Is retention the new acquisition? Looks like it. And retail memberships are giving customers a reason to return again and again.
In Q2, DTC revenue grew only 10% YoY – the slowest rate since pre-pandemic. And with CAC reaching nauseating heights, new customer sales dropped 8% YoY.
Meaning, repeat business (up 25% YoY) was "solely responsible for DTC growth" last quarter, per Repeat.
But how can brands guarantee this repeat business?
Enter retail memberships
Retail membership programs offer customers exclusive benefits for a small (typically) annual fee. All while being a more lucrative way to squeeze recurring revenue out of existing customers.
- Lululemon is launching a 2-tier membership program. The free tier offers early access to launches, member-only products, and invites to in-person events. The $39/mo tier includes all the free benefits, plus access to online fitness content.
- For $199/yr, Best Buy Totaltech gives members discounted pricing, 24/7 GeekSquad support, free delivery and installation, and extended returns.
- REI Co-Op offers a $30 lifetime membership. With it, customers get early access to limited-edition gear, free shipping, 10% back annually, and 20% off shop repairs.
But do people actually pay for these memberships? Sure do!
Roughly 62% of US households subscribe to at least 1 retail membership. 54% of households subscribe to Amazon Prime and 8.1% to Walmart+.
Memberships' close cousin, subscriptions…
…Have also gained traction recently. (An estimated 75% of DTC brands will offer subscriptions by 2023.)
However, as the market inflates, people are re-evaluating their spending.
This has led the average US consumer to drop 1 of their 5 retail subscriptions since October. And as folks become more cost-conscious, they'll likely let go of a few more.
Why? Because subscriptions are a long-term (forever?) financial commitment. Sure, the automatic refills are convenient. But if the customer doesn't want (or use) the product as quickly as it refills, the recurring charges aren't "worth it."
After all, why pay for automatic refills if they come when there's still plenty of toothpaste in the tube?
Memberships are less likely to be canceled
Meanwhile, membership fees are typically charged in-full, up-front. For example, REI asks at checkout if customers want to add lifetime benefits for a 1-time initiation fee.
This makes the membership fee more of an impulse purchase than a budgeted expense. One that promises to be a gift (think of all the benefits and potential savings) to your future self.
Whether or not customers actually use these benefits is another story (but most members will). And when the membership expires, calculating if the upfront fee is "worth it" isn't as simple as checking if you've collected a toothpaste stockpile.
And it's typically not as logical. If your customer got $6 ground shipping free once and early access to product launches, that could be enough to find the $50 membership worth it – and justify paying for another year.