How the Amazon Prime Effect is Leading Retailers to the Subscription Model
Jeff Bezos recently opened his company’s annual shareholder meeting with the news that Amazon had reached an impressive milestone: $100 billion in annual sales. What’s more, they reached this number faster than any other company in history. Along with this impressive stat, Bezos reported on their Amazon Prime offering—their annual subscription service that gives subscribers free two-day shipping along with unlimited access to movies, TV shows, music streaming, and other perks for $99 a year.
Amazon is the largest online retailer in the world (WalMart takes the prize for being the largest retailer of any kind). Amazon’s Prime membership program is their first foray into the world of subscriptions, and Bezos reported 51% year-over-year growth in paid memberships, a not insignificant feat even for Amazon. And because Amazon has such an outsized influence in all things e-commerce, the Prime model is having a ripple effect across many brands.
Take, for example, Lands End which is re-launching Canvas, a clothing collection for younger, more style-conscious shoppers. It originally debuted in 2009 but didn’t gain traction and was abandoned after a few years. Its return isn’t as interesting as how it’s being sold: as a membership (i.e. subscription) offering. Now called Canvas by Lands End Circle Membership, for $50 per year, customers get free shipping and returns, 20% off all full-priced items, and a few other perks.
These kinds of programs work because they tend to build loyalty—that’s the goal anyway.
It’s certainly worked for Amazon, which is estimated to have 40 million subscribers to their Prime program. And Lands End is banking on the same effect with their membership program, which they hope will turn occasional shoppers into regular ones. Because they’ve paid for the membership, Lands End is hoping that shoppers will go to their site first before they look to other retailers where they don’t get any benefits such as free shipping. Everyone would like to have some of Amazon’s magic.
Having just launched in early May, it’s too soon to tell if the model will work for Lands End. But there’s reason for optimism since many other retailers are jumping on a similar bandwagon. No less a standout brand than Sephora is launching a subscription offering, called Flash, that for $10 a year gives customers two-day shipping on all online purchases. Not to be left behind, Restoration Hardware also recently launched a program in which customers pay $100 a year to receive 25% off all purchases (in addition to some other perks). Even Apple now offers a subscription plan for your next iPhone purchase.
And finally, Walmart—the largest retailer in the world—has tested a subscription offering called Shipping Pass. For $50, customers get—you guessed it—free three-day shipping on all purchases. Originally an invite-only affair that included a subset of online products, they’ve recently announced a new plan that provides TWO-day shipping for $49 a year with no minimum order requirements and free online and in-store returns. Customers can add their name to a waiting list for when the service becomes available in their area.
Myriad industries have discovered the power of the subscription model. From software to services, pet food to razors, the subscription model offers benefits to both businesses and consumers.
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