Insights from our July guest blogger, Robbie Baxter.
Low-income customers may not have a ton of money—but there are a lot of them.
That’s why it’s a big mistake for membership-based subscription model organizations to overlook this group. Yet many do. And I suspect that in many cases, their short-sighted marketing strategy is costing them a lot of money.
I’m talking about subscription-based service companies like CrossFit, Stitch Fix, and Peloton. They view their services as a discretionary luxury and market them accordingly—pitching convenience over cost savings.
There’s nothing wrong with targeting affluent buyers, of course. But if a company plays its cards right it can find a way include low-income shoppers in its marketing mix as well. Amazon is a prime example of this.
Recently, Amazon began offering monthly subscriptions to Amazon Prime priced at $10.99 a month in addition to their standard yearly subscriptions priced at $99 a year. This makes sense: a consumer who can’t come up with a hundred bucks in one fell swoop might be able to come up with $11 twelve times a year. (And yes—when you do the math you’ll see that low income members are paying more in the long run.)
This strategy seems to be paying off. According to an R.W. Baird study, after taking this step, households earning below $50,000 a year became Amazon Prime’s fastest growing segment.
Further, Amazon has begun pricing Prime subscriptions at a nearly 50 percent discount for people on government assistance. After an impressive history of disrupting many industries with its business model (booksellers, retailers, publishers, retail technology, music, video, and storage), the company’s latest initiatives to attract low-income markets continue to impact discount chains like Walmart and Dollar Tree.
While their prices aren’t as low as those of Wish, the up-and-coming e-commerce shopping app that’s already raised $1 billion in venture capital, Amazon promises two-day delivery on most items to Prime members. Meanwhile, Wish sources most of its products from China, resulting in long shipping times.
Talk about a brilliant business strategy! Amazon clearly saw an untapped market and took action to entice them with a membership subscription that was too good to pass up.
Here are six reasons why low-income shoppers were primed to become Amazon Prime’s next hot market:
REASON 1: People with low incomes still spend money. Lower earners still have to shop, especially for must-have items like diapers, toiletries, and food.
REASON 2: Amazon Prime’s market for higher-end customers is getting saturated. Most high-income earners are already Amazon Prime members. Amazon needed to find ways into other markets.
REASON 3: Low-income customers are currently under-served. Much in the same way they are “under-banked”—meaning they don’t qualify for credit—low earners need organizations to step up and tailor services just for them.
REASON 4: Stores like Target, Walmart, and major supermarkets are rarely located in low-income neighborhoods. Amazon Prime is able to deliver much-needed goods to food and retail deserts. Local stores usually have higher prices. Quick marts and mom-and-pop stores can’t compete with Amazon’s low prices.
REASON 5: Prime solves the transportation issue for carless shoppers. Because traveling with store-bought purchases is difficult using public transportation, cabs, and car services, Amazon Prime’s free delivery appeals to those without cars.
REASON 6: Low-income customers make subsidized purchases. Low-income markets using government subsidies are attractive to retailers. Amazon recently tapped into this market by accepting food stamps.
Smart companies can gain entry to the low-income market by following Amazon’s lead. After all, the Membership Economy is all about forging a long-term, formal relationship with members—and attracting as many of those members as possible.
Oh, and one more thing: assuming that low-income customers won’t spring for the “discretionary luxury” items you might be selling is a mistake. First, low-income isn’t a synonym for low-sophistication. Plus, if anyone needs life to be a little easier it’s those who struggle financially—people who work hard yet are often deprived of the conveniences the more affluent take for granted.
Subscription membership companies need to think outside the proverbial box and reach out to under-served markets. Amazon did. And now they’re reaping rich rewards from a group that’s anything but rich.
About our July guest blogger…
Robbie Kellman Baxter
Robbie Kellman Baxter is the author of The Membership Economy: Find Your Superusers, Master the Forever Transaction, and Build Recurring Revenue. She is the founder of Peninsula Strategies LLC, a consulting firm based in Menlo Park, CA. Her clients have included large organizations like Netflix, SurveyMonkey, and Yahoo!, as well as smaller venture-backed start-ups.
Robbie is a long-time friend and colleague of the EnergizeGrowth® community. She has been quoted in or written articles for major media outlets, including CNN, Consumer Reports, NPR, and HBR.com.
For more information, visit www.peninsulastrategies.com