Tips and strategies for becoming a “super user”!

The free feast on the Internet is becoming a thing of the past. Users' patience, attention, discerning eyes and even sense of superiority are all packaged up and put into a basket called "membership" with a clear price tag.

Obviously, as the battle for the incremental market becomes increasingly intense, people have to be more careful with the chips they already have. Even without being confined to the Internet, after all, the anxiety about "traffic" has long spread from online to offline. From shopping malls and supermarkets to the snail noodle shop on the corner downstairs of the company, no business is willing to give up any opportunity to interact with users. As soon as the QR code is displayed, the clerks look expectant: "Don't you want to apply for a membership card?"

What's more, there are already successful examples.

In April 2018, American e-commerce giant Amazon announced for the first time the number of its global Amazon Prime members - more than 100 million. Based on its membership fee of US$99 per year or US$12.99 per month, Amazon's annual membership fee revenue alone is as high as US$9.9 billion.

Another exciting example comes from Costco, the membership-based supermarket that Charlie Munger has been wildly touting. It now has a market value of $106 billion, and almost 90% of American households are its members, with an intimidating penetration rate.

There have been many discussions about the "paid membership" model of these two overseas companies. For local companies and entrepreneurs, the former's "membership renewal rate of over 90%" will make them take it as an excellent sample to learn from without hesitation. This article will discuss the new exploration of local e-commerce "paid membership". We can simply draw a line and divide it into two. One is the paid membership business of large platforms that follows Amazon Prime, such as Alibaba’s 88VIP and JD PLUS launched by JD.com; the other is the entry-based membership e-commerce that refers to Costco.

1. Payment is a threshold

Local e-commerce companies started experimenting with paid memberships 10 years later than Amazon.

It was not until 2015 that JD.com took the lead in launching JD PLUS, and soon with 10 million active members, it proclaimed itself the "largest e-commerce membership system." Alibaba next door is more cautious. It will celebrate the first anniversary of "88VIP" on August 8 this year. Previous attempts by the two companies regarding "membership" were mostly limited to free memberships where users exchanged their activity/contribution for benefits, such as Taobao V1~V6, Tmall T1~T4, and the APASS (Alibaba Black Card Club) that many people are not so familiar with, and JD's gold and silver medals that continue to this day.

"The essence of the membership system is to retain loyal users and win over swing users." As the entire Internet progresses to a relatively stable stock era, membership has obviously become a solution to increase user stickiness and tap into stock value.

However, unlike paid memberships on many content platforms, paid memberships in the retail sector require consumers to "pay twice", once for the membership and the rights and interests that come with it, and a second time to pay for ownership of the goods.

Upgrading from a free membership to a paid membership requires an extra payment, which is a "threshold".

For enterprises, the first question written on this "threshold" is "Why do you do this?" In other words, whether the enterprise's advantage at a certain point is sufficient to support a paid business.

In 2005, Amazon was just an online mall whose main business was books. The core benefit of Amazon Prime, which was launched at that time, was to provide members with free two-day express delivery service with an annual fee of US$79. Obviously, the company's core capabilities are in logistics.

This is not a decision that should be taken for granted. The big background is: for most American e-commerce companies at the time, the average time spent on logistics was 3 to 7 days.

"Shipping date" is a prominent item in Amazon's order information. Compared with "shipping information", the former can better respond to consumers' expectations. Therefore, how to reduce delivery costs, quickly complete order delivery, and improve delivery service quality has always been its important goal. Therefore, as early as 1998 (three years after the company was founded) , Amazon invested heavily in the establishment of logistics distribution centers. At the same time, cooperation with express companies such as Kozmo.com has further helped the company to efficiently complete order delivery.

These years of heavy steps paved the way for Amazon to develop its membership business and made the company unique in the years when e-commerce was not doing well.

Obviously, when domestic e-commerce companies start to decide to engage in paid e-commerce, they also have to face this problem.

