Tech Talk: The best alternative to amazon prime: membership shopping networks_fitfor_commerce_wu_yagan

Challenging Amazon Prime:
Membership Shopping Networks
Bernardine Wu, CEO, FitForCommerce
Sam Yagan, CEO, ShopRunner

2
FitForCommerce
is a specialized
consultancy founded to
help online businesses
accelerate growth.
Trusted advisor to
hundreds of global
companies.
Digital Diligence™
is a philosophy and our
methodology based on
an investment and due
diligence mindset for
decision-making and
execution to ensure
success.
We are the help.
Curated digital
innovation tracking and
applied market advice to
businesses in a CDO-
on-demand service.
Benchmarking of
Top 120 Retailers
for Omnichannel
(Web, Mobile, In-
Store) innovation.

3
Trusted Advisor to 400+ Brands and Retailers

Shopping Networks
The lines between multi-brand retailer, affiliate site, marketplaces are blurred. Shopping Networks are membership based.

Amazon’s Rocket-Fueled Growth in North America
32,865
41,410
50,834
63,708
79,785
88,476
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
2012 2013 2014 2015 2016 TTM
North America Sales (MM)
Source: Amazon Company Reports; eMarketer Calculations

6
Amazon: A Retailer’s Frenemy
30%
60%
Friend Foe
29%
29%
43%
Direct Competitor Partner & Competitor Non-Competitor
Source: “A New Path for Retail: Co-Existing with the Force of Amazon, Bluecore and NAPCO, 2017
Survey of 251 Retail Executives

7
Amazon Prime Free Shipping Leads Amazon’s Most Impactful Services
63%
44%
27%
26%
0% 10% 20% 30% 40% 50% 60% 70%
Prime Free Shipping
Prime Expedited Shipping
Frictionless Checkout
Reviews
Most Impactful Consumer-Facing Services
Survey of 251 Retail Executives
Source: “A New Path for Retail: Co-Existing with the Force of Amazon, Bluecore and NAPCO, 2017

8
Amazon Prime Packs a Powerful Punch to Retailers
40% of Amazon Prime Members Spend Over
$1k Annually vs. Only 8% of Non-Prime Shoppers
9%
26%
24%
16%
10%
7%
3% 2% 3%
34%
46%
13%
5%
2% 1% 0% 0% 0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
%ofShoppers
How much have you spent on Amazon in the past 12 months?
Prime Non-Prime
Prime Members Spend 4.6X More Money on
Amazon than Non-Prime Members
$2,486
$544
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Prime Non-Prime
WeightedAverageSpendPerShopper
How much have you spent on Amazon in the past 12
months?
Prime Non-Prime
4.6X More
Source: Morgan Stanley Research Source: AlphaWise, Morgan Stanley Research

9
Walgreens: At the Corner of Technology and a Fantastic Customer Experience
“Customers who engage Walgreens
via online (70% of customers) and
mobile (50% of customers) channels
are 3.5 and 6 times more profitable
to the company, respectively.”
Deepika Pandey
Group VP of Customer Experience

10
Creative Ways to Increase Customer Loyalty or Boost Foot Traffic

“Our customers are loyal
to us right up until the
second someone offers
them a better service
…and I love that. It’s
super-motivating for us.”
– Jeff Bezos, Amazon
There is no such thing as long-term competitive advantage

Memberships Create Stickiness &
Commitment
• Want to get a date? Sign up for a dating app, even if you don’t
use it.
• Imagine a gym that charged by the day rather than a time-
based membership.
• Prime members escalate their commitment to Amazon by
paying membership fees to access to the associated benefits.

Networks Create Increasing
Returns to Scale
• Networks inherently create value on their
own, even without a membership
requirement.
• Networks with membership requirements
increase the strength of each connection.

Prime Drives LTV & Enables Segmentation
• Prime members self-select by signaling:
• Price insensitivity
• Shipping speed sensitivity
• Shipping cost sensitivity
• Resulting in increased LTV for Prime
members and non-Prime members, alike.

But Most Retailers Focus on NTF
• Despite widespread awe of Prime and its focus on existing
customers.
• Marketing budgets for customer acquisition can dwarf
resources allocated to increasing LTV.
• But why the focus on NTF?

