What do you do when you want to increase your customers’ purchase frequency and lifetime value (LTV)? The current trend among retailers seems to be paid membership programs. If it works for Amazon or Costco, can it work for niche platforms?
Etsy recently announced they would experiment with their own membership program in September. We don’t have a lot of information yet, but I still want to discuss what this membership is about, reflect on why Etsy might do this, and give you my opinion on whether this can reverse the company’s decreasing GMV trend.
What is Etsy Paid Insider Membership?
Simona Shakin, vice president of product and retention marketing at Etsy, went over the perks of Etsy’s future paid membership program. The benefits include:
- Free U.S. domestic shipping on millions of items
- A birthday bonus
- Limited edition annual gift, designed by an Etsy seller
- First access to special discounts and select merchandise
- Double impact with Donate the Change
It still isn’t clear what products qualify, what the bonus or gift will be, or what this “special merchandise” will include. The free domestic shipping is a significant perk, as this is one of the reasons Amazon Prime is so successful. Customers shopping online now expect free shipping, and I wouldn’t be surprised if Etsy eventually pressured its sellers even more for fast shipping.
Another big question mark is the price. Etsy did not say exactly how much customers would pay. The only information we have comes from Etsy’s COO, Raina Moskowitz, who said the monthly fee will cost roughly as much as a latte.
For now, the membership will be released in a beta version to a selected group of customers, with no information on when it will be open to the general public.
| Feature | ETSY Membership | Amazon Prime | Walmart+ | CostCo Gold Star |
| Price | “Price of a Latte”? | $139 per year | $98 per year | $60 per year |
| Delivery | Free on selected items | Free One-Day and Same-Day Shipping | Free shipping Free delivery from store($35 min) | N/A |
| Other benefits | Birthday bonus Limited edition annual gift First access to special discounts and select merchandise Double impact with Donate the Change | Prime Video, Reading, Gaming and Amazon Music access | Fuel discounts Paramount+ Free flat tire repair Free road hazard warranty | Warehouse access Costco Fuel access Free household card Access to Costco services |
| Members | Closed-beta version soon | 29 Million | 160 Million | 129 Million |
Why is Etsy Launching Their Paid Membership Program?
I believe three challenges Etsy currently faces are pushing them to experiment with a paid membership program: a more competitive environment, and a low customer LTV, which ultimately causes a decline in GMV growth.
Etsy was originally all about handcrafted and vintage items. However, things changed during the pandemic when the platform allowed the sale of mass-produced items. Unfortunately, Etsy could not compete with Temu, Shein, and Amazon in that segment, in an environment that became extremely cutthroat and competitive. While Etsy is refocusing on handmade products, the company is likely to see a further decline in GMV in the short term as customers buying mass-produced items leave.
This leaves us with unique products often bought as gifts. It also appears that the sales are highly seasonal, with a spike in Q4. I assume the main goal for Etsy with this membership is to increase purchase frequency and customer loyalty, resulting in a boost in GMV in the long term.
The Real Question: Is This the Right Move for Etsy?
It is difficult to evaluate this strategy without having enough details on the costs and benefits of this program for shoppers.
If, as Etsy’s COO said, the price of the membership is “roughly the price of a latte”, this can be worth it for shoppers after 1-2 purchases, depending on shipping fees and where Etsy COO buys her lattes. Etsy said they would subsidize free shipping benefits and not pass cost onto sellers, but it is hard to have an opinion until we have more details.
While that sounds like an interesting deal for customers, Etsy will need to persuade them to buy more frequently. How often does the average Etsy customer need to shop? There is Christmas, maybe a birthday or two, or a wedding?
I can understand the success of paid membership programs for everyday, non-seasonal purchases: Amazon, Walmart, or Costco. But if Etsy refocuses on its main niche, handmade products, the scope is much narrower. Etsy has three groups of customers:
- Those who won’t shop more than once or twice a year no matter what, and won’t need the membership (I assume this is the largest group).
- Those who are buying very frequently even without a membership. These people are likely to subscribe and buy more.
- Those who don’t buy frequently but may spend more if they had the option to subscribe to the paid membership. I think that is the smallest group.
In reality, I think this program can increase customers’ LTV and revenues. But would that make a big difference?
Another big question is how profitable this would be. If frequent shoppers now stop paying for shipping and Etsy has to subsidize it, how would that affect total revenues?
Conclusion
We need more details on their plan and more data on their current customer base to really evaluate this strategy. It can’t really be compared to Amazon or Target since Etsy has a narrow focus and no retail stores.
However, my guess is this can move the needle in the right direction, but may not be enough to compensate for the decline in GMV. And if the rate of adoption is high, I can’t see how Etsy could keep membership costs low without passing shipping costs onto third-party sellers. I really like the idea of Etsy (not so much the current version) and I hope I am wrong, so I am looking forward to seeing more details on this plan.
https://www.digitalcommerce360.com/2024/07/31/etsy-insider-beta-launch-paid-membership-program
https://www.cbsnews.com/news/etsy-online-shopping-loyalty-program-insider
