Challenging Amazon Prime: Membership Shopping Networks

Bernardine Wu, CEO, FitForCommerce

Sam Yagan, CEO, ShopRunner

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FitForCommerce

is a specialized consultancy founded to help online businesses accelerate growth.

Trusted advisor to hundreds of global companies.

Digital Diligence™

is a philosophy and our methodology based on an investment and due diligence mindset for decision-making and execution to ensure success.

We are the help.

Curated digital innovation tracking and applied market advice to businesses in a CDO-on-demand service.

Benchmarking of Top 120 Retailers for Omnichannel (Web, Mobile, In-Store) innovation.

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Trusted Advisor to 400+ Brands and Retailers

Shopping Networks

The lines between multi-brand retailer, affiliate site, marketplaces are blurred. Shopping Networks are membership based.

Amazon’s Rocket-Fueled Growth in North America

32,865

41,410

50,834

63,708

79,785

88,476

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

2012 2013 2014 2015 2016 TTM

North America Sales (MM)

Source: Amazon Company Reports; eMarketer Calculations

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Amazon: A Retailer’s Frenemy

30%

60%

Friend Foe

29%

29%

43%

Direct Competitor Partner & Competitor Non-Competitor

Source: “A New Path for Retail: Co-Existing with the Force of Amazon, Bluecore and NAPCO, 2017

Survey of 251 Retail Executives

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Amazon Prime Free Shipping Leads Amazon’s Most Impactful Services

63%

44%

27%

26%

0% 10% 20% 30% 40% 50% 60% 70%

Prime Free Shipping

Prime Expedited Shipping

Frictionless Checkout

Reviews

Most Impactful Consumer-Facing ServicesSurvey of 251 Retail Executives

Source: “A New Path for Retail: Co-Existing with the Force of Amazon, Bluecore and NAPCO, 2017

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Amazon Prime Packs a Powerful Punch to Retailers

40% of Amazon Prime Members Spend Over

$1k Annually vs. Only 8% of Non-Prime Shoppers

9%

26%24%

16%

10%7%

3% 2% 3%

34%

46%

13%

5%2% 1% 0% 0% 0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

% o

f S

ho

pp

ers

How much have you spent on Amazon in the past 12 months?

Prime Non-Prime

Prime Members Spend 4.6X More Money on

Amazon than Non-Prime Members

$2,486

$544

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Prime Non-Prime

Weig

hte

d A

vera

ge

Sp

en

d P

er

Sh

op

per

How much have you spent on Amazon in the past 12 months?

Prime Non-Prime

4.6X More

Source: Morgan Stanley Research Source: AlphaWise, Morgan Stanley Research

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Walgreens: At the Corner of Technology and a Fantastic Customer Experience

“Customers who engage Walgreens

via online (70% of customers) and

mobile (50% of customers) channels

are 3.5 and 6 times more profitable

to the company, respectively.”

Deepika Pandey

Group VP of Customer Experience

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Creative Ways to Increase Customer Loyalty or Boost Foot Traffic

“Our customers are loyal to us right up until the second someone offers them a better service …and I love that. It’s super-motivating for us.”

– Jeff Bezos, Amazon

There is no such thing as long-term competitive advantage

Memberships Create Stickiness & Commitment

• Want to get a date? Sign up for a dating app, even if you don’t use it.

• Imagine a gym that charged by the day rather than a time-based membership.

• Prime members escalate their commitment to Amazon by paying membership fees to access to the associated benefits.

Networks Create Increasing Returns to Scale

• Networks inherently create value on their own, even without a membership requirement.

• Networks with membership requirements increase the strength of each connection.

Prime Drives LTV & Enables Segmentation

• Prime members self-select by signaling:• Price insensitivity

• Shipping speed sensitivity

• Shipping cost sensitivity

• Resulting in increased LTV for Prime members and non-Prime members, alike.

But Most Retailers Focus on NTF

• Despite widespread awe of Prime and its focus on existing customers.

• Marketing budgets for customer acquisition can dwarf resources allocated to increasing LTV.

• But why the focus on NTF?

