Asking customers to pay to join a special group of preferred patrons 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 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 and it’s the reason why, according to TIME Magazine, more than 10 million people have signed up. If you do the math, you’ll see that makes Prime an almost billion-dollar business for Amazon. And like most programs, members pay up front, giving Amazon a big injection of cash on an annual basis.
But what is even more interesting is the effect of being a member of Prime on the buying behavior of the average Amazon customer. Prime customers pay their $79 up front 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 investment 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 haircuts and the sixth is free!). The difference with Amazon Prime is they are charging customers to sign up for their special club and that changes their buying behavior: they 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. Joining an elite golf club requires 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 playing 18 holes of golf 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 offered by AMC Theatres charges moviegoers to join their club. In return, customers get free size upgrades on popcorn and drink orders, and $10 worth of Stubs rewards to spend on anything in the theatre for every $100 spent. AMC’s best customers become even better customers by going to the movies more frequently, 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 more goods and services to their card than people using a freebie card.
Getting your customers to pay to join your elite customer club will require you to design an offer as compelling as the offers made by Amazon Prime and AMC Stubs. But if you build it right, the club itself will turn a profit, provide a quick boost to your cash flow and create a legion of sticky customers who spend more because they paid to become a member.