When House File Can Have Huge Impact
• Many retailers report that 80% of sales come from existing
customers.
• “She’s still spending, but we just see her one fewer time than
we used to.”
• More of Amazon’s growth comes from increasing LTV vs. new
customers.

Many Believe in the “Fixed Wallet” Fallacy
• Some people believe in sticky LTVs and a fixed share of wallet.
• Almost all data disprove that fallacy.

Costco Pioneered the Retail Membership
Model
• 45m members
pay $55/ year
• Frequency of
10x / year
• Spend over
$2,500 / year
(2x Prime)

And Prime has Digitized the Model
• Like Costco, Prime improves the customer experience, unlike
most ecommerce loyalty programs.
• Most loyalty programs:
• Free, requiring little or no customer activation
• Promotional rather than experiential, primarily offering a discount
for frequent purchases
• Prime:
• Not free, requiring affirmative customer activation
• Experiential, making shopping better for Prime members

Commitment to Prime Increases
Frequency
56%
of Prime members have
frequency more than 24/yr
13%
of non-Prime Amazon customers
have frequency more than 24/yr

And Conversion (and thus, LTV)
Non-prime traffic converts at
~13%
Prime traffic converts at
~70%

Individual Retailers Struggle to
Replicate Prime
• Some think their loyalty program can do the work.
• Some think they can just give free two-day
shipping to everyone.
• Requires aggressive promotion
• Most customers wont remember
• Bad economics
• Not even Amazon gives free two-day shipping
away.

But Lack the Frequency to Succeed
• More important than Free Two-Day Shipping, Prime is about
frictionless transactions.
• Low visit frequency undermines everything.
• If customer doesn’t have an account, purchase hits lots of friction
• Even with an account, customers likely don’t invest in keeping
shipping, billing data up to speed
• Most customers have to login to access their accounts
• But don’t remember their credentials

But Membership Networks Can
Simulate Prime
• If they get a few things right:
• Aggregate sufficient frequency
• Require activation to join
• Reduce transactional friction of shopping
• Offer valuable, easy-to-remember benefits

ShopRunner Trades Commitment for
Simple Benefits
• ShopRunner leverages of the aggregate frequency of the
network
• High logged-in rates
• Requires members to proactively engage with a new brand,
usually with a credit card
• Higher customer investment
• Reduces transaction friction
• Shipping speed certainty
• Shipping cost certainty
• Seamless checkout

And Drives 60% of Prime’s Conversion Lift
• Prime traffic converts
almost ~6x higher than
non-prime
• ShopRunner traffic
converts ~3.5x higher
than non-ShopRunner

While Increasing Frequency
• On average, ShopRunner customers have 30% higher
frequency than non-ShopRunner customers with each retailer.
• ShopRunner members visit a network retailer more than once
a month.
• The average ShopRunner member spends half as much in the
ShopRunner network as the average Prime member spends on
Amazon.

With the Added Bonus of NTF
• Have been focused on the impact of membership, to
compare to Prime.
• But a multi-retailer
membership network
can drive an NTF
opportunity.

Network Can Provide Access to
Great Customers
• Customers usually join the membership network to get access
to specific retailers, but then get exposure to new retailers.
• If built properly, these self-selecting, proactively engaging
customers should have higher LTV.
ShopRunner’s 2% of US households
generate ~12%-~18% of partners’ sales

Frictionless Transactions vs.
Free 2-Day Shipping
• How can we tease apart these effects?
• ShopRunner has members with credit cards on file and those
that don’t.
• Consider three groups:
• Non-ShopRunner Members
• ShopRunner Members with credit cards
• ShopRunner Members without credit cards

Key Takeaways
Membership Networks
• Leverage the aggregate frequency of network participants
• Create commitment and investment among members
• Allow for segmentation
• Increase LTV
• Source NTF customers

For more information about shopping networks, register to download our upcoming whitepaper:
“Membership-Based Online Shopping Networks:
Strategies to help retailers compete for demanding customers”
bit.ly/FFC-WP39
In this whitepaper, we examine the evolving retail landscape and how retailers can
leverage membership-based shopping networks to gain customer loyalty without
heavily investing time and money into building these services themselves.

3333
shoprunner.com fitforcommerce.com
Booth 839 Booth 1112

Tech Talk: The best alternative to amazon prime: membership shopping networks_fitfor_commerce_wu_yagan

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