1 - Introduction to Membership Programs
In today’s e-commerce landscape—both B2B and B2C—there’s more transparency and competition than ever. While this is generally good for consumers and for innovation, it also puts a tremendous amount of pressure on ecommerce operators to ensure the customer experience is a competitive advantage. For this and many other reasons, businesses are turning to membership programs to help differentiate, attract new customers and retain the most valuable ones.
Before we provide justification, examples and helpful tips for building a membership program, let’s talk about what it is and what it isn’t. Simply put, a membership program is one in which customers pay a fee (often annual) in order to unlock access to a company’s goods or services, special perks or pricing, content, premium customer support and any number of benefits outlined by the program. The value proposition should be clear: your customers, or rather members, pay an upfront fee with the promise of recouping it (and more) by taking advantage of those benefits. Executed properly, membership programs can be a win-win.
It’s important not to confuse these programs with traditional consumer loyalty programs, wherein customers get points or rewards for things like repeat purchasing, referrals or sharing on social media. While similar in intent, the customer in those situations does not have a “membership” but instead gets rewards by taking specific actions detailed by the brand. The big difference? With a membership model, you pay upfront to be part of it; it’s up to you to decide from there if, and how much, you take advantage of the benefits offered. This model requires the customer to strongly believe in the value that exists within the membership, so trust is paramount. Let’s examine a B2B business (any business for that matter) might choose a membership program over a loyalty one.
2 - B2B Ecommerce Is Booming
Before diving further into the makeup and targeted outcomes of a successful membership program, we’ll quickly highlight some important trends and statistics in B2B ecommerce:
- Nearly two thirds of B2B buyers prefer to conduct their research online
- Three of four decision makers believe the new model is just as effective (or even more so) than the way things were done prior to Covid-19
- 99% of buyers claim they’ll make a purchase in an end-to-end digital self-serve model
- The majority of key decision makers are willing to spend up to $50k per online transaction
- Analysts estimate a 16% compound annual growth rate from 2020 to 2028
While the majority of B2B sales still happen “offline” there’s no question the shift has begun. Global research firm Forrester projects that over the next five years almost 60% of all purchases will be made online. Here are some key findings from a survey of B2B buyers and decision makers:
- More than 90% believe the remote and digital model will stick around for the long run
- Only 15% expect in-person sales meetings to be the norm moving forward
- 8 of 10 B2B buyers now expect “consumer-like” experiences when they go online
Online commerce isn’t a passing fad, and many businesses are catching up to customer expectations. Before launching a membership program, it’s important to get the foundational stuff right: design and user experience, conversion rate optimization, purchasing and delivery customization, cloud infrastructure, sales, marketing and communication tools and many other aspects of a high-performing ecommerce site. Fortunately, we’ve written a helpful and comprehensive guide to B2B ecommerce which is perfect for businesses just getting started with their digital transformation: 2022 B2B Ecommerce Playbook
3 - The Target Outcomes of Membership Programs
Now that we’ve established the definition of a membership program and the tailwinds behind B2B ecommerce growth, let’s examine why B2B companies should explore this model. Here are some of the key outcomes that should drive your membership strategy:
# Higher Conversion Rates
If the membership program clearly communicates exclusivity, future members will be drawn in by the opportunity to get special products or services unavailable to non-members.
# More Loyalty
Boosting retention and customer lifetime value are two byproducts of a successful membership program. Customers should feel like it would be irresponsible to not join.
# Increased Average Order Value and Frequency
Members are likely to order more often and to purchase items of higher value so they’re taking full advantage of membership.
# Recurring Revenue
The beauty of recurring revenue lies in predictability. Businesses that can accurately predict cashflow can manage growth and make smarter investments for the future. We’ll explore Costco, the standard bearer of membership programs, in just a few paragraphs, but it’s noteworthy that $3.5 billion of the company’s $4 billion in 2020 net income came from membership fees.
# Greater Defensibility
Membership programs can create a moat for your business, making customers feel valued and part of the “in-group.” They’re less likely to churn if they’re a member than simply a repeat customer, bringing resilience to a business.
There’s a wide range of benefits to running a membership program, but don’t forget the value must be there for the customers. Before we provide more prescriptive guidance on the proper setup of one, let’s take a look at two businesses (and competitors) who’ve revolutionized memberships.
4 - Gold Standard Membership Examples
# Amazon Delivers Big Growth Via Prime
Amazon Prime started with a very basic proposition: pay a nominal annual fee to get free (and fast) shipping on anything you order. It was simple for customers to do the math and determine ordering just a handful of items each year would make membership worth it. Amazon, however, did not stop with free shipping. Over time, Amazon added perks such as entertainment (movies/shows/music), discounts to Whole Foods (an Amazon acquisition), Amazon Photos and many more (while concurrently raising prices). Here are a few eye-popping stats about Prime:
- Around 150 million Americans have an Amazon Prime membership
- Subscription revenue (mostly made up of Prime fees) was greater than $25 billion in 2020
- Approximately 70% of consumers who sign up for a Prime trial become paid members, and the retention rate of paid members after one year is nearly 95% (and even higher a year later).
- Two-thirds of Prime Members spend more on Amazon after they join
# Costco Sells a Lot for Very Little
As mentioned earlier in the article, the vast majority of Costo’s profits come from its membership sales. This is a byproduct of its operating strategy, which is to sell products that are cheaper than what you can find elsewhere. Costco isn’t just cutting prices, though; they’re passing along savings from their scale and optimization. (And, of course, giant bulk packs with which we’re all too familiar!) Here are several examples of ways it cuts costs and makes membership more attractive to its members:
- Capped markups: with both national and store brands, the company marks products up no more than 15%.
- Quick turns: Costco only offers inventory with high sales volume (and rapid turnover), keeping less than 4,000 SKUs in inventory (compared to Walmart’s 30,000+).
- Cash printer: Because it moves inventory so quickly, it can take advantage of early payment discounts.
- No middlemen: Costco’s warehouses double as stores (and vice versa), allowing them to purchase directly from sources.
This membership-oriented strategy has propelled Costco into one of the most successful retailers of all time!
5 - How to Build Your Membership Strategy and Program (on Shopify Plus)
# Setting a Strategy
First, don’t worry if a site is not already built on Shopify Plus; successful migrations of B2B Ecommerce websites from legacy platforms to Shopify Plus are becoming the norm. But before diving into the tactical and technical recommendations below, we suggest defining the key tenants of the membership program. Why does it exist? Who does it serve? How will they benefit? What is success? Once you’ve done some basic scoping, it will make subsequent decisions much easier. Then, it’s time to put your strategy into action.
# Selling the Concept
Create a destination where prospects can learn about the program and gain a clear understanding of the value. This landing page should be optimized for conversion. Here’s a quick checklist for whipping your page into shape:
- Informative: Provide clear, concise details about the program
- Content-Rich: Include specific examples, reviews, visuals and any other credibility-boosting content
- Mobile-Friendly: Ensure the UX is friendly on any device
- Clear: Make obvious the next steps (enrollment, request more info, etc.)
As with everything on your website, measure the effectiveness of this page. Review bounce and conversion rate, time on site, and other user metrics to determine what improvements can be made. Additionally, set pricing that is logical for your business. The amount you charge to become a member may depend on a number of factors, including your average order value, membership types (or tiers), and the value proposition of the program. It should be priced in a way that makes joining a no-brainer for a consumer, inducing loyalty and all of the other key financial metrics we outlined previously.
# Utilize Shopify Plus B2B
B2B on Shopify Plus pairs the intuitive, plug-and-play interface and app ecosystem of Shopify with a wide range of functionalities that enable B2B shopping experiences. Now you can run both sides of your business from a single store, saving time and money while personalizing the customer experience for all types of buyers. Check out a handful of ways Shopify Plus makes this possible.
- Price Lists
B2B merchants can now fully customize pricing for wholesale customers. Establish fixed pricing and discounted price lists for all product variants in any currency. You can also tailor pricing to specific companies and locations without the need for third party apps.
- Company Profiles
Establishing profiles provides each B2B customer with unique contact permissions, payment terms, price lists and tax exemptions. It’s also possible to assign multiple contacts or locations to one company profile while maintaining different permissions. Thanks to a centralized company profile, you won’t need to deal with separate records for each buyer.
- B2B Checkout
With personalized payment terms and methods along with automatic wholesale discounts upon checkout, the online buying experience has never been easier for wholesale. Give your buyers the terms they need to complete the purchase with confidence.
- Credit Card Vault
Securely save your buyers’ credit card info so transactions can be completed without the re-entering of payment info. Vaulted cards can be associated with specific locations and tie to the relevant price lists. It’s as simple as clicking a checkbox during checkout.
- Net Payment Terms
Automate the assignment of payment terms for both orders and draft orders. Once assigned, you can track, sort and collect payment once they’re due. And best of all, your users benefit from the ability to checkout with pre-established payment terms, and they can always track payables by logging into their accounts.
# Use Inveterate to build a pro membership program
Building premium loyalty programs for customers has never been easier thanks to Inveterate. The Shopify-native solution enables merchants to provide exclusive benefits and experiences to those paying a recurring membership fee. Example benefits include special sales, store credit, cash back, discounts, personalized service, premium content, limited access products and more. The benefits can be tied to specific groups or tiers of customers and fully customized to build loyalty and word of mouth.
# List promotional products, upsell samples, and free gifts
As referenced earlier in the article, exclusivity has the ability to draw and convert more web visitors. Showcasing promotional or limited edition products and displaying various perks available only to members will drive performance on your site.
Personalize the content using platforms like ReBuy, and offer product recommendations and bundles to Premium Members while keeping the public offering unchanged.
# Offer bulk discounts and tier pricing for members
In addition to special wares, show prospective members the financial upside of participating in your program. One way of driving desired outcomes is showing the member and non-member price beside one another. Find the right balance of “ticking off” your non-members and increasing the appeal of membership!
Utilize Shopify Plus Functions to:
- Discount the order subtotal based on customer tag
- Set up tier pricing for quantity breaks
- Enable specific group shipping options
- Offer free samples or gifts at checkout
# Special Shipping Options
Thanks to Amazon, free shipping is a go-to perk for members (and sometimes non-members as well). If possible, increase the value with faster or sustainable shipping—just enough of a differentiator to make the member feel special. When free shipping isn’t feasible you can still discount the shipping rates based on total spent thanks to access on Scripts.
For example, this simple script below will discount the shipping rates to all customers who are part of the “Premium Member” group and eligible for Free Shipping on all orders.
# Provide Store Credit or Rebates Based on Activity
This perk is common in loyalty programs but also makes sense as part of a membership. To encourage higher rates or amounts of purchase, offer points or cash back to your customers. A simple status bar can show members how close they are to unlocking certain benefits, and this gamification can encourage additional ordering.
# Offer Enhanced Customer Support
Many companies view fast customer support as a perk, prioritizing members or higher status customers in any type of queue (phone, email, chat). Businesses may also offer extended hours for members, or access to community boards or subject matter experts. Whatever the offer, promising a special customer service experience is a great low/no-cost way to attract customers (and retain them, of course).
According to Gorgias, a leader in customer support for ecommerce brands, 90% of consumers say that customer service is a deciding factor in whether or not they will do business with a company.
For Premium members, prioritize back-office processes such as fulfillment or draft order processing, or track special orders atomizing all functionalities using Shopify Flow. This leads to a faster and better customer experience that will positively impact every other KPI.
# Build a resource section with educational and information content
Piggybacking on the prior section, building a resource library exclusive to members also provides a dash of goodwill. Consider offering some of the material—either whole parts, or partial sections—so non-members can get a sense for what’s available if they upgrade. A peer-to-peer community is also a great way for members to connect and further evangelize the benefits of the program.
Additionally, segment your members in your email and text database so you can offer early or exclusive access to items, or even share privileged information! According to HubSpot’s The Ultimate List of Email Marketing Stats for 2022, 50% of people buy from marketing emails at least once per month, and the three most effective strategies for campaigns are segmentation, personalization and automation.
According to Klaviyo, a leader in email and SMS messaging solutions, campaigns sent to a narrow slice of a store’s contacts outperformed campaigns sent to most of the list, resulting in better open and click-through rates as well as revenue-per-contact.
Klaviyo segmentation allows you to send targeted messages based on any customer criteria
6 - Measuring the Impact
With a firm grasp of the rationale and playbook for launching a membership program, you’re ready to launch! Whenever a new go-to-market strategy begins, make sure you have a baseline of the “before” metrics for comparison. Let’s look at a few of the most notable performance indicators to measure.
