KEY POINTS

  • E-commerce membership programs are taking the Costco model and updating it for the online shopping age. Amazon, Google, Instacart, Jet, and Sephora have each formed some type of members-only program for online shoppers that gives consumers added benefits in exchange for an up-front yearly fee.
  • Membership programs offer retailers a number of advantages, including increased spending. About 40% of Prime members spend more than $200 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 realize 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 emphasizes free delivery, lower prices are the primary attraction of soon-to-launch Jet.
  • Amazon Prime is an example of how offering more services to members, including access to exclusive products and media, can help make a membership program more attractive. Overstock.com and Uber are retailers that do not have membership programs right now but have begun experimenting with expanding their services.
  • The membership model is proving especially attractive for grocery delivery companies. Although Instacart doesn't break out what percent of customers are part of its membership program, the grocery delivery startup is reportedly handling over $1 million in sales a week, and accounting for up to 5% of weekly sales for some Whole Foods locations.

bii amazon prime vs costcoBI Intelligence

Introduction

Amazon's Prime service, [...]