LOYALTY MARKETING
SECTION ONE
SECTION TWO
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Do You Need a Premium Paid Membership Program?
By Lance Du Chateau
Over the past year, our specialty retailer clients have increasingly been asking whether or not they need a
Prime; that is, a premium paid membership program. Most indications point to it delivering fantastic results
for Amazon, even though financial and behavioral results haven’t been widely shared.
Depending who you ask, Prime members spend 68 percent, or 140 percent more than non-members. But the more important stat is that U.S. Prime membership grew 50 percent last year - a compelling indicator that the value proposition is resonating, even after last year’s $20 fee hike.
Amazon isn’t the only brand pursuing this path either. GameStop’s Pro Rewards, the New York Times’ Premier subscription, Barnes and Noble’s Membership, GNC’s Gold Card, and nearly every premium credit card product are using the unique strengths of paid memberships to their advantage:
- Creating Commitment: With dollars invested, customers inherently look to use the benefits they paid for to improve their payback. This makes whichever brand they’ve tied themselves to their preferred choice in that category - driving lift in share of wallet and significantly raising the costs of switching to a competitor.
- Instant Gratification: The benefits of memberships are generally instant. For those who do pay, free shipping, exclusive perks and big discounts can be strong, persistent mental reinforcements of a good decision. We know from our years in loyalty that earning rewards works very similarly, creating a spend lift in the months following redemption.
- Differentiated Experiences: When customers pay premiums and commit to a brand, their fees and spend lift fund more robust or higher-touch experiences that couldn’t otherwise be created: exclusive perks, big discounts, luxurious lounges, rich content and more. When trying to fight commoditization, giving customers an exceptional experience - like Prime’s rich content and guaranteed two-day shipping - adds qualitative benefits to purchase decisions that competitors may not be able or willing to imitate.
These strengths make this strategy hard to resist, but it’s hardly a panacea for every customer engagement issue. There are several considerations that may dissuade you from pursuing paid memberships. Consider the following:
Could you feasibly offer a paid benefit that overcomes the obstacle preventing your target from shopping with you more?
Some obstacles can’t be overcome. If your target customer prizes a convenient location near home/work above all else or, more importantly, if you have critical issues with your customer experience or brand value proposition, a fee-based portfolio of benefits is unlikely to change their habits.
Is your target customer even open to the idea of paying for benefits?
According to a 2014 LoyaltyOne survey of 2,000 North Americans, only 17 percent said they’d be willing to be pay for same-day delivery. Of that 17 percent, males and Millennials were more likely to show interest. All this to say, extensive research and testing may reveal that the target for your benefit wasn’t necessarily who you’d expect it to be.
Could your target consumer shop with you often enough to need or want premium benefits?
Some customers, even valuable ones, don’t shop with you often enough to want any sustained relationship. You may be better off pulsing them twice a year or seasonally with relevant product discounts than pitching them a suite of benefits they can’t foresee using.
Would having exclusive benefits (visible or covert) for only some customers align with your brand without turning off other valued customers?
This is a case of culture eating strategy for breakfast. Bricks-and-mortar retailers that look to create communal, comfortable and ultimately egalitarian shopping experiences should pay special attention. We’ve been in boardrooms where visible preferential treatment has been shot down for this very reason.
Can you create a fee-based offering that is both compelling and financially feasible?
Some benefits may require economies of scale to become profitable, and not all your fans will jump at the offer the first time they see it. You must also determine if they are willing to pay the fee necessary to ensure financial feasibility of your program. Testing small-scale and business casing with the results will require executive support and patience.
Returning to the titled question, retailers need to evaluate an Amazon Prime-like strategy. There are clearly several considerations that should alter how and if you choose to execute, only some of which are listed above. That said, finding the right strategic fit could be the difference between you and your competitors securing your customers’ future spend.
Lance Du Chateau is an Associate Partner at LoyaltyOne Consulting. He can be reached at LDuChateau@loyalty.com. LoyaltyOne is a global leader in the design and implementation of coalition loyalty programs, customer analytics and loyalty services for Fortune 1000 clients around the world. For more information about LoyaltyOne Consulting, please visit www.loyalty.com.
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SECTION THREE
