Costco/Amazon Prime Model Taken To The Extreme

Mar 28, 2016

 

This real life example shows how far you can take a pricing model similar to that used by Costco and Amazon Prime. Can florists do the same?

 

Coscto and Amazon Prime both charge an upfront annual membership fee in exchange for access to discounts over the course of a year. In the case of Costco members get access to low prices in their warehouses and online store. Amazon Prime members get access to free shipping plus some additional online content (movies, shows, etc.).

Here is an example of that model taken to the extreme – a vending machine that sells batteries for recharging your mobile devices. You pay $20 for the first battery, and then get unlimited free swaps – you can trade in an empty battery for a charged battery at no cost any time.

 

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It is a smart strategy. Customers who need a battery are likely to be willing to pay the initial $20, and the promise of unlimited free swaps make the deal seem even more appealing. Meanwhile the vendor knows that very few people are likely to take advantage of the free swap offer.

Can florists use a similar strategy? Some florists try something like this with delivery fees. In exchange for an annual "membership" fee, customers get unlimited free delivery.

The advantage to the florist is interesting. First this kind of offer is likely to appeal to the buyer that overestimates how many orders they will actually send, meaning that their true cost of delivery (the cost of the membership divided by the number of orders they actually send) won't really go down. In fact it may even go up! Participating in such a plan also strongly incentivizes such a buyer to buy more often. Seeking to get full value for their membership fee, they will send flowers more often than they would have otherwise.

But the florist needs to be careful, explaining that only certain areas are covered. Delivery charges on wire outs... that is a decision the florist has to make – will they pay the delivery charge when the order needs to be sent through a wire service.

They should also be smart about who gets offered this deal. It should not be offered to customers that send every week for example! By doing so the florists would sacrificing significant revenue.

Instead it should be offered to people who are not likely to see savings given their current buying patterns, in an attempt to change those patterns and get them to buy more. As always the key is to think about how the change can increase revenue, not decrease it.



Category: Examples

Sponsored by FloristWare

Beyond Cost Plus is sponsored by FloristWare. It is a complete floral software system, designed to help retail florists and flower shops be more successful. This sponsorship is part of their ongoing commitment to supporting florists and the floral industry.

FloristWare – flower shop software/POS system.

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