JD.com seems to be following the path of its predecessor Amazon. In 2015, JD Logistics achieved breakthrough progress in specialization and scale. Through the construction of Asia No. 1, it successfully made its own customer timeliness and service standards into one of the global benchmarks. Obviously, similar to its predecessors, long-term and large-scale investment in logistics gave JD the courage to overcome this hurdle.

Meng Chunhui, the head of JD PLUS, gave an example to Huxiu: "For example, the 10 times return of Jingdou we provide to users, our shipping coupons, and our free door-to-door returns and exchanges are all things that can be brought by the self-operated genes. This may be our advantage in the entire market competition process."

The answer given by Alibaba is: the degree of brand recognition of Taobao and Tmall, and the maturity of the entire Alibaba ecosystem.

In 2018, Alibaba's e-commerce platforms, including Taobao and Tmall, have reached a relatively mature stage, and 90% of major brands have basically settled in Tmall. This background is very important to Xiuxun, the head of 88VIP. A more direct reflection is that more and more merchants are investing more resources in the Alibaba ecosystem. "I think this is a turning point."

At the same time, Alibaba's strategic layout of a large number of acquisitions and mergers in the local life and cultural entertainment sectors in the past two years has also laid a solid foundation for its so-called "ecological membership".

How to set thresholds for users? After crossing the previous "threshold", new problems followed.

The way to become JD PLUS is very direct, and it only costs 148 yuan a year; but if you want to join Alibaba's 88VIP, the difficulty coefficient is a bit greater - in addition to money, there is also something called "naughty value". You need to reach a naughty value of 1,000 to purchase membership at a price of 88 yuan, otherwise the annual fee is 888 yuan, and this number is enough to discourage many people.

"Maybe it's because of different demands." Meng Chunhui, head of JD PLUS, told Huxiu that PLUS mainly hopes to attract more users to join and continue to expand its scale. Obviously, for JD, the membership payment action itself is enough to "show loyalty" to the platform. Users who pass this threshold can naturally become JD's "best users."

Alibaba's 88VIP is more like a two-way choice: the platform first uses the high-quality user portraits portrayed by the naughty value to conduct a round of screening, and then offers a membership benefit of 88 yuan a year and waits for those who are willing to take the bait.

"The essence of membership is to make repeat purchases, and how you use this form to build barriers is to attract consumers during the process of repeat purchases while covering the costs. Because, for a company, it is actually not possible to provide subsidies indefinitely. You must look at the current national conditions in China, what consumers really need, and what the core advantages are." Therefore, compared to JD.com's pursuit of membership size, Alibaba 88VIP's thinking is more inclined to directly abandon low-frequency users, improve the retention of loyal customers, and operate precisely.

2. Give me a reason to pay

"I think a good membership mechanism design depends on whether it has achieved two things. One is the principle of unfair competition, and the second is the top of the contempt chain." Obviously, Jiang Meilan, the founder of Feirui Interactive, is a supporter of 88VIP. When talking about the setting of 1,000 naughty points, she said, "Many of my friends are very dissatisfied and think that Alibaba is discriminating against them. But for people like me who have reached 1,000 naughty points, I immediately feel that I am at the top of the contempt chain."

Similarly, the sense of satisfaction also comes from the differences with non-members, such as being able to get more discounts, experiencing things earlier, and participating in sweepstakes that only members can participate in. "You said I'm unfair. Yes, I am unfair. If today I will be the same as if I hadn't joined, why should I join?"

Earning money and feeling satisfied are the direct reasons that stimulate users to pay for membership. However, behind this, companies also need to think about how to meet user needs while ensuring that their expenses are not too exaggerated.

Demand and supply are a tug-of-war in member benefit settings.

Fortunately, we have some pioneers and predecessors: the success of Amazon Prime and Costco membership store has brought us a lot of inspiration. In North America, where the area is vast and sparsely populated and logistics and express delivery may take a week to deliver, Prime, which achieves "next-day delivery" based on a deep-rooted logistics system, is able to meet the most profound and extensive needs of Amazon users.

