between identification on the part of alumni and donations to their alma mater. In our context, a gift to the organization may be coded by a member as heightened identification toward the organization, which in turn translates to a lower hazard of lapsing. In contrast to the effect of monetary gifts, the insignificant effects of volunteering on lapsing is intriguing. Future research should investigate the differential impact that gifts of money and time has on the donor. However, the insignifi- canoe of the volunteering coefficient in our case may also be a limitation of the data: we knew whether a member had volunteered or not, but did not know the extent--it is possible that the posited negative relationship only takes shape after a threshold level.

The antecedents of lapsing discussed in our study may also be viewed as behavioral "markers" of organizational identification. With increasing competition, the organization and what it stands for is going to play an important role even in traditional product and service purchase settings--perhaps this is why themes and activities such as cause-related marketing (Varadarajan and Menon 1988), socially responsible buying (Drumwright 1994), corporate philanthropy (Smith 1994), and Saturn "family" get to- gethers (Aaker 1994) are becoming popular. These movements can all be viewed as strategies to develop identification among customers. My findings suggest that the propositions of social identity theory are indeed appli- cable to the retention arena, at least in the context of paid membership in nonprofit organizations. Future studies in the retention area can now investigate the roles of social identity and identification in greater depth.

Implications for Marketing Practice

This study also has several implications for membership managers that can affect strategic decisions in the areas of target marketing and resource allocation. As I elaborate below, all the results bear information in terms of the type of members managers should contact to miti- gate the chances of lapsing, the timing of such contacts, and the broad approach strategies.

The finding that in general, members who downgrade lapse at a higher rate can also be used to sharpen retention strategies. Beyond trying to prevent downgrades, membership managers can pay special attention to those who have downgraded and try to prevent them from lapsing. The results also reveal the important role that well-designed special interest groups play in lowering the risk of lapsing.


I found that members who participated in special interest groups that were related to the central mission of the organization had a significantly lower hazard of lapsing. Membership managers in a variety of organizations need to think about the type of special interest groups that offer specific extensions to the central mission of the organization (e.g., 20th century art, photography forum, etc. for the museum) and then encourage members to join these interest groups. Managers should also realize that although unrelated interest groups may be successful acquisition strategies, they may not enhance retention. In part, this may be true for those who receive gift memberships as well. The organization should attempt to uncover the heterogeneity in attitudes toward membership within this group who receive gift memberships and pay differential attention to those who are likely to renew and those who are not. Again, the correlation of .35 between gift memberships and upgrades and the positive impact of gift memberships on lapsing suggest that although a blanket strategy in promoting upgrades to those who receive gift memberships may work in the short run because of some compensatory process (i.e., I didn't pay for the first year) or experimental behavior, such strategies are not really effective for long-run retention.

With regard to gifting, I find that gift frequency has a negative impact on lapsing. Each time a member makes a gift to the museum, the organization becomes a more central source of self-definition for the member: gift frequency is an identification enhancement mechanism. Fi- nally, the finding that members who renew relatively late are less likely to lapse is of considerable importance to membership managers. One implication is that the logis- tics of sending renewal notices should be highly efficient so that members who have a high likelihood of renewing are not inadvertently left out in the later rounds. The other implication is that the renewal notices should somehow incorporate the basic communication theme of the museum so that the salience of the identification bond between the member and the organization is heightened at each stage.

Limitations and Directions for Future Research

Like any exploratory study, the findings obtained in this study are subject to some limitations. Our study did not directly incorporate some of the finer nuances of affiliation such as number of visits per year, the time spent on volunteering, and organizational demography variables (Pfeffer 1983). Moreover, the number of organizations in which one holds memberships (i.e., the competitive context), recruitment and renewal conditions (e.g., direct mail, telemarketing, or onsite), and even macroeconomic conditions that may influence both lapsing and gifting are important variables to include in such models. The results of this study should be interpreted in light of this limitation, and future research should endeavor to incorporate some of these variables directly, so as to conduct a more com- prehensive investigation of the drivers of lapsing.

A possible approach to build a more complex model of membership is to set up a member panel that allows us to combine attitudinal and behavioral data. A variety of organizations who have paid membership programs may join hands in such an endeavor. Setting up such a panel can allow researchers to collect ongoing data on behavior (e.g., number of visits, type of events attended, gift shop usage), demographics and lifestyle, underlying attitudes toward membership benefits offered by the various organizations, evaluations of expectations, evaluation of outcomes, and overall satisfaction. Of particular importance would be information related to organizational demography-- friends and associates known within the organization, within interest groups, and joining and exit decisions that are tied to the decisions of one's cohort. Although this study suggested that there is heterogeneity in members' motives (e.g., the results pertaining to related and unrelated interest groups), it was not aimed at uncovering the latent segments. Watson (I 968) developed a six-cell typology of arts publics that included segments such as "art for arts sake," "recreational," "status seekers," and so on. Natu- rally, the evaluation of outcomes and the overall sense of satisfaction that drives renewal will differ across these segments--and the panel data can be used to not only uncover such segments but also (using latent class models of the type discussed by Wedel et al. 1995) investigate how the role of the drivers of lapsing differ across segments.

The aforementioned type of data can also be used to further our understanding of social identity and organizational identification. Because social identity is related to group theory (Turner 1987), memberships are a good setting to study the types of groups that provide the source for such identity. For instance, do all members of a museum share a collective representation, or is the identification more with one's membership category or, more interesting, with one's interest group? To date, organizational behavior researchers (e.g., Dutton et al. 1994; O'Reilly and Chatman 1986) have discussed identification with an organization, but it seems plausible that because of the need to be distinctive and unique (Turner 1987), members identify with specific aspects of organizations that offer better opportunities for self-expression.

To increase the managerial relevance of the notion of member retention, a crucial next step is to conduct studies similar to ours in other types of membership contexts (e.g., access memberships, price-driven memberships, earned memberships, etc.) and in for-profit contexts. Although our study is possibly generalizable to other nonprofit memberships of a similar nature (e.g., the zoo, American Asso- ciation of Retired Persons, Audobon Society, etc.), clearly there is a need to test these concepts in other contexts where social identity and identification are equally important. The Harley Owner's Group, a club operated by the Harley Davidson Company, is one example of such a context. At a broader level, Reichheld (1996) provides examples of member retention efforts in a variety of industries such as financial services, credit card companies, insurance firms, credit unions, and music clubs. Clearly,


the general concepts and modeling approach adopted in this article can be extended to these types of industries as well.

Finally, the importance of identification and its successful use as a customer retention strategy by "product-ori- ented" organizations such as Ben & Jerry's, Tom's of Maine, Harley Davidson, and Saturn has been discussed extensively in the practitioner literature (see, e.g., Aaker 1994; Lager 1994; Reid 1989). Using anecdotal examples from these organizations, Bhattacharya et al. (1995) have outlined a few generic strategies to create identification. More recently, we have witnessed on the Internet the initiation of "brand communities" surrounding organizations such as Saab, Disney, and Lego (Winer et al. 1997). A critical next step is to investigate the kind of social identity that develops among consumers of these organizations. What are the antecedents of such identification? Is "formal membership" in organizations that are successful in creating an identity for their members mostly an extension of this sense of belongingness? Conversely, are organizations who are successful in creating such identification able to charge "hidden membership fees" through higher prices of their merchandise, higher brand loyalty, multibrand loyalty, and positive word of mouth? Studying the relationship between identification and performance measures such as retention and profitability in a variety of other contexts provides opportunity for developing new theory to understand this complex phenomenon.

ACKNOWLEDGMENTS

The author thanks Hayagreeva Rao for his exceptional help with this article, He is also grateful to Pete Fader, Mary Ann Glynn, Kay Lemon, Akshay Rao, Srinivas Reddy, Bill Ross, Sankar Sen, Jag Sheth, three anonymous reviewers, Dave Cravens, and A. Parasuraman for their helpful comments on earlier drafts of this article. He thanks an anonymous organization for providing the data for this study and Ron Harris for programming assistance.

NOTES

1. The interpretation of the hazard as the expected number of repeatable events in a one-unit interval of time is sensible when events are repeatable. In the ease of nonrepeatable events (e.g., death), the expected duration in a state is the reciprocal of the hazard, l/r'.

2. To check whether the coefficients of MEMCAT1, MEMCAT2, and MEMCAT3 are different from one another, we ran two other reduced- form models in which we successively added these three categories (i.e., Model 1 had MEMCAT1 + MEMCAT2, MEMCAT3, MEMCAT4, and MEMCAT5, and Model 2 had MEMCAT1 + MEMCAT2 + MEMCAT3, MEMCAT4, and MEMCAT5). The results from all three models are substantively the same. Moreover. the comparison of the full model in Table 3 with these two reduced-form models suggests that the MEM- CAT1, MEMCAT2, MEMCAT3 coefficients in Table 3 are not statistically different from one another.

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ABOUT THE AUTHOR

C. B. Bhattacharya is an assistant professor of marketing at the Goizueta Business School of Emory University. His Ph.D. in marketing is from The Wharton School, University of Pennsyl- vania. His research interests include brand loyalty and brand health, customer retention, and organizational identification and disidentification. He has published in the Journal of Marketing, International Journal of Research in Marketing, Journal o f Re- tailing and Consumer Services, Marketing Letters, and other journals. During the past few years, students in his marketing research course have addressed real problems for over 30 non- profits. In 1995, he received The Emory Williams Distinguished Teaching Award, which is the highest teaching honor conferred by Emory University.

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