From the monthly payments we make for entertainment streaming services to the annual fees we pay for computer programs we use at work, the "membership business model" is becoming more prevalent in our lives. Also called the "subscription model," this form of operation provides customers access to products and services through payment of recurring payments, as opposed to a one-time purchase. This lets businesses generate constant revenue streams. As companies seek ways to maintain a more consistent relationship with customers, retailers—including warehouse stores—too, are adopting the model.
THE RISE OF MEMBERSHIP MODEL IN RETAIL
Typically, subscriptions provide customers with various levels and membership types that vary in benefits. The model differs from conventional ones in that it emphasizes customer retention through strategies such as providing access to membership privileges, premium positioning, and community-building. Services industries, such as gym training or news sites, have been early adopters of the model, but it is now expanding into other industries. For instance, there is a store specializing in warehouse retail in Thailand that requires customers to apply for membership without charge before purchasing products. However, patrons can pay for membership at the premium level to receive discounts and free shipping on online purchases. The shop offers more than 3,500 items across all categories in an area of 15,000 square meters, and new products are added to the store weekly.
WHY RETAIL SUBSCRIPTION MODEL WORKS?
A representative case study is Costco. While other retailers were disrupted by the pandemic, which slashed customers number, the American retail giant—which operates with a subscription model—was not. It achieves success in "making a profit before selling things" by providing three annual memberships: gold-star, business, and executive. Each of these has different costs and benefits that allow the store to derive most of its profits from membership fees paid by many patrons rather than from high sales volume. Also, customers who pay membership fees in advance are motivated to shop more, compounding the benefits the shop receives. As such, Costco can maintain steady revenue and reduce its costs. Within a few years, it could increase the number of cardholders for membership by offering customers exclusive bulk pricing on merchandise and facilitating online shoppers with its e-commerce service.
With the membership model, companies can meet the demand of their members and receive a steady revenue stream. However, to maintain a loyal customer base, it is imperative that businesses continue developing products and services that give customers an excellent and valuable experience.
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