When House File Can Have Huge Impact

• Many retailers report that 80% of sales come from existing customers.

• “She’s still spending, but we just see her one fewer time than we used to.”

• More of Amazon’s growth comes from increasing LTV vs. new customers.

Many Believe in the “Fixed Wallet” Fallacy

• Some people believe in sticky LTVs and a fixed share of wallet.

• Almost all data disprove that fallacy.

Costco Pioneered the Retail Membership Model• 45m members

pay $55/ year

• Frequency of 10x / year

• Spend over $2,500 / year (2x Prime)

And Prime has Digitized the Model

• Like Costco, Prime improves the customer experience, unlike most ecommerce loyalty programs.

• Most loyalty programs:• Free, requiring little or no customer activation

• Promotional rather than experiential, primarily offering a discount for frequent purchases

• Prime:• Not free, requiring affirmative customer activation

• Experiential, making shopping better for Prime members

Commitment to Prime Increases Frequency

56% of Prime members have frequency more than 24/yr

13%of non-Prime Amazon customers have frequency more than 24/yr

And Conversion (and thus, LTV)

Non-prime traffic converts at

~13%Prime traffic converts at

~70%

Individual Retailers Struggle to Replicate Prime• Some think their loyalty program can do the work.

• Some think they can just give free two-day shipping to everyone.

• Requires aggressive promotion

• Most customers wont remember

• Bad economics

• Not even Amazon gives free two-day shipping away.

But Lack the Frequency to Succeed

• More important than Free Two-Day Shipping, Prime is about frictionless transactions.

• Low visit frequency undermines everything.• If customer doesn’t have an account, purchase hits lots of friction

• Even with an account, customers likely don’t invest in keeping shipping, billing data up to speed

• Most customers have to login to access their accounts

• But don’t remember their credentials

But Membership Networks Can Simulate Prime

• If they get a few things right:• Aggregate sufficient frequency

• Require activation to join

• Reduce transactional friction of shopping

• Offer valuable, easy-to-remember benefits

ShopRunner Trades Commitment for Simple Benefits• ShopRunner leverages of the aggregate frequency of the

network• High logged-in rates

• Requires members to proactively engage with a new brand, usually with a credit card

• Higher customer investment

• Reduces transaction friction• Shipping speed certainty

• Shipping cost certainty

• Seamless checkout

And Drives 60% of Prime’s Conversion Lift

• Prime traffic converts almost ~6x higher than non-prime

• ShopRunner traffic converts ~3.5x higher than non-ShopRunner

While Increasing Frequency

• On average, ShopRunner customers have 30% higher frequency than non-ShopRunner customers with each retailer.

• ShopRunner members visit a network retailer more than once a month.

• The average ShopRunner member spends half as much in the ShopRunner network as the average Prime member spends on Amazon.

With the Added Bonus of NTF

• Have been focused on the impact of membership, to compare to Prime.

• But a multi-retailer membership network can drive an NTF opportunity.

Network Can Provide Access to Great Customers

• Customers usually join the membership network to get access to specific retailers, but then get exposure to new retailers.

• If built properly, these self-selecting, proactively engaging customers should have higher LTV.

ShopRunner’s 2% of US households generate ~12%-~18% of partners’ sales

Frictionless Transactions vs. Free 2-Day Shipping• How can we tease apart these effects?

• ShopRunner has members with credit cards on file and those that don’t.

• Consider three groups:• Non-ShopRunner Members

• ShopRunner Members with credit cards

• ShopRunner Members without credit cards

Key Takeaways

Membership Networks

• Leverage the aggregate frequency of network participants

• Create commitment and investment among members

• Allow for segmentation

• Increase LTV

• Source NTF customers

For more information about shopping networks, register to download our upcoming whitepaper:

“Membership-Based Online Shopping Networks:Strategies to help retailers compete for demanding customers”

bit.ly/FFC-WP39

In this whitepaper, we examine the evolving retail landscape and how retailers can

leverage membership-based shopping networks to gain customer loyalty without

heavily investing time and money into building these services themselves.

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shoprunner.com fitforcommerce.com

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