In 2001, the growth of Amazon.com appeared to be slowing as the stock lost its value. The company was losing money and the prospects remained uncertain.
Like any other company would do, Amazon too raised its prices. Jeff Bezos, the Chief Executive Officer of Amazon, agreed on the price hike as he was desperate to save the company. However, he immediately changed his mind remembering the lessons he learned from Jim Sinegal, CEO of Costco.
In order to strike a deal between Amazon and Costco, Bezos met Sinegal, who dismissed the deal. However, he highlighted the one differentiating factor behind the success of Costco, that is, its membership model.
Sinegal outlined that despite its low prices, this model has helped the company in beating its competitors. Still existing, this model generates approximately 70 per cent of the operating profit of Costco. Besides, it has allowed the company to maintain a loyal customer base.
At present, this membership model can be recognized in Amazon as Amazon Prime. Taking the lessons seriously, Bezos has been smart enough to apply them as a payback.
Role of Technology
At the time, Costco was in a monopoly with its membership model, among its competitors. However, a new league of digital businesses emerged and disrupted industries by implementing the membership models.
Digital business firms have been changing the lifestyle of the masses. Just like, Spotify changed the music library of people, Netflix changed the way they watch TV, and Amazon transformed the way we shop.
Companies could build direct relationships with their customers with the help of subscription and membership models. With the existence of technology, this model has become the one of trust.
With digitalization, the services and products are also abundant. Hoping onto any device, people can access any service at any point of time. Movies and music can be streamed online, e-books can be downloaded, people can order groceries through mobile apps, and others. This is how the companies are able to interact with their customers regularly. Furthermore, companies also have an option to build a profile of their patrons using real-time data, in order to cater to the individual needs.
Long-term Subscriptions and Memberships
In today’s world, every person wants to be recognized and feel connected. In order to receive individualized experience, customers rely on digital retailers and service providers. This has led to an explosion of the e-commerce Business. The retail e-commerce sales amounted to $2.3 trillion in 2017. It is predicted that by 2021 the sales will double.
With technology, a number of services have democratized and demonetized. The membership models embraced by Amazon, Spotify, and Netflix have already taken prototype.
As the inter-connectedness is growing, businesses can reach billions of customers by utilizing the power of the cloud. The membership models built on the cloud will facilitate the companies to store data and create a portfolio of their members in the future. In this way, they’ll be able to optimize the digital experience of the customers and keep them hooked for the long-term.