Similarly, compared with China, North America lacks convenience stores and small supermarkets, with large supermarkets and shopping malls being the most common offline consumption locations. At the same time, the car penetration rate in North America is much higher than in China, so consumers generally have the consumption habit of "rarely going offline for shopping, and bringing back a whole car when they go." At this time, the trustworthy Costco membership store (extremely biased towards consumers' return and exchange rights) has become one of the best choices for bulk shopping.

By accurately identifying pain points and setting precise benefits, Prime and Costco have achieved success in North America and become models for emulation by their successors. There have been too many praises for the two, so I will not repeat them here. Instead, we might as well think about it in reverse: why are Prime and Costco not very successful in China?

This is actually based on the change in the balance between demand and supply. In China, except for a few remote areas, logistics generally does not take three to five days. Rather, for the most developed consumption areas of Jiangsu, Zhejiang and Shanghai, "next-day delivery" or even "same-day delivery" is completely part of the "free rights and interests". Any e-commerce company that dares to charge this little fee really doesn't want to live.

In China, where there are many small shops, convenience stores and even unmanned stores, high-frequency, low-value purchases of daily necessities do not require a large and comprehensive membership store like Costco. Of course, on the other hand, due to the gap in the overall integrity level of the society, Costco’s touching after-sales service in the United States may make them lose money in China.

There is little demand for logistics services like Prime in China, and the cost of providing after-sales services like Costco is too high. 88VIP and JD PLUS are constantly changing and expanding their rights and interests, and they dare not "rely on old capital" every year - they need to identify the real needs of local users and meet them at the lowest possible cost, and they also need to "adapt to local conditions" and "adapt to the times."

As Xiuxun said, many brands are now willing to invest resources in marketing on Taobao and Tmall. This transformation has invisibly reduced a lot of burden on Alibaba itself. Alibaba’s successful ecosystem construction has enabled Alibaba to achieve “associated members” in one step. Of course, 88VIP also paid the price of being three years late (compared to JD.com) .

JD PLUS also has its own growth path. Unlike 88VIP, which launched a series of ecological "cross-platform" rights and interests around food, clothing, housing and transportation in one go (such as the ability to simultaneously receive Ele.me, Taopiaopiao and Xiami membership) , thanks to its accumulation in self-operation, PLUS was able to deeply cultivate the "shopping line" in the first three years, using shipping and after-sales discounts to capture the most core membership needs. After that, adding a horizontal "life line" through "co-branding" became a matter of course.

"We actually have two versions of membership now. One is a membership that cooperates with iQiyi, Zhihu, KFC, Zhen Gongfu, etc., covering various fields such as entertainment, catering, and travel, and adding life benefits; in addition, we actually have a classic membership (cheaper, specializing in the "shopping line" like the former PLUS)."

The long-awaited 88VIP made a stunning debut thanks to the unique barriers formed by Alibaba's huge ecosystem; this kind of accumulation of strength is hard to come by; the vertical and horizontal structure of JD PLUS is more of a "small step and fast run" approach, which is a more flexible maneuver within its capabilities. As for small and medium-sized enterprises whose cash flow cannot match that of JD.com, the main point of membership may not be as simple as "giving profits".

It is worth noting that the membership fees collected by 88VIP and JD PLUS are not sufficient to cover the operating costs of the membership system at this stage. In other words, for Alibaba and JD.com, the paid membership business itself is still a "losing money but gaining publicity" business.

In this regard, the giants are obviously prepared for long-term planning, because they know that these super users with strong purchasing power, willingness to try new things and positive feedback not only determine the platform's present, but also its future. As Xiuxun, the person in charge of 88VIP, said, as early as the beginning of the project, the membership project was identified as the cornerstone of Alibaba and one of the most core strategic projects. "It will drive the improvement of user stickiness of the entire Alibaba ecosystem. This is what we value most, and its commercial value is priceless."

Obviously, for the giants, a membership business that can effectively attract "loyal fans" can not only become an engine for the growth of other businesses but also a moat in the fierce competition.

