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15 June 2022

Subscriptions and memberships are creating a better way to go shopping

Subscriptions and memberships have been growing rapidly over recent years, but the Covid pandemic appears to have focused attention on these business models as a way of boosting retail and e-commerce opportunities. Direct-to-consumer (D2C) options grew dramatically when non-essential retail outlets were often forced to close during the various lockdowns. Now many of these ideas are being extended into the post-pandemic business environment.

Amazon Prime Video is a great example of a service that cuts across many functional areas. Contrast the Amazon offer to Netflix, or other popular streaming services. With the other services, the focus is on paying your monthly subscription in return for access to streaming content. This is consistent across most of the streaming services.

Amazon Prime is different because it feels a little more like access to a club. You might sign up for the streaming video content, but then you also get special deals and free delivery from the main Amazon store, streaming music, online photo storage, Amazon Kids content with thousands of books and movies for children, low-cost prescriptions, and deals inside Whole Foods stores. The list goes on, but a Prime member actually becomes part of a club. If you want a ‘try before you buy’ option then it pays to be a Prime member.

Many consumers are maxed out on streaming services right now and are working out which can be removed from their list of monthly expenses. Amazon knows that a Prime subscription is now about much more than video streaming alone. Analysts estimate that around 45% of all households in the US with Internet access are paying for Amazon Prime - that’s an astonishing level of penetration for a subscription service.

This is the key for both memberships and subscriptions. Can you offer additional services that are not available to ‘regular’ customers - such as the ability to try on clothes before committing to buy them? Can you deliver value that ensures the customer is happy to keep paying each month and can your subscription model make your core service more attractive when compared to the competition?

Look at the membership service offered by Walmart. At present, it costs $98 a year for membership, but that gives significant discounts on gas, free delivery from Walmart stores, free shipping for larger and marketplace items, prescription discounts, and the ability to self-scan when shopping in-store so checkout lines are a memory from the distant past.

A 10c per gallon discount at the gas station adds up - that’s a saving of approximately a couple of dollars every time you fill the car. Walmart knows that all the other benefits will not only encourage loyalty, but the subscription itself generates a new line of revenue.

To my mind, what all these subscriptions and membership offers are really creating is a better way to shop. You can still shop at Walmart without a membership, but you may need to visit a store or pay for a delivery. You will need to pay full price for a prescription. You will need to wait in line at the checkout. Paying the membership fee creates a whole new customer experience and makes customers reluctant to shop elsewhere.

Amazon and Walmart know all this, but what happens when every major retailer offers a membership option? Which will work best?

 

Published first on LinkedIn by Katrin Langley, June 2022.