September 27, 2022 | Douglas Montgomery | Senior Analyst
Membership Models Redefining “The Bundle”
In an age where the 3-letter acronym rules, LOL, it was a 4-letter acronym that ruled retail for more than three decades. Wal-Mart (now Walmart) ushered in EDLP (“everyday low price”) in the 70s in an effort to create a long-term consumer relationship based on transparency and trust. EDLP contrasted starkly with the prevailing strategy of the day “hi-lo” (two letter acronyms never stood a chance). Retailers used a hi-lo strategy along a products lifecycle, charging higher prices when the product was most popular and dropping it over time as demand decrease.
The Amazon Prime bundle, launched in February 2005 was introduced to the world as a membership program with “all you can eat” free 2-day shipping. Bezos remarked in a letter to customers that, while he expected Prime to be expensive in the short-term, the program would earn a larger portion of consumer purchases in the long-term. Sound familiar, Wal-Mart?
Fast forward to the post-covid world of 2022, bundles (membership programs) are all the rage. In the entertainment industry. Apple One and Walmart+, among others, are aiming to gain new subscribers, increase revenue, and reduce churn in their never-ending competition with Amazon.
Walmart launched its membership service, Walmart+, in September 2020, for which it charges $98 per year. This is roughly one-third cheaper than Amazon Prime ($139/year), a strong differentiator. As well, and to compete more directly with Prime, Walmart recently added free access to Paramount+ Essential to its membership. The streaming video service is in addition to savings on free shipping from store (minimum purchase of $35) and from Walmart.com, six free months of Spotify, gas discounts, and other goodies. Communication all these benefits in a simple marketing message is much more difficult than the transparent EDLP envisioned by Walmart in the early 70s.
At the same time, Amazon is doubling down on exclusive video content, adding exclusive high-value content such as Thursday Night Football ($1B per year over 11 years) and Rings of Power ($750M-$1B for rights and production costs of a single season). This is considerably more expensive than anything Walmart is paying for Paramount content. Despite adding Paramount+, the Beast of Bentonville is sorely trailing Amazon in terms of scale and ambition.
Apple has also entered the increasingly-crowded bundled membership market. Starting at $14.95 per month, Apple One includes six of Apple’s individual services (music, video, games, news, fitness, and cloud storage). While Apple Music has been a popular alternative to Spotify and Prime Music, Apple TV+ has been gaining steam, spurred by award-winning series such as Ted Lasso and a new deal with Major League Baseball.
All this activity and cost begs a new question: Why are these companies spending so much money building a service bundle? Bezos once remarked “When we win a Golden Globe, we sell more shoes.” Is this still the case? Or, given the ongoing shift from traditional linear TV platforms to digital, does aiming for eyeballs and consumer attention still generate more advertising dollars?
Amazon is the third largest ad platform in the world (after Meta/Facebook and Google) with 2021 revenue of $31B. With ad dollars comes retail spend and, given recent developments in “shoppable television,” one wonders whether we are in the final period of the bundling game or only at the beginning.