The ecommerce membership advantage
Benefits, inspiration & strategies for merchants
Introduction
The modern-day membership
The cost to get customers to return to make another purchase with you has never been higher. Research shows that since 2013, customer acquisition costs have risen 222%.1 Meanwhile, on average, the repeat purchase rate for ecommerce brands hovers around 28%.2
With this in mind, one thing is certain: Retention is more important than ever. And while subscriptions are a valuable way to retain customers, not all products are a fit for this business model.
To keep customers engaged, invested, and incentivized to return, both subscription and non-subscription brands alike are turning to an increasingly powerful strategy: membership programsIn membership programs, customers pay a fee (either one time or on a recurring basis) for immediate access to exclusive benefits and rewards..
And while these programs aren’t a new phenomenon, they’re taking on new forms in today’s rapidly changing ecommerce market—providing connection, community, and deep meaning that extends beyond a brand’s products or services.
Considering starting a membership program of your own? In this piece, we’ll explore the benefits memberships offer to both merchants and consumers and examine real-life examples of successful membership programs.
The $222B membership program: How Costco set the bar
If customers are already paying for your products or services, why would they pay on top of this to join your membership program? The answer can be found in Costco.
Arguably the most valuable and effective paid membership program in history, Costco set the bar high in the 1980s.
Pay a modest fee upfront, then receive unbeatable discounts on every purchase: This simple yet powerful value proposition quickly attracted hundreds of thousands of members.
While membership fees have increased since the company’s inception, the program’s value has stood the test of time. In 2022, Costco’s net sales valued $222.73 billion, a 16% increase from the previous year.3
But the story of memberships doesn’t start—or end—with Costco. From REI’s lifetime membership program, which began in 1938 with a $1 fee,4 to the mail-order wine clubs that stretch back to the 1970s, countless retailers and their customers have found enormous value in these programs for decades.
Today, membership programs continue to evolve. Every day, brands are finding new ways to surprise and delight customers as they shop online, and membership programs are meeting consumers where they are with innovations on discounts, rewards, and community spaces in the digital age.
What hasn’t changed: the ability of membership programs to add incredible value for both merchants and customers.
Section I
Memberships vs. loyalty programs
Often, membership programs are confused with loyalty programsLoyalty programs (also referred to as rewards programs) are free programs where all customers of a brand receive benefits in exchange for specific actions, like making repeat purchases., as the two can share common traits in the benefits they offer both merchants and customers. However, there are key differences in the structure and goals of these programs.
Memberships are paid programs that give participants immediate access to exclusive rewards and benefits. These rewards are typically more premium than those that are offered by free loyalty programs, because in order to attract members, the value of customer benefits must exceed the cost to sign up.
In turn, businesses who offer memberships directly gain revenue through membership fees, and can also offer indirect opportunities for revenue generation by incentivizing repeat purchases.
Key differences & similarities
Membership programs
Loyalty programs
Conditions for rewards & benefits
Customers immediately get access to exclusive rewards and benefits
Conditions for rewards & benefits
Customers can earn exclusive rewards and benefits by performing specific actions
Types of rewards & benefits
Rewards and benefits may be more premium than are typically offered by loyalty programs
Types of rewards & benefits
Rewards and benefits may be less premium than are typically offered by membership programs
Effect on revenue
Directly generate revenue, as customers must pay a fee to join
Effect on revenue
Don’t directly generate revenue, as customers do not pay a fee to join
Audience
Can engage smaller, ultra-valuable groups of customers
Audience
One-size-fits-all programs that engage larger groups of customers
Common exampleWarehouse clubs, where members pay to receive access to discounted products
Common examplePunch cards, where customers earn a free item after a set number of purchases
Section II
The business case for memberships
Implementing a membership program can have an enormous positive impact on a merchant’s bottom line. What’s more, each of the three main benefits of a membership program encourages and strengthens the others. Below, we break down these benefits and their relationship to each other.
Membership programs are a powerful way to keep customers engaged, encourage repeat purchases, and increase LTV with valuable benefits. Studies have shown that paying members of these programs are worth several times more than non-paying customers.
A McKinsey survey found that paid programs drive greater brand affinity, higher purchase frequency, and bigger basket size than free programs. These members are 60% more likely to spend more on a brand after joining, versus just 30% for members of free programs.5
Memberships offer merchants meaningful takeaways about their entire customer base. When a customer makes a purchase in a physical store or through a large, non-DTC online marketplace, precious data about that purchase may be lost. This limits merchants’ access to insights on their customers, making it much more difficult to retain them.