# Conversion rate
Are you seeing a higher overall conversion rate than before you launched the program? Your membership model may encourage or discourage overall sign-ups depending on the positioning, so be mindful of the total conversion rate. That said, a lower conversion rate isn’t necessarily a bad thing if some of the other metrics we’ll address trend upward. In 2016 Restoration Hardware eliminated all of its traditional promotions, a common lever for driving conversion, and replaced them with a $100/anual Grey Card. This membership program offers customers 25% off regular-priced merchandise. The result? Members were responsible for 95% of sales, and the program reduced return rates while improving inventory accuracy as well.
In relation to conversion rate, monitor your customer acquisition cost (CAC). Any dramatic increase in CAC will need to be counterbalanced with stronger order sizes and/or higher retention rates, the next two metrics we’ll review.
# Increase in AOV
You may be acquiring fewer customers but enjoying an offset thanks to higher average order rates, and evidence points to repeat purchases being higher, on average, than initial purchase amounts. If there’s parity in customer acquisition costs between non-members and members, you’ll enjoy a much stronger business model as you’re spending less to achieve similar revenue goals with fewer overall customers.
# Reduction in Churn/Improved Retention
On the first day of freshmen-level business classes, we learn it’s always more expensive to earn a new customer than it is to retain an existing one. If executed properly, the membership program should be a great incentive tool for retention. Look no further than the success Amazon has experienced after Prime members surpass their first and second anniversaries.
# Increase in LTV
A result of improved retention should naturally be growing customer lifetime value. In fact, roughly two thirds of customers report modifying the amount they spend in order to maximize their rewards. Sticking with the Amazon example, Prime members spend $500 or more per year on average compared to non-members. To supercharge this metric, continually increase the breadth of offerings to your members and make all rewards clear. You have a captive audience, so take advantage! Highly engaged customers buy 90% more often and spend 60% more per transaction.
“If you can’t hold onto your customers then your business is hemorrhaging cash,” says Brian Balfour, former VP of Marketing at HubSpot. “Focusing on acquisition is like slapping on a band-aid and wondering why you’re flattening.”
Customers aren’t typically as committed as members, because they’ve not paid to be part of a special group. On the other hand, members often feel strongly (or want to feel strongly) about their chosen path, making them more likely to recruit others to be part of their in-group. However, referrals have the potential to bring in some of your best customers. On average, customers who are referred spend 13% more and have 16% higher lifetime value than non-referred customers, so build referral incentives into the membership and enjoy these effects as well as reduced CAC.
Implementing a Shopify-native solution such as Social Snowball simplifies the process of creating and launching word-of-mouth programs. From revenue-focused affiliate groups to TikTok influencers programs, the company’s centralized control center provides the tools to configure programs, track sales and send commissions automatically.
# Net Promoter Score
In case you’re unfamiliar, Net Promoter Score (NPS) is a numerical measure of customer satisfaction across the entirety or a segment of your database. It effectively asks the question of how likely they are to recommend the brand to a friend or colleague and is scored from 0-10, with seven and eight being passive and anything below that considered detractors. It’s recommended to reach out to those low-scorers and determine what’s causing dissatisfaction. By focusing on delighting members, you should see higher scores. And, more importantly, that satisfaction should be showing up in the previously detailed categories such as LTV, Retention and AOV.
7 - Final Thoughts
We hope you find the case for investing in a membership program compelling. While the upside is evident, it’s important to make sure enough value can be created and communicated to move your target audience from customer to member. Talk to customers. Understand what would motivate them to make a bigger commitment and become a paying member of your program. Then, put that into action following the simple steps provided in this article. And if you have any questions, the experts at Shopify, Inveterate or certified Shopify Plus partner mentioned above are here to help build your program and successful B2B ecommerce engine.
About the Authors
Denis Dyli is the founder and CEO of Uncap, a Chicago-based web collective focused on Shopify Plus ecommerce strategy, design and execution. Pivofy has been recognized as a leading Shopify partner and is a top-ranked firm by Clutch. Over the past decade, Dyli and his team have delivered more than 100+ ecommerce sites, most of them replatforming to Shopify PLUS.
Alex Reed is the Chief Commercial Officer of Vsimple, a B2B SaaS business headquartered in Louisville, Ky., as well as a trusted advisor to numerous startups and growth companies across various industries. Prior roles include founder/Chief Marketing Officer of Truman’s and head of marketing for Big Ass Fans. He’s also an Endeavor mentor, volunteering his time to share experience and insights with founders within or applying to the Endeavor community.