The Homa Files

TakeAway: Customer loyalty can be a difficult thing for a retailer selling undifferentiated goods, especially on the internet.

But marketing revolves around people and forming relationship bonds with customers through effective loyalty programs can reap big rewards.

Just ask Amazon …

Amazon’s Prime customers account for only 4 percent of customers but account for as much as 20 percent of overall sales.

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Excerpted from Bloomberg Businessweek, “What’s in Amazon’s Box? Instant Gratification,” by Brad Stone, November 24, 2010

… Amazon Prime may be the most ingenious and effective customer loyalty program in all of e-commerce, if not retail in general.

It converts casual shoppers … who gorge on the gratification of having purchases reliably appear two days after they order, into Amazon addicts.

Analysts describe Prime as one of the main factors driving Amazon’s stock price—up 296 percent in the last two years—and the main reason Amazon’s sales grew 30 percent during the recession while other retailers flailed.

At the same time, Prime has proven exceedingly difficult for rivals to copy: It allows Amazon to exploit its wide selection, low prices, network of third-party merchants, and finely tuned distribution system, while also keying off that faintly irrational human need to maximize the benefits of a club you have already paid to join. …

Amazon relentlessly promotes Prime in press releases and on its home page, and this year started offering free Prime trials to students and parents.

The company declines to disclose specifics about the program, though analysts estimate it has more than 4 million members in the U.S., a small slice of Amazon’s 121 million active buyers worldwide.

Analysts say Prime members increase their purchases on the site by about 150 percent after they join and may be responsible for as much as 20 percent of Amazon’s overall sales in the U.S.

The company’s executives acknowledge only that the program gets people to buy more—and more kinds of items—on the site. “In all my years here, I don’t remember anything that has been as successful at getting customers to shop in new product lines,” says Robbie Schwietzer, vice-president of Amazon Prime and an eight-year veteran of the company. …

Amazon now offers Prime in the continental U.S, Britain, Germany, France, and Japan, and Schwietzer says the company is moving toward guaranteeing Prime shipments within a day instead of two days.  …

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Full Article
http://www.businessweek.com/magazine/content/10_49/b4206039292096.htm

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This entry was posted on December 1, 2010 at 6:15 am and is filed under Mktg - Loyalty Programs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.