Would You Pay to Be My Customer?

Last night, my wife and I laughed at the young woman in the Direct Buy TV spot who boasted that she “got this $1,400 rug for only $600!”  What they don’t tell you in the ad is that joining Direct Buy costs over $16,000 (over the course of 10 years).  Congratulations, sweetheart, you’re only $15,200 in the hole!

However, I’m not here to judge the Direct Buy model or its customers.  I’ll let Consumer Reports do that (they’re not big fans).  I’m more interested in the clever marketing strategy of locking in your customer with something more than just loyalty, or satisfaction or even delight.  Direct Buy virtually guarantees that every purchase their members make for the next 10 years will be through them.  And although they claim to have no “retail” mark-ups, you can bet there’s a little slice for them in every sale.

Same thing for Costco.  They only charge $50, and by all accounts I’ve heard it’s totally worth it.  Of course, there’s some psychology at work here: once you’ve paid for a membership, you are predisposed to think it was a good decision and pass that opinion on to your friends.  But regardless, everyone that I know that uses Costco is very happy with the service.  And when they go there for the things that are giant bargains, they also pick up stuff that’s only marginally cheaper than other places.  So Costco still makes full margin on most stuff, and guarantees that their paid membership keeps coming back.

On to bars.  In the 70s and 80s here in New Brunswick, the byzantine liquor laws in force at that time required any establishment that wanted to serve wine, beer AND spirits, without requiring people to dine, and stay open past midnight, to be a “club.”  And as a “club” you had to have “members” and “member” was defined as someone who paid dues.

I kind of like that idea, even now that it’s not required by law anymore.  If I could get people to buy memberships to my bar, they would be more likely to come to my place than somewhere else where they have no “special privileges.”  I’d have to give some thought to the privileges, but maybe lower drink prices, special “Members Only” parties for the Super Bowl, dedicated beer steins, their name on a plaque, whatever.



4 Responses to “Would You Pay to Be My Customer?”

  1. netdud Says:

    I’d have to do a lot more reading (and I ain’t gonna, which I believe qualifies me as an “Internet pundit”), but it appears that the original reason for Costco having a membership was similar to the reason for NB’s drinkin’ clubs–they needed to get around some regulations.

    In Costco’s case, it wasn’t a law they were trying to work around, but something much more dire and powerful–a distributorship agreement. By being a “wholesaler,” they weren’t selling retail. They were selling to club members, not retail customers, so they could sell below retail price. This allowed their suppliers to sell them huge wholesale-sized lots of stuff without breaking agreements with other distributors.

    Later, the reason for doing this fell by the wayside, but the membership idea still works as both an incentive for customer loyalty and income source, as you mentioned.

    In both the case of Costco and the old drinking clubs, the initial driver for memberships was the existence of the business itself. Neither could have any customers for their business AT ALL without memberships.

    While the Costco “shopping club” model has become such an accepted idea that folks like Direct Buy are trying to sell it on its own merits (and I laugh as loud as you do at the DB concept, then I cough, then I laugh some more), the value of it has changed. As you mentioned, you can get similar deals on things elsewhere, and you don’t HAVE to be a member to buy things from Costco now, nor do you HAVE to be a member of a club to buy a drink in NB

    Now you have to ADD value in order to justify membership, whereas before you had to have membership in order to provide value at all.

    But you are up against the same idea that DB is–if you charge for a membership, you are in effect saying “Everyone else is now paying more for a drink than I can actually sell that drink for and make money, and your next drink is going to cost [drink price] + [membership cost].”

    It’s a bit of a lose-lose, particularly when your objective is repeat business more than membership revenue.

    So why not do it the other way around? GIVE out memberships based on customer loyalty. That way, the customer has ALREADY paid for the perks, and you get the comeback effect from the moment they KNOW about the membership, instead of waiting until they PAY for one.

  2. Stephen Brooks Says:

    What, you varlet! Come up with a bettter idea than mine on MY blog, eh? Why, I oughtta…

  3. CM Says:

    Consumer Report’s findings in general are nothing more than sponsor-driven advertisements, bought and paid for.

  4. Who Do You Trust? « About Bars & Marketing - by Stephen Brooks Says:

    […] selecting online vendors.  Then, yesterday, I was doing a little research about Direct Buy for my post on asking customers to pay to be customers.  There’s a […]

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