Zalando, a leading European online fashion retailer, has demonstrated the effectiveness of subscription-based loyalty programs through Zalando Plus. This program has enhanced customer retention impacting the company’s bottom line, showcasing the power of well-designed loyalty strategies for e-commerce players.
The success of Zalando Plus offers valuable insights for loyalty managers and loyalty consultants into the key elements that make subscription programs work. By examining Zalando’s approach, this article explores the factors behind their program’s effectiveness, the importance of retaining customers in fashion retail, and the company’s business model.
Additionally, it sheds light on how these lessons can be applied to inform the loyalty program design and implementation of successful loyalty strategies in the online retail space.
Zalando’s loyalty success
Zalando Plus has shown remarkable success in recent years. They now boast over 2.5 million members, growing from just over 1 million in 2021 [1][2]. This growth has had a significant impact on Zalando’s active customer base (each customer that has placed an order in the past 12 months), now over 50 million [1] .
The success of Zalando Plus has led to increased customer spending, with members visiting the platform twice as often and spending three times more than non-Plus customers. Although comparing subscribers to non-subscribers is fraught with self-selection bias, it is an impressive metric [3] . This has resulted in improved customer retention and incremental subscription revenue.
The program’s success has contributed to Zalando’s overall growth, with the company planning to expand Plus to more markets (currently available in eight markets) [3] .
Key elements of Zalando Plus
Zalando Plus has become a key initiative for the company, offering members a range of benefits that enhance their shopping experience. The program aims to increase customer lifetime value (CLV) and drive gross merchandise value per customer spend by approximately 20-25% [4] . Several factors contribute to its success:
Personalisation and curation
Zalando has focused on understanding customer values and preferences through interactions (such as browsing patterns, purchase history, and feedback) and using the information collected to personalise the search results, recommendations and marketing. This ensures that each customer sees products and content relevant to their tastes and preferences [5] .
Cross-category shopping incentives
The program encourages customers to shop across multiple product categories via exclusive new product sales, fast delivery and flexible returns, and personalised recommendations across categories. Customers who shop in more than one category can spend over three times as much as those who shop in only one category [6]. This cross-category approach has been crucial in increasing customer spending and loyalty.
Free and fast delivery
Zalando Plus members benefit from unlimited free 1-2 day express home delivery and an extended returns period [7]. The convenience factor has a significant impact on customer satisfaction and retention.
Priority access
Members get early or exclusive access to sales, special promotions, and limited-time offers, allowing them to shop deals before non-members. Members also get access to a priority customer service line, ensuring faster resolution of queries and issues.
This priority access enhances the overall shopping experience and encourages frequent visits to the platform.
The power of customer loyalty in fashion retail
Importance of loyalty in the fashion industry
Customer loyalty has a significant impact on fashion retail success. A McKinsey study reveals that customers in high-performing loyalty programs are 62% more likely to spend more and 59% more inclined to choose a brand over its competitors [8]. With a 5% increase in loyal customers, profits can rise by 25% to 95% [9]. This highlights the importance of fostering customer relationships in an industry characterised by constant churn due to seasonal trends and fast fashion.
Effectiveness of subscription loyalty programs
Subscription-based loyalty programs have proven highly effective in the retail sector. For instance, Amazon Prime has led to a 150% increase in purchases by members in the year following their subscription [10]. Similarly, Ulta Beauty’s loyalty program accounts for 96% of the company’s sales, with 43.3 million active members [11].
The sunk cost bias
The success of subscription loyalty programs often leverages the sunk cost fallacy. Customers who pay for memberships are more likely to make additional purchases to justify their investment [10]. This psychological factor contributes to increased customer spending and calculative commitment, as seen in programs like the BahnCard and Amazon Prime [10].
Conclusion
Zalando’s success with the Plus loyalty program offers some valuable insights for the e-commerce fashion industry. The program’s ability to grow its membership and boost customer spending showcases the power of well-designed loyalty strategies in the digital age. By focusing on valuable benefits, personalisation, cross-category shopping incentives, and convenient delivery options, Zalando has created a program that truly resonates with its customers. This approach has led to increased customer lifetime value and significant growth in the company’s active customer base.
Learnings from Zalando’s experience can be applied to other businesses in the online retail space, including the importance of understanding customer preferences, leveraging data for personalisation and offering tangible benefits that enhance the shopping experience. As the fashion retail landscape continues to evolve, loyalty programs like Zalando Plus are likely to play an increasingly crucial role in driving customer engagement and boosting sales. For businesses looking to thrive in the competitive world of e-commerce, investing in customer loyalty might just be the key to long-term success.
Do Loyalty Programs Work? Explore other examples of winning loyalty programs here.
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References
[2] – https://www.decisionmarketing.co.uk/news/zalando-bigs-up-loyalty-club-for-boost-in-fashion-lovers
[4] – https://www.brand-experts.com/brand-strategy/customer-lifetime-value-loyalty-program/
[5] – https://www.moengage.com/blog/how-zalando-is-reimagining-shopping-experience/
[6] – https://corporate.zalando.com/en/financials/zalando-full-year-22-results
[7] – https://corporate.zalando.com/en/company/zalando-launches-membership-program-zalando-plus-france
[9] https://hbswk.hbs.edu/archive/the-economics-of-e-loyalty
[13] – https://corporate.zalando.com/en/about-us/holistic-strategy-connected-fashion-world
[14] – https://medium.com/@internationalagilefederation/zalandos-success-story-0b9e36c18196
[16] – https://corporate.zalando.com/en/company/customers-dont-just-want-more-they-want-better