Memberships, however, create an experience customers can only get directly through the brand. This compels consumers to purchase directly from the merchant, and enables the brand to get to know those customers on a deeper level and personalize the shopping experience for them. Ultimately, this becomes a major driver for sustainable business growth.
Today, marketing costs for many retailers are reaching new heights. A report by Gartner found that in 2022, the average budget for marketing made up 9.5% of total revenue.6 And with Google’s elimination of third-party cookies and Apple’s anti-tracking efforts, targeted advertising—a key component of new customer acquisition—has become even more difficult.
Merchants can leverage the insights gleaned from members, along with the revenue generated through program fees and repeat business, to provide even greater value to customers. The membership program and the overall brand then become more reflective of customers’ desires, driving more signups. The longer a brand offers a membership program, the more its value grows.
Section III
Building blocks of a membership program
Membership programs are as diverse and varied as the brands who offer them.
Beyond a brand’s mission statement, the areas where they diverge the most typically lie in their customer benefits and pricing.
Determining these elements is a delicate balancing act. For customers to commit and stay with a program, the value offered to them must outweigh the cost. Meanwhile, for merchants, the revenue it brings in directly or indirectly must exceed the costs to maintain the program.
Membership benefits to attract & retain customers
Tactic
Example
Storewide discounts or special member pricing
A 30% member discount on all products
Free, discounted, and/or premium shipping options
Free expedited shipping for members
Store credit or cash back
$10 off every $100 spent
Exclusive or early access to new products or sales
Access to members-only sample sales
Exclusive access to content
A members-only online magazine
Exclusive access to community spaces
Access to a members-only online community forum
Members-only events
In-person meetups for exclusive experiences related to the brand’s mission
Free gifts
A free item on the customer’s 1-year membership anniversary
Membership pricing strategies to emphasize value
In order for paid memberships to attract loyal customers, their value must exceed their cost. Either the volume of product or discounts and other benefits must pay for the price of the membership, or the membership must grant access to valuable benefits that would otherwise be unavailable.
Factors to consider around membership pricing:
- The monetary value of each of your benefits to your customers
- The frequency of your membership fees
- How frequently your customers are shopping with you (repeat purchase rate, average yearly orders)
- Whether or not you plan to offer different levels or tiers of membership with different benefits and pricing
- Your AOV and LTV compared to your proposed fees—for example, if your AOV is $55, your monthly membership should cost less than this
In order for paid memberships to attract loyal customers, their value must exceed their cost.
How can subscriptions and membership programs work together?
While membership programs and subscriptions can work independently of each other, certain brands may get even more value from combining the two. This can be particularly effective for companies who sell products conducive to a subscription, like skincare or household supplies that need to be replenished regularly.
Alongside their subscriptions, these brands can offer a membership option that allows subscribers to get even more value out of their recurring purchases. Additional benefits could include free shipping on every order, special gifts in every delivery, or access to exclusive content.
By combining memberships and subscriptions, merchants can gain deeper insights on their most loyal customers and access multiple sources of recurring revenue. They may even convince customers to purchase all their items in a certain category from them due to the powerful membership benefits they offer.
Section IV
Merchant membership inspiration
To help you envision your brand’s ideal membership program, we’re spotlighting three Recharge merchants from different product verticals who excel at memberships.
Find out how each takes a different approach to the membership model, how they structure their pricing, and the unique customer benefits they offer.
Discover brands who make the most of memberships
Based out of Australia, Part&Parcel is a one-stop online shop for a variety of household staples, such as groceries, cleaning supplies, personal care items, and even pet products. Their premium, sustainable, and ethically sourced products are rigorously vetted for quality, as well as for accuracy of health claims.
Part&Parcel also aims to make these items more accessible to their customers, which they approach through their membership program, Parcel Club. Participants can save up to 30% on every purchase, and receive additional benefits such as half price delivery, member-exclusive discounts, and gifts.
This not only allows customers to receive high-quality products at reduced prices—it also allows the business to focus less on product margins and instead rely on predictable recurring revenue. In this way, they demonstrate their value to members and maintain the meticulous product curation process that attracts and retains their loyal customer base.
Customer membership benefits
- Member pricing
- Half price delivery on orders over $95
- Exclusive discounts, gifts and offers
- Membership savings guarantee
Where they innovate: Communicating value
One of the most unique aspects of Part&Parcel’s membership program is its savings guarantee. Membership prices are shown alongside RRP (recommended retail price) for each product to showcase cost savings. If customers don’t make back the price of their membership fee in savings during their first year, the company will refund the difference in store credit.
