Companies expand paid membership programs to catch more customers

Industry

Published: 16 Jun. 2022, 17:25

Companies expand paid membership programs to catch more customers

Consumers subscribed to Coupang's paid membership program, Coupang Wow [COUPANG]

Major online and offline retailers such as Coupang are expanding their paid membership programs to increase profits and recruit loyal customers.

Coupang, an e-commerce marketplace, raised the monthly subscription fee of its Coupang Wow membership by 72 percent, from 2,900 won ($2.25) to 4,990 won, on June 10.

One of the perks of subscribing to the Coupang Wow membership is the free delivery service for all purchases, even deliveries with cross-border shipping for products coming directly from overseas.

One Coupang Wow member surnamed Yoo, who lives with a 2-year-old in Shindang-dong, central Seoul, mostly shops online. Last month, Yoo spent around 300,000 won making 30 purchases through Coupang including for groceries such as milk, watermelon and eggs, and a pair of sneakers bought from overseas. Yoo also returned a pair of socks after not being satisfied with them in person.

During the whole process, no additional delivery costs or return fees were charged.

Without the subscription to the membership program, Yoo would have had to pay an additional 100,000 won.

But with so many membership programs provided by multiple different online marketplaces, each with various rewards, consumers are finding themselves in a pickle.

“There are many other platforms that provide different benefits these days, so I try to compare different membership programs to see if they are cost-effective. But the comparison itself is too complicated,” said Yoo.

One of the biggest reasons major retailers are trying to recruit more subscribers for their paid membership program is to build customer loyalty. Customers subscribed to membership programs will more likely make purchases from the places they are subscribed to, in order to receive as many benefits as possible.

From the company perspective, the paid membership program also leads to higher profits. Coupang raised its monthly subscription fee despite the risk of losing customers in order to make up for its huge loss last year. According to the U.S. Securities and Exchange Commission’s annual report, the company’s sales recorded $18.4 billion last year, a record-high figure, but its operating loss was also the highest of all time, at $1.4 billion. The operating loss rose by 55 percent in a year.

With the heftier subscription fee, however, additional profit based on 9 million users is expected to reach 18.8 billion won, or $14.6 million, a month and 225.7 billion won a year.

Amazon, a U.S. e-commerce company, has also implemented a similar strategy, raising its membership fee multiple times, and then realized a higher number of members. The subscription fee to Amazon Prime, Amazon’s membership program, was raised to yearly $139 this year from $79 in 2005.

“Consumers are not canceling their subscription [even with higher prices] because Amazon is providing better membership rewards than its competitors,” said an industry insider.

Different membership programs provide different rewards to their subscribers. Most e-commerce company membership services provide greater benefits depending on the number and cost of purchases a customer makes. Free delivery, bigger discounts and loyalty points are some of the common rewards provided by different companies.

The Naver Plus membership is known for providing high loyalty points to users. Loyalty points of up to 5 percent of the purchase price can be given to customers on Naver Shopping, which can be used as cash on the online marketplace. If a user spends 100,000 won a month, a maximum of 5,000 won will be provided in loyalty points. The Naver Plus membership fee costs 4,900 won a month.

A screen of the CU mobile application shows the convenience store chain's paid subscription program page. [BGF RETAIL]

Paid membership programs are also offered at some offline stores such as convenience stores. CU, a local convenience store chain, has a membership program where customers can buy the store's frequently purchased items at discounted prices. If a consumer selects a 30 percent discount voucher on the mobile application for GET Americano, a coffee drink sold at CU, and pays a monthly fee of 2,000 won, the consumer will be able to purchase the product at a discounted price for the entire month.

The GS25 convenience store franchise also has a paid membership program called THE POP+. Consumers can buy select products with a 20 to 25 percent discount after subscribing to the program with a monthly fee of 2,500 won. In the more expensive, 3,990-won program, customers can purchase up to 15 items including packed meals, kimbap, sandwiches and hamburgers at a 20 percent discounted price throughout the month.

BY CHOI HYUN-JOO, CHO JUNG-WOO [cho.jungwoo1@joongang.co.kr]