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Retailers look to membership programs to spur growth

The trend: Best Buy and Walmart are increasingly looking to membership programs in the mold of Amazon’s Amazon Prime and Apple’s AppleCare to provide them with a recurring revenue stream and deepen ties with customers. 

More on this: There's a good reason for the push: Amazon generated $31.77 billion in subscription revenue last year (the vast majority of that is from Amazon Prime memberships), which was a 15% jump year-over-year. 

  • Amazon’s subscription revenue stands to continue to soar this year thanks to an increase in the cost of its Prime membership for US subscribers.
  • The majority of Prime members plan to continue to subscribe after the increase, per CivicScience. That would be in line with historical trends.

The value argument: Both Best Buy and Walmart are pushing their membership programs, TotalTech and Walmart+, by highlighting the significant value that members receive. 

  • TotalTech launched in October for $199 per year. It offers benefits including product discounts and periodic access to hard-to-get inventory, free delivery and installation, free technical support, and extended warranties on products.
  • “Because the membership is so comprehensive, it has broad appeal among our customers,” said CEO Corie Barry, during the retailer’s earnings call last week. “There is truly something for everyone. And the benefit that’s most appealing can vary based on a customer’s unique shopping journey or their stage in life.” 
  • Walmart rolled out Walmart+ in September 2020 for $98 annually. The program provides free delivery on items purchased from a shopper’s store—including groceries—free shipping for online orders, discounts on prescription drugs and fuel, and access to mobile scan-and-go service. 
  • Last week, the retailer also launched an exclusive three-week sales event for Walmart+ members. It is reminiscent of Amazon’s Prime Day, which has grown into a major sales event since its 2015 launch. 

Holiday bump: The number of consumers who pay for membership programs tends to increase during the holiday season and drop off in the following months, according to research conducted by Bizrate Insights for Insider Intelligence.

  • 70.2% of households paid for Amazon Prime in December, a 5.7 percentage point jump from October. That share then fell to 61.6% in February. 
  • Similarly, 18.3% of households had Walmart+ access in December, a 5.3 percentage point increase from October. The share of those households then fell to 15.1% in February. 
  • 8.8% of households paid for TotalTech in February, the first time that Bizrate asked about the service. That’s a larger share than Nike Membership (7.1%), Instacart Express (5.9%), and Target’s Shipt service (2.9%). 

The big takeaway: Membership programs can significantly boost customer lifetime value. 

“These programs offer the retailer the ability to understand the voice of the customer from their feedback and from their behavior, which can be two different things,” said Patty Soltis, eMarketer principal analyst at Insider Intelligence. “Companies that execute this well take the combination of feedback and behavior to tailor their marketing programs and personalize.”