Lessons from Amazon Prime on how to sell loyalty

Simon Spyer
Co-Founder & Principal Consultant
Conduit
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The old adage is that you can’t buy customer loyalty but there is compelling evidence that you can now sell it.

A loyalty scheme is just a tactic. A loyalty programme is a commitment to better customer experience and continuously growing customer loyalty.

Amazon and a UK brand, Johnsons, typify this trend and have recently been recognised as the only loyalty programmes that customers actually feel any loyalty to (Clubcard, Nectar et al don’t seem to be cutting it).

How Amazon & Others Are Selling Loyalty

AMAZON

For the uninitiated customers join Amazon Prime for £79 ($99 in the US). In return members get a host of benefits ranging from free next day delivery and returns to access to the Kindle lending library to unlimited streaming of videos and music.

In his latest letter to shareholders, Jeff Bezos talks unequivocally about the the role of Prime saying:

"We want Prime to be such a good value, you'd be irresponsible not to be a member.”

SO IT’S JUST THE BIG BOYS?

Not at all.

We like what the UK-based dry cleaning company Johnsons are doing.

Their Priority Club gets customers to pay for a membership that unlocks a range of benefits such as 10% off all orders, free garment carriers and faster service. Annual Priority Club membership starts at £8.

It’s an accessible offer that, for anyone who uses a dry cleaner several times a year, is good value and a no brainer.

A mutual value exchange

The beauty of these approaches is that the value exchange (‘what’s in it for me’) is clear and compelling for both the retailer and customer.

FOR THE CUSTOMER

Greater value

The schemes actually have a clear value equation: if you are anything more than an occasional user then you will seemingly save money by becoming a member.

Then additional benefits ('exclusive offers and rewards') hold out the promise of even greater value.

Reduces friction

Amazon Prime relieves pain at key points in the customer journey.

For any e-commerce business, the delivery experience is a key moment of truth and Prime turns it into a moment of glory - or at least reduces the friction. With same day delivery and the testing of drones this pain point will be relieved even further.

And this is just one example. Free returns removes another barrier to purchase and again delivers a superior customer experience.

FOR THE RETAILER

Maximises share of wallet

There is a very clear value proposition and indeed a value exchange between the customer and retailer (you pay X and you get Y). And this value exchange is key to the membership's effectiveness.

The financial commitment is the key.

Having paid something the customer is committing to the retailer but is also committing to getting value from the purchase.

This manifests itself in the retailer being the destination for customers buying in the category - for Amazon, they are already highly competitive on price, range (supported of course by other customers’ reviews) and service and Prime removes (or significantly reduces) any further friction.

Share of wallet, the proportion of your customers’ spend in your category that you capture, is an under-used marketing metric but one that retailers like Amazon and Johnsons have understood and designed a proposition for.

The 'Flywheel' That Maximises Weight Of Purchase

For many Prime members, the initial interest in Prime is piqued by the promise of free next day delivery - if you purchase something from Amazon every month then Prime will save most people money over the course of the year.

However it gives Amazon the ability to promote other categories and services to members. This increases their weight of purchase and bonds the customer even more to Amazon.

As Bezos says:

"[Amazon Prime Video] shows are great for customers, and they feed the Prime flywheel – Prime members who watch Prime Video are more likely to convert from a free trial to a paid membership, and more likely to renew their annual subscriptions."

And more likely to buy different products and services from Amazon.

The Results

What data is available shows unequivocally the strength and outstanding performance of the Prime programme. Here some headlines according to research from CIRP:

  • Prime members spend more than non-members -- about $1,100 a year compared to $600 for shoppers who don't join;
  • Amazon retains approximately 95 percent of them after one year'
  • Membership grew 51% last year - including 47% growth in the U.S. and even faster internationally.

So what should you do?

There are 5 things to consider:

  • Create a clear value exchange rooted in customer understanding and the moments of truth that really matter. Make the 'hook' as simple and accessible as possible; ideally there should be a clear financial benefit.
  • Tie this to a subscription model if possible. This helps to build habit and create a valuable reason to stay in touch.
  • Continually add new features. Neither Amazon or Johnsons have stood still; they are constantly adding value to the membership scheme (and in Amazon's case this has allowed them to increase the cost of the membership).
  • Treat these members differently. It's important that these customers are seen as distinctive: both in terms of their value and commitment to the brand and also in how they are recognised and treated (for example, Johnsons give their members faster service in-store; Amazon give early access to their members). There should be value in belonging.
  • Build emotional loyalty. So you have the clear value exchange and customers have enrolled. Now you are in a perfect position to start to build more emotional loyalty based on these 5 drivers.

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