Amazon Prime vs. Costco Membership: Which Has Higher Retention, and What Does it Mean for You?

2 Comments

Amazon Prime vs. Costco Membership: Which Has Higher Membership Retention

Amazon Prime now has more members than Costco and higher retention. But which company is the best for you to emulate?

Amazon’s CEO Jeff Bezos reported that Amazon Prime membership exceeded 100 million members. At $99.00 annually, this has turned into a huge profit center. But there’s more. Prime members spend more than four times more than non-Prime customers with Amazon each year.

Meanwhile, you can’t shop at Costco without a membership, which start at $55.00 annually. As of its fiscal 2017 annual report, Costco boasted 90 million members. That’s 10 million fewer members than Amazon. This means Amazon now outpaces Costco by a factor exceeding the population of 43 U.S. states!

But that’s not all. Amazon Prime’s member renewal rate is estimated to exceed 90 percent, while Costco, recognized for its longtime customer loyalty, has a retention rate in the upper 80s.

Amazon has the reputation of having the cheapest prices. However, Costco is consistently 10–25 percent cheaper than Amazon in every price comparison I’ve seen. And yet, Amazon Prime is growing faster, has more members, and has better retention than Costco. How can this be?

This illustrates the key mistake most subscription companies make: Deliver more value. I’ve seen it in publishers, subscription boxes, associations, SaaS companies, and everyone else. There’s more and more pressure to deliver ROI and value. There are entire conferences focused on how subscription and membership companies can deliver more value. I call that bullshit.

If the value isn’t in the pricing, why does Amazon have so many Prime members? (And don’t tell me it’s because of the streaming movies. Many of Amazon’s shows are entertaining, but relatively few of Amazon’s 100 million Prime members are watching them.)

Amazon Prime wins because of the convenience. Amazon has successfully positioned their “store” as a cheap place to shop; however, Prime is about free two-day shipping — the power of having almost any product delivered to your door within two days. That’s awesome. Costco can’t do that.

As one of the first Prime members, I felt good about myself because I bought using such a convenient service. I was excited to tell people about how they could get almost anything they could think of delivered within two days. I felt like I had a new super-power to make almost any product appear at my doorstep within two days. My Prime membership elevated my perceived social status.

The Costco experience is much different. You’ve got to get in your car, drive over to the store, go up and down aisle canyons to find what you are looking for, take it to a checkout experience resembling the TSA line at the airport, show your receipt to get out the door, and then load your merchandise into your car inside some motley collection of leftover boxes. Sure, you saved money, and yes, the experience at most Costco stores is better than Sam’s. But still, Amazon feels amazing.

So let me ask you a question: What experience do you deliver to your members? Does your membership require a lot of laborious steps, or is it amazing? Do your members say “wow” to themselves each time your package shows up?

Subscriptions and memberships are luxury goods. They are purchased only by people with disposable dollars to invest. And if you want to be the one with the best retention, you must deliver a unique experience.

Just a few minutes ago, I finished a consultation with a new client. His product is something you’d consider really boring. However, through his Member On Ramp, we’ve repositioned his membership as a way to improve the status of his member. We’ve take an advocacy role for our members, most of whom are underappreciated and poorly compensated. And we’ve made this subscription the doorway to increased respect and career advancement. It’s the same information, but now the information is the key to unlock everything they want from their career and life.

We are also inviting members to share their experiences — to tell us how they are using the materials and to track the improvements they are making in dollars. It’s not enough to deliver value; you must also help your customer “keep score” to document the value in their own lives.

Costco is a great company and is doing a lot of great things. My wife shops a lot at both Amazon and Costco. (And, Costco, please continue stocking the Chateau Ste. Michelle Riesling that we buy by the case.) But with all that Costco does right, they have gotten surpassed by Amazon.

Whether you grow or get stalled has little to do with the value you deliver and everything to do with the feelings your products deliver to your members. If what you deliver creates a wow experience that increases how your member feels about their status in society, you will break through membership plateaus and grow. If you aren’t growing right now, let’s consider how we can reposition your deliverables to generate an emotional impact with your members. It’s a lot faster and more productive to change how your members feel about your membership than it is to try to deliver more ROI value.

About Robert Skrob

The problem with subscription membership programs is that members quit, I fix that problem. For more than 20-years I have specialized in direct response marketing for member recruitment, retention and ascension in diverse subscription members environments including non-profit associations, for-profit publishers/coaching, subscriptions and SAAS companies. For an evaluation of your current churn rate and how I can improve it, contact me here. I discover there are often two or three quick wins you can implement within a week to lower churn immediately, let’s talk about your quick wins.
Grow your monthly recurring revenue

2 Comments on “Amazon Prime vs. Costco Membership: Which Has Higher Retention, and What Does it Mean for You?”

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts