can increase your revenue, encourage customers to buy new products and services from you, and provide a healthy boost to your cash flow. Just ask Jeff Bezos, the founder of Amazon.com and the chief architect behind Amazon Prime.
In exchange for $79 a year, Amazon Prime
customers get:
- Free two-day shipping on millions of items
- Unlimited streaming videos and TV shows
- 350,000 books to borrow for free.
It’s a compelling
offer, which is why, according to TIME Magazine, more than 10 million people
have signed up. If you do the math, that makes Prime close to a billion-dollar
business for Amazon. And like most programs, members pay upfront, giving Amazon
a big injection of positive cash flow.
But what is even more
interesting is what being a member of Prime does to the buying behavior of the
average Amazon customer. Prime customers pay their $79 upfront and therefore
are eager to ‘get their money back’ by purchasing a bigger and broader array of
products from Amazon. With free shipping and a $79 nut to recover, Prime
customers go well beyond buying books from Amazon and now get everything from
tires to turtlenecks from the e-tailer.
According to TIME, the
average Prime customer now spends $1,224 per year with Amazon vs. the average non-Prime
customer who spends just $505. In other words, Prime customers spend almost
three times more per year than non-members.
Most businesses have
some sort of loyalty program (buy nine
sandwiches and the tenth is on us or get
five hairs cuts and the sixth is free). The difference with Amazon Prime is
they are charging customers to sign
up for their special club and the fact that customers pay to join changes their
buying behavior to want to recover their membership fee.
Amazon did not invent
the pay-to-join-our-club business model. Private members clubs have been doing
it for years. To join an elite golf club, you pay an initiation fee of tens of
thousands of dollars, which then acts as a barrier to ever leaving.
But as with Amazon
Prime customers, becoming a member also changes a member’s buying behavior regarding
other items. When compared to someone
shooting 18 holes at a public course, the average golf club member is much more
likely to buy balls from the shop, lessons from the pro, and dinner from the
dining room.
The “AMC Stubs”
loyalty program charges moviegoers to join the club. In return, customers get
free upgrades on the size of popcorn and drink orders, along with $10 of Stubs
rewards to spend on anything in the theatre in return for every $100 spent.
AMC’s best customers become even better customers by going to the movies even
more often and filling up with goodies while they’re there.
Look at the spending
patterns of people who pay a premium to join a credit card company’s loyalty
program. Customers who pay upfront for a premium card charge a much broader and
deeper set of services to their card than people using a freebie card.
Getting your customers
to pay to join your elite customer club requires that you design a compelling
offer as Amazon Prime and AMC Stubs have done. But if you build it right, not
only will the club itself turn a profit; it will also provide a quick boost to
your cash flow and create a legion of sticky customers who buy more because they
paid to become a member.
It's amazing how much more money people will spend in an effort to save a few bucks.
ReplyDeleteMaybe we need to try a similar concept for our business.
I'm ready to help or you can DIY
ReplyDeleteIt's been my experience that most businesses will concentrate on what they like instead of looking objectively at what they have. Testing and objectively measuring your results, actively asking your customers their opinions and taking the time to review what it all means is par and parcel to a successful business. Amazon has always done this, why not you.
ReplyDelete