How Membership Programs Build Value for Retailers and their Customers

Unlock the power of membership-based programs for your dental practice

Professors from Harvard and Columbia Business Schools recently conducted a study to evaluate the power of membership-based retailers. They found that:

  •  While many consumers equate membership plans with savings, the plans actually encourage consumers to spend more on a particular product or service, including health and wellness services like dentistry.
  • Membership fees unlock consumer spending because customers perceive added value in “members only” stores, so they actually buy more. In the case of a dental practice, this means additional revenue from increased case acceptance – and a decrease in collections and overhead.
  • While consumers expect lower prices in membership-based stores, they also consider these retailers more exclusive, so the perceived value of products and services doesn’t decrease like they might at a 99¢ Store. This is why manufacturers allow Costco to sell their brand-name items at discounted prices.
  • Membership-based retailers also make a higher per-customer profit by bundling products and services together. Having patients prepay for bundled services will not only increase predictable revenue and improve collections, it also strongly incentivizes patients to be more agreeable to your treatment recommendations and suggested recall intervals.

Customers want value — and in return, they are rewarding stores like Costco with unprecedented levels of customer loyalty.

So what can we learn from the Harvard case study?

  • Membership fees signal exclusive, members-only discounts in the eyes of consumers
  • Membership fees actually increase consumer spending and overall store profitability
  • Healthcare plan fees allow for a higher product/service quality offered at a lower cost
  • Membership-based warehouse clubs are estimated to be a $120 billion industry

Traditional Retailers vs. Members-Only Clubs

Retailers know that customers see value in brand names, and that offering popular merchandise at fair prices is a sure way to increase sales. In fact, studies have shown that shoppers often buy things because of the perceived potential loss if they don’t take advantage of a sale price. And members-only stores know that their membership fees suggest that the process of shopping at their store holds value in and of itself. People are paying for the privilege of shopping there. They’re paying for the ability to purchase at the store – to pay Costco and Sam’s Club even more money!

Unsurprisingly, traditional retailers once scoffed at the members-only warehouse business model. Who, they asked, would pay a fee to shop somewhere? Several decades and billions of dollars in revenue later, Costco and Sam’s Club have reinvented how people shop for household goods and services.

“Retailing isn’t rocket science. Costco has figured out the big, simple things and executed them with total fanaticism,” according to Charles Munger, a Costco director for the past 10 years.

If there was any doubt to the accuracy of Mr. Munger’s words, the Harvard Study should put it quickly to rest. The study clearly examines this fee-savings link and teaches us what these pioneering retailers realized about buyer behavior: Paying members buy larger quantities and spend more because they experience a level of exclusivity and value far beyond what they actually receive for their annual membership fee.

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