The Membership Model.
From the Hoxton lobby. How memberships are evolving amongst brands in CPG, wellness, hospitality, retail, & more.
Most businesses that sell a product or service have their offerings listed at a margin profitable retail price. Some brands use membership to build loyalty on top of their existing customer base. This isn’t a new concept, but it’s evolving. So why are membership models growing in popularity, and why are we consumers being asked to become members of virtually, everything?
Looking at memberships from a business operator — they are extremely advantageous to sell compared to other products and services. Selling a membership essentially costs nothing to the business owner. Making the price of the membership pure profit, with a catch.
For example — Let’s say I own an online store that sells consumer products. And I decide I want to sell memberships in addition to other goods for $100 per year. Here’s the math for the business owner.
$100 in gross profit per membership sold.
If I sell 1,000 - that's $100,000 in gross profit.
There are costs such as credit card fees, interest, and taxes for the transactions which will give you a slightly lower net profit. But there are no COGS (cost of goods sold) associated with a digital membership. That is unless you provide a physical memento to establish the value of the membership itself.
*If you spend a bunch of money marketing and selling these memberships through events and ads. Your net profit will be greatly reduced.
The catch.
Business owners are never going to be able to sell their memberships unless they add value to the customer. So, often memberships give exclusive access to discounts on products and services that can make the membership a cost savings to the customer if they utilize it enough. And the business would have a reduced net profit margin on its other goods and services. For those who buy memberships but don’t show up or use it — that’s all profit to the business. This is the Planet Fitness model and how they’re able to offer their gym memberships for so darn cheap. They expect that most members are not coming.
Who’s Selling Memberships and Why?
Retailers
that require membership - Costco (needs no introduction).
with a membership option - Happier Grocery, Erewhon, Amazon, duh.
CPG brands
that are membership only - Public Goods.
with a membership option - Italic, Bandit Running,
Hospitality Brands
that are membership only - Maxwell Social, SOHO House, and most social clubs.
with a membership option - The Ned, ACE Hotel, The Hoxton (where I wrote this article).
* The Hoxton/Ennismore has gone as far as to brand its membership program called “disloyalty” by clearly addressing the problem that most membership programs are BORING. I love it.
Wellness Clubs
that are membership only - Akari Sauna (a personal favorite), Remedy PL
with a membership option - Bathhouse, othership.
Memberships are not to be confused with subscriptions. Subscriptions either repeat delivery of products to your door for a discount or provide you with a service. Many memberships include subscriptions as a feature.
Memberships should provide another layer of value and access that are in most cases separate from a subscription. If a membership is asking you to pay monthly solely for a product or service, then it’s just a company selling you a subscription dressed up as a “membership”.
Why are memberships any different now?
Companies like Marriott and Hilton have had membership & rewards programs for a long time. Memberships are newer in the online retail space. But as mentioned above with the Hoxton’s innovative approach to membership, companies are finding new ways to package and market them.
New branding, new rewards, and exclusive access seem to be a growing trend. This marketing harnesses the desire we all share to feel like an insider who can inform the rest of the world (outsiders) of this new cool club we’re associated with. That’s a very different feeling than toting your Stop & Shop membership. Till next time!
What are you a member of and why?
