Last week, Amazon announced that Prime Day this year will be October 13-14th, and the retail industry cheered.
For those not following along, Amazon’s Prime Day is usually in July. But given the strangeness of 2020, Amazon decided to put Prime Day on hold as they focused on solving the logistical challenges they were facing. So why are retailers cheering? The thinking, the hope, is that Prime Day essentially moves the beginning of the holiday shopping season up a month, giving a lifeline to a moribund retail industry.
I’m not so sure it will help much, though. In fact, I’m not even sure that Prime Day matters anymore.
Why? Because right now, every day is Prime Day! Being stuck at home has normalized e-commerce for practically everyone in the country. We’ve all been trained to be able to buy something as soon as we can think of it. Just look at all the new infrastructure and learned behavior we’ve developed around grocery and package delivery, and how the big box stores have essentially turned into fulfillment centers and pick up/drop off locations.
And overall, I think that’s good for all of retail, not just Amazon. But not in the way you might think.
For decades, the entire retail industry has been following the same basic formula: promote the heck out of your product with discounts and jingles, and then hope that some basic consumer psychology kicks in when your target consumer goes to the shops or wanders down the supermarket aisle. This strategy culminated in the biggest Pavlovian stunt of them all, Black Friday, in which every year people fight over television sets in crowded stores.
It’s a completely messed up system; a total race to the bottom. The holiday season is a glaring example of everything that is wrong with the retail industry today. According to the National Retail Federation, holiday season sales can represent up to 30% of total annual sales for some retailers, and if they don’t hit their numbers, they’re done. Talk about Black Friday! It’s a make-or-break situation that’s completely self-inflicted.
“Holiday shopping is now almost entirely deal, convenience and novelty-driven,” says Alexei Agratchev, CEO of RetailNext. “Massive holiday discounts are just a race to the bottom, and retailers can no longer absorb the losses. They need to prioritize year-long delivery of friction-free, delightful shopping experiences. The days of retailers ‘pushing’ products, dictating where and when and how they can be bought, are over. Shoppers are in control now, and they want to be able to ‘pull’ what they want from retailers on their own terms.”
This diagram shows you the difference between legacy retail and the new retail:
In the old model, you try to sell as many units as possible through as many channels as possible, and your poor lonely customer sits at the end of that supply chain process, anonymous and dispensable. That’s the “push.” In the new circular model, your customer (or better yet, subscriber) sits squarely in the middle of your business model, preferably through a paid membership program. This is the “pull.”
What do you get with the new model? You get predictability and resiliency, with less dependence on discounts and promotions. You get a healthy retail business supported by steady recurring revenue from a dedicated subscriber base. You don’t have to start throwing discounts at strangers every Halloween.
Look, I understand that holiday sales will always be important to retailers. But if you were a retailer, wouldn’t you want them to be less important? If you’re a retailer chained to the holiday season, how do you rid yourself of this horrible addiction?
If you’re a retailer, it’s never too late to launch your own version of Prime. You just need two things: a seamless online experience, and a paid membership program. Just ask yourself: How many repeat customers do you already have? How many love your brand enough to want to be a member? Your customers should be paying you to join your membership program, not the other way around.
What if instead of trying to buy loyalty with discounts and promotions, you built real loyalty with a great retail experience that your customers are happy to subscribe to?
Just take a look at Costco. Costco makes hardly any money on the products it sells, but it’s a massively successful business that has been called “Amazon proof.” Why? Because it asks its members to pay for memberships. Membership sales represent about 2% of Costco’s overall sales, but practically 100% of its profits.
When someone pays $60 for an annual Costco membership, they are literally and figuratively investing in Costco. They understand that it’s in Costco’s interest that members receive way more than $60 for their membership, so the deal makes sense. But more importantly, Costco members demonstrate active loyalty, as opposed to just passively receiving freebies.
Not surprisingly, the Costco model is catching on. As Retail Prophet notes in an article titled Why Paid Memberships are the New Loyalty, “Getting a customer to lay down a membership fee forms an entirely new degree of mutual commitment. Even a small sunk cost will make a customer implicitly more engaged with a brand.”
Costco Co-Founder Jim Sinegal famously explained his business model to Jeff Bezos in a Starbucks in 2001, and now here we are: Amazon Prime is in half the households in the United States.
Amazon had e-commerce subscriptions all to itself for a while, but now the other big brands are catching up. Target’s Shipt delivery service is growing at 350% year-over-year. Canada’s largest grocery chain Loblaw recently launched their own membership program. Roughly 11% of Americans have already subscribed to Walmart Plus.
Retailers, free yourselves from the tyranny of Jingle Bells! Turn your customers into subscribers! Make every day Prime Day!
For more insights from Zuora CEO Tien Tzuo, sign up to receive the Subscribed Weekly here. The opinions expressed in the Subscribed Weekly are his own, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.
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