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Retailers turn to fee-based loyalty programs in bid to keep customers

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  • Dec 19th, 2018 1:38 pm
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Retailers turn to fee-based loyalty programs in bid to keep customers

Retailers turn to fee-based loyalty programs in bid to keep customers
It’s the latest twist to rewards programs: the consumer pays.

From giant grocer Loblaw Cos. Ltd. to premium yoga fashion chain Lululemon Athletica Inc. and home-goods e-commerce specialist Wayfair Inc., retailers increasingly are charging customers a fee – from about $35 to $128 a year – to sign up for loyalty programs. In exchange, consumers get perks such as free shipping and access to exclusive products or events.

For retailers, it’s more than just about generating revenue from memberships. Companies feel the pressure in a digital world to entice shoppers who can easily switch loyalties after checking their mobile devices for a better deal elsewhere...
The article is behind the G&M's paywall but essentially it says that with the proliferation of loyalty programs, retailers want to lock customers to their program. Paradoxically they've found that people who pay to join a program spend more than those who don't pay, perhaps because once you've paid to join you're going to try to maximize the value from that fee by buying more stuff. Also the retailers claim that it costs them money to offer the added perks like free, expedited shipping.
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bylo wrote:
Dec 16th, 2018 11:06 pm
Retailers turn to fee-based loyalty programs in bid to keep customers
The article is behind the G&M's paywall but essentially it says that with the proliferation of loyalty programs, retailers want to lock customers to their program. Paradoxically they've found that people who pay to join a program spend more than those who don't pay, perhaps because once you've paid to join you're going to try to maximize the value from that fee by buying more stuff. Also the retailers claim that it costs them money to offer the added perks like free, expedited shipping.
Makes sense as that's what Costco and Amazon do.
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engineered wrote:
Dec 16th, 2018 11:17 pm
Makes sense as that's what Costco and Amazon do.
Not online. You can get stuff without membership on the Costco website and still get free shipping without amazon prime.
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pitabread wrote:
Dec 16th, 2018 11:46 pm
Not online. You can get stuff without membership on the Costco website and still get free shipping without amazon prime.
Yea, but the point is paying members get more, lower prices in store at Costco, plus free food tasting, cheap hotdogs, other perks. Amazon, free shipping, extra deals, Prime video, etc.
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engineered wrote:
Dec 16th, 2018 11:17 pm
Makes sense as that's what Costco and Amazon do.
Those are two different models. You can't shop at Costco without a membership. Yes, there are exceptions like online, gift cards, professional health care, etc. but in general you need to pay for a membership.

By contrast you can buy most merchandise on Amazon without a Prime membership. You may pay more and/or may have to wait longer to get it, but you don't need a membership. The same applies to the PC Insiders program and the other programs discussed in the article.

Also, until now Costco and Amazon were anomalies. The article suggests that the paid membership model is becoming much more popular. I wonder if the day will come when it becomes the norm, perhaps among the biggest store chains, and some smaller stores start to market as "no membership fee required" in order to differentiate themselves.
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TomLafinsky wrote:
Dec 17th, 2018 12:21 am
This is old news in the sense the marketing dept of companies are always looking for ways to make a prisoner out of the customer. That's why bundles exist. Rogers, Bell, etc they have always taken this approach. That you have to pay or not a fee upfront is irrelevant. The bottom line is that the customer is always losing when he is concentrating too much of his purchases in one single place.
Of course. But bundles are designed to lock customers in by offering lower prices. In part the telcos can afford this because bundling saves them on administration, billing and support costs. It also helps them plan for future capacity needs because bundled customers are less likely to churn. [The telcos are also a special case in that they operate as an oligopoly. One raises the cost of a cellphone plan by $5 and within hours the rest follow suit. So they operate in a cozy world where they can milk the market for all it's worth. That's not the cut-throat competitive world that a Costco or Amazon operate in.]

The paid membership model is fundamentally different in the sense that consumers have to pay to play. Moreover once they've paid they're more likely to pay higher prices at that store than elsewhere. The logic behind that is that once they've paid, consumers will be locked in by the cost of membership and by the prospect of earning "rewards" by shopping there. (I've pointed out many times on the PC Optimum/Insider threads that a lot of the merchandise sold by Loblaws/SDM chain stores can be bought for a lot less elsewhere than the value of the points PCO/PCI members "earn" on it.)

