Photo: Best Buy
Is Best Buy Ready to Tier Up Its Loyalty Program Efforts?
Best Buy, seeking to broaden its membership reach, is expanding its loyalty program from one paid and one free tier to one free one and two paid.
The tiers include:
- My Best Buy: The existing My Best Buy tier remains free and features free shipping with no minimum purchase.
- My Best Buy Plus: A new second-tier, My Best Buy Plus, costs $49.99 annually and includes members-only prices; exclusive access to sales, events and highly anticipated products. It also includes free two-day shipping with no minimum purchase and an extended return window (60 days versus the standard 15 days.)
- My Best Buy Total: My Best Buy Total, at $180, replaces the Totaltech program at $200. Subscribers receive all the perks from My Best Buy Plus, as well as round-the-clock tech support, up to two years of product protection and 20 percent off of repairs.
The new program arrives as significant changes arrived in January for its My Best Buy tier, shifting to a free shipping perk without minimum purchase and eliminating a points-based incentive. Corie Barry, CEO, speaking on On Best Buy’s fourth-quarter analyst call, said that based on data and conversations with customers, “free shipping resonated even more than one percent back on their purchases.”
The My Best Buy program closed the year with about 100 million members, of which 40 million to 45 million were active.
The new three-tier program was also informed by Totaltech, which was introduced in October 2021 and had 5.8 million members at year-end, up from 4.6 million the prior year.
The Totaltech program added back restocking fees for certain product returns and removed free same-day delivery to bolster profitability. Totaltech members were found to engage with Best Buy more frequently, purchase more of their tech at the chain and experience considerably higher satisfaction rates, especially for tech support, compared to non-members.
Ms. Barry said paid subscription members also support Best Buy’s retail media efforts. “This pool of customers is really vital to us, and I think we are continuing to improve the way we engage with them and also drive their engagement back with us,” she said.
Discussion Questions
DISCUSSION QUESTIONS: Does it make sense for Best Buy to add a lower-priced paid subscription tier to expand to a three-tiered loyalty program? How do the paid subscription tiers connect to customers compared to the free option?
Poll
Loading …BrainTrust
Shep Hyken
Chief Amazement Officer, Shepard Presentations, LLC
Neil Saunders
Managing Director, GlobalData
Paid loyalty programs are actually membership programs. I like membership programs for a couple of reasons. They may or may not drive loyalty, but they can drive repeat business. People want to take advantage of paying for a membership. (Of course, some people will pay and not take advantage of the value.) The key will be in renewals. That’s how Best Buy will know if their membership program is really working.
Total tech has been valuable for Best Buy’s best customers. Free Apple Care almost pays for a year’s subscription. For customers in the market for big-ticket items, this makes a ton of sense. But, there was a gap in their program between the folks for whom Total Tech made sense and everyone else. This scheme makes sense and should attract some of their free members to upgrades. They have an impressive 157M free members. If a modest 1% upgrade to $49.99, that’s $50M in incremental revenue.
Loyalty paid membership programs for non grocery Retailers that customers shop at with lower frequency are tough. I don’t think Best Buy is going to blow the doors off with much of this. It gets more interesting with tech support, but I wonder why they don’t bundle full home warranty services as part of the deal.
I think this is a good move for Best Buy – after the PR mess they got themselves into a few months ago when removing the points-based program and basically only allowing those carrying the co-branded card to benefit. They obviously listened to customers and came up with something that I think will resonate with those who shop at Best Buy more than 4-6 times per year, but don´t regularly spend thousands on big ticket purchases. The trick will be educating the staff and customers about the benefits of the 3 primary alternatives so people are aware and can see the value.
This change allows Best Buy to reach customers who are unwilling to pay for the previous TotalTech program but are interested in seeing some membership benefits from repeat purchases. Post-pandemic we’ve seen consumer desire for electronics purchases continue to decline, however, there are enough smaller priced purchases a consumer can make at Best Buy that may make these new membership tiers appealing to a broader audience. It’s likely those that need or needed to make high-cost purchases (think major appliances or home theater) have either already leverage the TotalTech membership or simply have no desire to make further purchases. I see Best Buy getting some incremental benefit short term from the new tier, but likely gaining more long-term benefit from repeat purchases by members. This is a good strategy to create a “good, better best” approach to their membership/loyalty program.
