Asking customers to pay to join a special group of your best patrons can increase your turnover, as it encourages them to buy new products and services from you and also provides a healthy boost to your cash flow.
Just ask Jeff Bezos, the founder of Amazon.com and the chief architect behind Amazon Prime. When it started Amazon Prime, in exchange for £49 a year, gave customers:
- FREE one-day delivery with no minimum order size on millions of items;
- Upgrades to express delivery (before 1pm) for just £4.49 per item;
- Evening delivery to all eligible addresses for just £7.48 per item;
- Over 350,000 popular Kindle Books to borrow for free, with no due dates.
According to TIME Magazine, more than 10 million people have signed up for Amazon Prime programs worldwide. If you do the sums, that makes Prime a £500m business for Amazon. Like most memberships, payment was upfront, but also gave Amazon a big injection of positive cash flow.
However it is even more interesting to note what membership of Prime did to the buying behaviour of the average Amazon customer. In the USA, Prime customers paid their $79 upfront and therefore were eager to ‘get their money back’. They did this by purchasing a bigger and broader array of products from Amazon. With free shipping and a $79 investment to recover, members go well beyond buying books and now get everything from tyres to jumpers. According to TIME, the average Prime customer in the U.S. now spends $1,224 per year with Amazon vs. the average non-Prime customer who spends just $505. In other words, members spend almost three times more per year than non-members.
A lot of businesses have started some sort of loyalty program, e.g. buy nine coffees and the tenth is on us. The difference with Amazon Prime is they are charging customers to sign up for their club and the fact that customers pay to join changes their buying behaviour in an effort to recover their membership fee.
Amazon however did not invent the pay-to-join-our-club business model. Think about golf clubs. To join you pay a joining fee, which then acts as a barrier to leaving, dues are also paid a year in advance. Wallasey Golf club also insist members put £50 “behind the bar” every year to encourage use of the club. So as with Amazon Prime customers, becoming a member also changes buying behaviour regarding other items. When compared to someone playing 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.
Customers who pay upfront for a premium charge card tend to pay for a much broader and deeper set of services on their card, than people using an ordinary free card.
So do you have an elite club that your customers would pay to join? What does that require to provide a compelling offer as Amazon Prime?
If you build it right, not only will the club itself turn a profit, but it will also provide a boost to your cash flow and create a legion of sticky customers, who buy more because they paid to become a member.
Paul Dodgshon is a Regional Partner in Business Partnership, who have been helping business owners sell their businesses since 1979. You can learn more about Paul and Business Partnership here.