Sam's Club Finds Dollars In Charging Customers For Loyalty

When Wal-Mart's Sam's Club—which makes $47 billion a year on its own—added personalized discounts last summer under the eValues brand name, it was seen as a traditional way to boost sales through discount coupons. But what Sam's Club discovered is that it quickly became its own direct revenue stream.

The chain made the customized coupons program—available to members either through in-store kiosks or online—only available to its Advantage Plus members, who pay $100/year, compared with a regular membership at $40/year.

But shortly after the program debuted, a large number of customers—the chain won't say how many—upgraded their memberships and said it was solely or primarily for the eValues coupons, according to Kristy Reed, corporate communications manager at Sam's Club. "Many upgraded to just get eValues," she said.

The implications of this result are staggering. Other retailers struggle to get customers to even look at the coupons they are flinging from every direction. The kneejerk reaction to attempting to charge for such coupons could be that it's the ultimate act of gall. (A little CRM chutzpa?)

But the Sam's Club program's apparent success—without numbers, it's impossible to tell for sure—suggests it might instead be a wonderful example of value pricing. Throw anything at customers for free, and they'll mentally value it accordingly: "It's free, so it must be worthless junk."

By charging for it, you tell customers the program is a valuable thing. There's an implicit suggestion that the customer's financial payback will be well in excess of the cost of the upgrade.

This nicely becomes a self-fulfilling prophecy. The chain charges for the program and consumers believe it has a value. They gleefully pay for the upgrade. Having paid for it, consumers feel a strong obligation to actually use the program and its coupons/discounts. (Think six-month gym memberships.) The customers then actively use their loyalty cards and redeem those coupons. And lo and behold, they will have actually saved more than they spent.

Of course, this result depends on what the discount is for. Is it primarily for products the consumer is already buying? Seems unlikely: Why would a customer pay for a discount on something he/she was going to buy anyway? It's more likely to push consumers to try a different brand or a new product they might have purchased elsewhere, if at all.

But Sam's idea of charging for a coupon program is an idea that could certainly suggest non-traditional approaches for quite a few areas. A $20-a-month charge for the privilege of using the faster self-checkout lanes? An annual charge of $125 for the right to use a smartcart?