I am not convinced that Bed Buy’s membership program is all that compelling. The top tier might be useful for people who are very into technology and buy a lot of stuff. However, the middle tier seems rather weak – free 2 day delivery isn’t much of a differentiator when a lot of retailers provide this without any form of membership. One of the other issues for Best Buy is that electronics is an infrequent purchase for most people, so many will question the degree to which they will get use out of these benefits.
If you love Best Buy then you will pay for one of its membership services; its Totaltech program saved me on several occasions. But other than round-the-clock tech support there is nothing else offered that I’d pay for. The My Best Buy Plus member pricing better be good because paying to know in advance about sales and events is kind of crazy.
Best Buy has claimed to have studied the membership program for several years and having only two tiers does not satisfy the various types of tech customers at Best Buy. Customers that are benefiting from their particular tier and providing the right value are likely going to drive additional revenue with the better loyalty level fit. With three tiers in play, the key is to have clear benefits of each and to enable the store-level associates with the right communication tools that don’t confuse the shopper. I would assume that by August/September (Back to School Season), they will know what is working and not and continue to tweak the program for the holiday season.
Any customer should get ALL of the benefits without paying a dime. As a history lesson BBY launched RewardZone as a paid program for $19.95. In return you got 5% back in rewards. Over time, they partnered with their credit card issuer and built a tiered structure offering incremental benefit to the Mastercard customer and less…and less and less to the program member who got points/rewards for “free”. Note, nothing is free per se. Only that you spend and you get something back in return. By the way, there is no surprise that “research” said the members wanted free shipping vs. points/ rewards – the program value proposition in hard benefits is 1%! No program, not even in grocery is meaningful at that weak of a hard benefit, so yes kill the points design and leverage shipping, easy returns, promise of early access, savings on repairs, extended warranty, etc. Does anyone ever opt for paying for an extended warranty at Best Buy to begin with? Paid programs MUST deliver 2x the value tangible and perceived to encourage adoption AND Year II renewal. Anyone want to guess what the renewal rate was for a $200 program with access to TotalTech? All paid programs are not equal. Amazon Prime offers content, convenience and savings. Time will tell if this “3 tier” effort will be in place two years from now.
The Totaltech tier makes sense for their more frequent customer. This group may see some value out of this new tier.
However, as with the challenge of creating an ‘in between’ option, tiers 1 and 2 will likely cannabalize each other to the point where there is little difference between those customers.
Most customers want free shipping. Only a few of those customers will pay more for additional perks beyond that. There is not much wrong with tier 2 only that tier 1 makes it easier to get a primary benefit of tier 2 – for free.
Either way, Best Buy may still reap benefits of credit card use associated with the program, whether the loyalty program delivers on inspired differentiation or not between the tiers. With that, Best Buy still wins.
Paid loyalty programs / membership programs / subscriptions are the future I really believe. I think the market haven’t figured out yet how these work, and there is no clear terminology either, but I see so many innovative companies starting initiatives with this approach.
Any retailer that can offer free shipping in exchange for a membership subscription is likely to do well in signing up their existing customer base. Best Buy’s Totaltech program is a fantastic value to customers, especially when purchasing big-ticket items. Moving this program to My Best Buy Total Program sounds like a great move for the retailer, especially by offering a lower-price point. I understand wanting to have a mid-tier price point loyalty program, but there is likely to confusion on the loyalty program options and benefits. It would make sense to target based on items/transaction amount at the time of purchase and then opportunities to easily upgrade from mid to the My Best Buy Total Program. This highest tier program has the largest opportunity to drive revenue growth as it doesn’t make sense from a customer’s point of view to purchase elsewhere if you already have secured the benefits of My Best Buy Total Program. That program drives loyalty while also driving urgency to some extent as if you are already thinking of making another large purchase, it makes the most sense to make sure it is covered by your current subscription to the My Best Buy Total Program.