Last week, I received an alert from Amazon to remind me of its first ever “Prime Day” – reserved for Prime members. I felt special and that I belonged to this exclusive Prime club. In commemoration of Amazon’s 20-year anniversary, it announced “Prime Day” as a one-day only event filled with more deals than Black Friday, exclusively for Prime members around the globe.
But when I went to buy things that I already had in my mind to buy, I could not find a deal anywhere. I felt right at home with all the #PrimeDayFail Tweeters. But Amazon had the last laugh – the company sold more products on Prime Day than Black Friday in 2014.
The experience compelled me to evaluate the memberships that I’ve purchased. Have you ever had a hard time deciding whether you should keep (or invest in for the first time) a store membership that has an annual fee?
I’m a big fan of purchasing memberships that produce a lot of value. Overall, I think there are 4 main factors in evaluating store memberships that have a fee attached:
- Re-coup annual fee. You must ask yourself if you think you’re going to recoup your annual membership fee through the savings that the membership promises on goods that you would have purchased anyway. For example, I pay $99 per year for an Amazon Prime membership, and I’ve saved way more than $100 in shipping fees on gifts and products that I would have purchased in a physical retail location.
If you find yourself buying many more items than you originally planned on, the retailer has done a marketing job on you. You are not getting a deal if you buy something that you did not intend to buy.
- Convenience and time saver. Your time is often worth more than money because you cannot get it back. If a membership takes some of the stress off of your daily grind or prevents a trip to the store, then this has incredible value in your life. If a store’s membership feels like an extra stressor, then are you really going to jump at the chance to use that stressor.
I also have a Costco membership, which costs $55 annually and can be used at any worldwide Costco warehouse locations. I have to strategically plan my visit when lots of people are not there so I don’t get overwhelmed by the crowds of people. In this case, I tend to re-evaluate my Costco membership every time I pull into the parking lot. And, I cannot seem to leave Costco without spending less than $150 even though I’ll only go in there for 3 items but come out with many more.
On the other hand, my husband or I order something from Amazon at least once a week. And, I’m sure the UPS worker who delivers our packages hates us – he has to climb four flights of stairs every time he comes to our building. The convenience of not having to go to the store or the post office to mail something is wonderful.
- Let’s face it – most people like being part of an exclusive club that purportedly has benefits that others do not have. We feel like we’re part of a special club with our other members. Amazon used this tactic to lure hundreds of thousands of new members on its Prime Day last week. Amazon hyped up the day so much that non-Prime members wanted in on the deal.
I also have a United credit card membership that charges me $50 annually, and I have yet to feel exclusive through the membership. I still pay baggage fees and the value of my miles seems to go down every year. They’ve got me cornered, however, because I’ve had my United card since I was in college and I do not want to open another credit card and I want my miles; my switching costs are extremely high because I’m already vested in the United brand.
- The public stock is appealing. You should ask yourself if you would buy the underlying public stock of the company in addition (or in lieu of) the membership. Companies that have strong membership models tend to have very strong business models, which should help the public stock grow. Over the last 5 years, Amazon’s stock has gone up over 300% and now trades at $477. The company earned $88 billion in revenue in its 2014 fiscal year. Amazon does not break-out its membership revenue nor specifically tell you its members, but it claims tens of millions of Prime members. As a guestimate, Amazon derives over $4 billion in revenue from its 40 million membership base.
Costco’s stock has gone up 167% and now trades at $144, and the company proudly boasts its 42 million paid cardholders and 663 warehouses. Of the company’s $110 billion in sales in fiscal year 2014, $2.5 billion was derived in membership fees. Also, Costco’s retention rate is approximately 87% worldwide.
Now, the market has gone up over the last five years too, but companies like Costco and Amazon have created a stickiness with their membership bases that cannot be ignored.
What’s a lady to do?
At this juncture, I’m going to keep investing in my Amazon and United memberships, but I will probably kick Costco to the curb soon because I’m not extracting a lot of value from the membership. You have to do what’s right for you, but make sure your decision is an active one so that these companies earn their fees.
What investment (or not) will you make in an annual membership?
Use Hackathons to Go from Zero to Business Impact in a Week
Homer Simpson vs Mr. Burns
7 Ways to Effectively Lead a Team on Different Schedules
6 Things NOT to Do with Gatekeepers
How to Close Skill Gaps During Tech Disruption
How Do YOU Find Happiness at Work?
6 Ways to Marie Kondo Your Sales Process
Estate Planning in Second Marriages
Why Companies Should Focus on Employee Health
Retirement Medical Costs Not So Scary When Seen Yearly
Advisor12 hours ago
Homer Simpson vs Mr. Burns
Insights22 hours ago
Europe: The Good, the Bad and the Ugly
Markets22 hours ago
The Mad March Bounce
Development22 hours ago
Persevering Through Daily Mundane Is the Quickest Path to Success
Markets1 day ago
What’s Causing Investors to Come off of the Sidelines?
Sales Strategy2 days ago
7 Key Components When Selling to the C-Suite
Equities2 days ago
Should We break-up Facebook, Google, Amazon, Apple?
Global2 days ago
Don’t Be Fooled by the Politics of Envy