However, it is difficult for startups to muster the patience and huge capital of Amazon and Alibaba for ten years to build such a large paid membership ecosystem. They also have different thoughts on "paid membership".

3. Promotion tools or profit model

“Membership fees now form the bulk of our income.”

Speaking of paid memberships, Chen Yang of Yhouse could not hide his joy in his tone. After two major adjustments, the team finally placed its bets on "membership-based e-commerce." She calls herself a Costco apprentice and claims that she makes money from membership fees rather than selling goods.

"The membership system of large platforms is essentially a means of promoting activity." In Chen Yang's view, the success of Amazon Prime has verified that paid membership can bring heavy and high-frequency stickiness of core purchasing users to e-commerce platforms. "But this is very different from our considerations. Our logic is user stratification."

According to current statements, Yhouse is a membership rights sharing platform, but when the platform was first established in 2013, they described themselves as "the first platform for high-end experience and elite information."

What Chen Yang meant by user stratification was that I had missed out on the dividends of a “big and comprehensive” platform, and it was no longer possible to create a JD.com. So I might as well set up a threshold to attract a part of the users, and then provide these users with specialized categories and special products and services.

"What we have always wanted to do is to provide solutions for the lifestyle of the new middle class, but at the beginning, we didn't have a clear idea of ​​what specific product we should use as a starting point." The earliest approach was to make an "information + service" type of APP for high-end people. On this basis, Yhouse's membership version 1.0 was launched simultaneously. The membership model at this time is more like an elite membership club, similar to the Soho House in old London. The membership fee ranges from 5,000 yuan to 20,000 yuan. It provides members with event recommendations and customized news content online, and exclusive party event reservations and other offline services.

Soon, this company, which had only been established for a year, became the first to achieve profitability, mainly from advertising revenue. Obviously, this kind of experiential advertising that can generate online exposure and offline sales conversions is very popular among brands. However, bottlenecks also followed: because the customer base was too high-end and niche, it was difficult to further expand the user base. In 2015, the number of Yhouse members stopped at 30,000.

It was also in this year (to help everyone recall) , that the then-bustling group buying industry began to upgrade and transform towards the O2O concept, and the spring breeze of O2O blew to many sub-industries including food delivery, movies, and hotels. In confusion, Yhouse naturally came up with the idea of ​​group purchasing packages and using group meals to cut transactions.

“But then we discovered that this was a false proposition.”

By 2016, the cost of traffic had already risen to an alarming level, and the cost of acquiring customers became increasingly expensive. “If you multiply the GMV that your platform can generate by the commission, the gross profit margin is very low, so low that it is impossible for a SKU to create value higher than the customer acquisition cost during its life cycle.” Sure enough, at the beginning of 2017, the team did the math and found that the O2O department lost about 60 to 70 million yuan a year.

One reflection is that in the wave of consumption upgrading, the new middle class still has demands for food, drink, and entertainment, and the frequency is still high. However, if we only use fixed SKUs such as group purchase packages, it is difficult to meet the diversity of their needs. Is it possible to turn homogeneous group purchase transaction packages into "discounted" membership privileges to serve them? Therefore, unlike Costco, which uses "low-priced and carefully selected goods" to create a sense of value for its members, Yhouse does not provide members with direct goods, but preferential rights to selected goods.

"The essence of membership is a product that users pay in advance. For any platform, it has three advantages." The three advantages mentioned by Chen Yang are:

1. The stickiness of user retention is extremely high because of prepayment, which turns the user’s mind around.

2. Based on retention and high stickiness, the platform has the opportunity to operate a higher CLV (lifetime value)

3. Cash flow has become very good.

The difference is that the paid business of large platforms is more like the operation of a subset of users. From the perspective of the entire platform, it is still a platform model that pursues massive traffic and massive merchants. The All in membership platform is more based on product logic. “It is important to clearly define what user segment a product is intended for, and then use so-called growth channels and growth strategies to make it a hit product, so that the product can be adapted to a certain user segment.”

Author: Clockwork Orange

Source: A Clockwork Orange