By most measures, Amazon’s membership program, called Amazon Prime, has been a runaway success for the e-commerce giant.
The Prime model — of asking customers to pay an upfront fee in exchange for free two-day shipping and other benefits — has helped Amazon pull shoppers away from competing retailers and establish loyal online customers. But now Amazon’s competitors are fighting back.
- Walmart is launching a membership program this summer, according to MarketWatch. Members pay $US50 a year in exchange for free three-day shipping with all Walmart.com orders (excluding groceries).
- eBay is also launching a membership program later this year, according to industry trade publication The Paypers. That program will reportedly be called eBay+, and will cost members $US25 annually in exchange for free next-day delivery on some orders (not all eBay sellers are equipped to meet these expectations).
In a new report from BI Intelligence, we track the e-commerce membership program trend and look at how e-commerce retailers are taking the Costco model and updating it for the online shopping age. We also assess the advantages and disadvantages of e-commerce membership programs for the retailer, as well as what consumers might look for in these programs and what incentives are needed to get people to sign up. And we provide an outlook for other retailers and product categories that could benefit from employing the membership model.
Here are some of the key takeaways from the report:
- Membership programs offer retailers a number of advantages, including increased spending. About 40% of Prime members spend more than $US200 on Amazon over a 90-day period compared to 13% of non-Prime customers. Once customers pay an up-front fee to a retailer they are likely to return and shop more often in order to realise a greater return on that initial payment.
- But there are also major challenges for retailers operating membership programs. The services offered to members often come with added costs for retailers, such as absorbing delivery costs, which may not be easily recouped. In addition, retailers must clear a high bar in order to convince customers that they are offering a service that’s actually worth paying extra for.
- Free delivery and lower prices are the top benefits retailers include in their membership programs. 74% of US consumers say that free delivery motivates them to shop more online, and 50% say lower prices do, according to Boston Consulting Group. While Amazon Prime emphasises free delivery, lower prices are the primary attraction of soon-to-launch Jet.
- The membership model is proving especially attractive for grocery delivery companies. Although Instacart doesn’t break out what per cent of customers are part of its membership program, the grocery delivery startup is reportedly handling over $US1 million in sales a week, and accounting for up to 5% of weekly sales for some Whole Foods locations.
In full, the report:
- Looks at how different retailers are putting a twist on the Costco model.
- Includes data about how much shopping club members spend versus regular customers.
- Lists the advantages and disadvantages that retailers face with operating a membership program.
- Provides an in-depth look at why membership programs could be the key to unlocking the grocery e-commerce market.
To access the full report from BI Intelligence, sign up for a 14-day trial here. Members also gain access to new in-depth reports, hundreds of charts and datasets, as well as daily newsletters on the digital industry.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.