In order for customers to buy into your membership program, they need to know that the benefits and value outweigh the cost. As a merchant, your task is to make this value—particularly any cost savings for the customer—as clear and compelling as possible.
Many merchants use strategies like price framing and anchoringAn important marketing and sales strategy, price anchoring showcases discounts to customers by comparing one initial price to another, lower price. to make it immediately clear to customers just how much they can save by becoming a member. This can be done not only with recommended retail prices, but also with non-membership prices and competitor prices, and can be paired with information on percentage discounts or specific dollar amounts in savings.
Early Majority is an apparel brand that specializes in flexible, stylish, high-quality outdoor and streetwear clothing. Their premium pieces are built to last and layer, with capsule collections that can create versatile wardrobes for different locations and climates.
The brand focuses on reducing environmental impact and waste by avoiding overproduction. Its membership program helps solve for this, allowing Early Majority to produce high-quality items in small quantities and members to benefit from substantial discounts on every purchase.
Customer membership benefits
- Exclusive member prices on both individual items and capsules
- First access to all products
- Exclusive product launches
- Members-only community events
- Members-only online journal
- Premium lifetime membership NFT with additional benefits also available
Where they innovate: Mission-driven content
Beyond the dollar savings, Early Majority’s membership program offers enormous value with its community-driven content. A members-only online journal, Tools for Leaning Out, provides interviews and mission-driven articles with insights related to art, adventure, and activism.
Proving your worth to members is a constant process that goes beyond the discounts you offer. To provide deep meaning beyond just products or services, many brands use exclusive content to add value.
Depending on your mission and product vertical, this content could take many different forms. You could offer a blog with educational or inspirational content that helps customers get more out of your offerings, or create members-only community spaces and events that allow participants to connect over shared values.
By connecting your content to your mission and adding new articles or events regularly, you demonstrate that you are more than a merchant—you’re an active participant in your customers’ lives.
Reimagining the traditional butcher shop, Herd & Grace is a delivery service for premium cuts of Australian and Tasmanian beef. The company sells both individual cuts and subscription boxes, and organizes its high-quality steaks into collections based on the box theme, cut, marbling, and more.
Their membership offering, H&G Club, is geared toward customers who average six purchases per year. For an annual fee, customers receive a 10% discount on all products, as well as shipping credits and a high-quality welcome gift valued at $150. In addition to giving members access to sought-after cuts that sell out quickly, Herd & Grace also adds free steaks to the boxes of members who purchase often.
Customer membership benefits
- Member discounts on every purchase
- Credits for free shipping
- Access to exclusive products and collections
- A free welcome gift valued at $150
- Memberships can be paired with subscriptions and product bundles for more savings
Where they innovate: Communicating value
When purchasing perishable goods online, shipping costs can add up quickly. As a benefit to members, H&G club offers up to $80 in shipping credits with every order. This means that with just over 2 orders per year, members make back the $180* annual fee on the shipping benefit alone.
For many customers, shipping discounts can be one of the most compelling reasons to sign up for a membership program. According to Statista, in 2020, free delivery was the leading reason customers gave for purchasing a product when shopping online, beating out other factors like coupons, reviews, loyalty points, and more.7
For certain verticals, due to product weights or packaging materials, shipping can be quite costly. For example, perishable goods may require ice packs to keep items cool in transit, which add weight and volume to a shipment—and beverages are often heavy, which can increase the cost of delivery.
This reassurance that members won’t have to pay extra for shipping costs can be incredibly valuable to them. To add value to your program, consider offering free shipping with every delivery, a fixed percentage or dollar amount off of every order’s shipping costs, or even free shipping for product returns and exchanges.
Recharge Memberships
The success of your membership program hinges on your ability to tailor it to fit the needs of your customer base. With Recharge MembershipsCurrently available to merchants participating in our Early Adopter program., you can offer valuable benefits that keep your customers coming back for more.
Programs with Recharge Memberships are fully customizable, allowing you to set the specific price point, charge frequency, and benefits that matter most to your business and customers.
Whether you’re looking to offer memberships alone, or both subscriptions and a membership, Recharge is here to support your journey.
Benefits you can currently offer with Recharge Memberships:
- Reduced storewide or collection-specific member pricing
- Free or discounted shipping options
- Exclusive and early access to new products and sales
- Exclusive access to content
Additional benefits are coming soon:
- Cash back on member purchases
- One-time and recurring shopping credits
- Anniversary and birthday shopping credits
- Member-only one-time and recurring discounts