Presumably few consumers would pay to join multiple membership programs offered by competing retailers, e.g. Home Depot, Lowes/Rona and Home Hardware. They'll choose one and steer their business to it. Again that tends lock them in more tightly thus becoming less sensitive to higher prices.
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engineered wrote:
Dec 16th, 2018 11:58 pm
Yea, but the point is paying members get more, lower prices in store at Costco, plus free food tasting, cheap hotdogs, other perks. Amazon, free shipping, extra deals, Prime video, etc.
I get what you're trying to say, but not always the case. I found value with Amazon because they always had cheaper prices than everyone else, but it's changing a bit with Walmart and other retailers trying to compete. Walmart even offers subscription discounts now similar to Amazon without a paid membership. btw cheap hotdogs are costco doesn't require a membership.
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pitabread wrote:
Dec 17th, 2018 11:49 pm
I get what you're trying to say, but not always the case. I found value with Amazon because they always had cheaper prices than everyone else, but it's changing a bit with Walmart and other retailers trying to compete. Walmart even offers subscription discounts now similar to Amazon without a paid membership. btw cheap hotdogs are costco doesn't require a membership.
Amazon isn't always cheaper. They do have deals that are cheaper very often regular stuff like their subscription options are regularly cheaper in stores. All of the stores have more than the membership to bring people in, otherwise nobody would buy the memberships in the first place.
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Amazon Prime is worth it just for the photo backup.
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caltran wrote:
Dec 18th, 2018 1:04 am
Amazon Prime is worth it just for the photo backup.
The 5GB limit for videos and files makes it useless - or on par with the discussion here where they lock you in with the $8.99 a month for prime and "unlimited" photo storage - and then you're locked into paying an extra $10 a month for 1TB...I'll stick with Dropbox...
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TomLafinsky wrote:
Dec 17th, 2018 12:21 am
This is old news in the sense the marketing dept of companies are always looking for ways to make a prisoner out of the customer. That's why bundles exist. Rogers, Bell, etc they have always taken this approach. That you have to pay or not a fee upfront is irrelevant. The bottom line is that the customer is always losing when he is concentrating too much of his purchases in one single place.
The main objective of any marketing dept is always the same; how can we keep the customers from shopping elsewhere. Costco does it with a paid membership and a 2% cash back for premium membership. Rogers does it by pushing its bundles.
Rogers and Bell truly do make a prisoner out of their customers by heavy use of contracts and cancellation fees on those bundled products and on the bundles themselves. You might get a discount initially by signing the contract, but you'll pay through the nose if you dare cancel any part of it. (and let's not forget those promo rates that suck you in, don't last...)

There's no such equivalent with, say, Costco, Amazon, or the airlines. You can cancel your Costco membership at any time and get a full refund... without having to pay a penalty. Amazon Prime doesn't penalize you if you decide to shop with somebody else (whether online or B&M). If you're an Aeroplan member you don't get penalized if you decide to fly with somebody else (you deny yourself Aeroplan miles and possibly elite benefits, but AC doesn't DEDUCT miles nor charge you a monetary penalty should you break that loyalty and take a WestJet flight one time) If you call yourself a prisoner of Costco, Amazon, or any airline, that's your own doing.

I believe where Canadian consumers truly are prisoners, are of monopolies, duopolies, overly dominant players, and of course cartels. Duopoly of airlines. Monopoly dairy/poultry cartels and government-run alcohol sales/distribution. Telecoms that collude to charge about the same for the same products, and raise prices in sync. Only 1 surviving "warehouse club" chain (vs the USA where they have at least 3). 1 big online retailer that gets probably 90% of all online sales. 2 bricks-and-mortar retailers that blanket the country with over two dozen banners in order to snuff out/scare away foreign competitors (if they ever decide to merge, the government MUST block that deal). And so on. To borrow what you said, the customer is concentrating his purchases on so few places because he doesn't have the option to buy from somebody else.
Last edited by EastGTARedFlagger on Dec 18th, 2018 5:18 pm, edited 4 times in total.
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Seen this with more premium brands, and provide offerings like early ''dibs'' on BF or other deals..

Honestly this doesn't work if the destination is not a popular visit for that customer...

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