South African customer clubs booming, report says

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By: Wise Marketer Staff |

Posted on June 13, 2006

Membership fee revenues for South Africa's combined customer clubs (not including points-based loyalty programmes) are growing at the rate of 15% each year, now totalling some R1.3 billion a year - equivalent to US$0.19 billion - according to a report published by Razor's Edge Business Intelligence.

The country's consumers currently hold an estimated total of 5.9 million customer club memberships, for which they pay an average fee of R18 (approx. US$2.60) per membership per month. These are among the findings of the company's Customer Clubs in South Africa 2006 (CCiSA) survey.

Rapid growth
In addition, the 26 customer clubs profiled in the report (among which are Discovery Vitality, Edgars Club, Jet Club, and Joshua Door Club) were found to be earning an average of 40% more in membership fee revenue than they were two years ago, when the first edition of the survey was conducted.

This revenue growth is largely a result of growth in membership numbers. While Edcon clubs remain top in terms of membership numbers, the fastest growing club is currently the Barnett Furnishers Clubs with reported growth of 731% over the past two years. This was followed by Ellerines Inhouse Club (79%) and Russells Club (48%).

Biggest clubs
The four customer clubs with the highest numbers of members are retail clubs (Jet Club, Edgars Club, Foschini Club, and the Joshua Doore Group club). The retail sector contributes some 85% to the base of customer club memberships. The club with the fifth highest membership is from the healthcare sector (Discovery Vitality).

The CCiSA research conducted in 2004 found that the South African public then held 4.4 million club memberships collectively. Today that figure is an estimated 5.9 million, representing annual growth of 10% over the past two years. (These figures count members who are paying monthly membership fees or who are actively participating in free membership clubs.)

Growth factors
Membership of clubs has been boosted by organic growth and by the launch of new clubs. The country has seen the launch of three new clubs (Momentum Save Thru Spend Multiply, African Life's Go! Health, and Old Mutual Rewards). In contrast, only one significant club (Old Mutual's Oxygen Levels) closed during the study period.

In terms of revenue size, the top five clubs are:

  1. Vitality;
  2. Edgars Club;
  3. Jet Club;
  4. Foschini Club;
  5. Joshua Door Group club.

Adding value
Although customer clubs may be perceived by some to be a coercive effort to obtain customer loyalty, Razor's Edge believes that these clubs play a significant role in adding value for both the member and the provider.

The 15% growth rate observed in customer club membership is far ahead of consumer spending growth in South Africa, and the R1.3 billion in revenue generated by these clubs highlights the growing value of the industry.

According to Bruce Conradie, principal researcher for the survey and managing director for Razor's Edge, "Consumers do not balk at paying membership fees of up to R100 a month to belong to a customer club. This shows that they find value in club offerings. It can easily be shown that, for many clubs, the member who makes an effort to use the club benefits receives a very good return on his or her fee investment."

Common club benefits
The most commonly offered benefits include:

  • Automatic entry into monthly competition draws;
  • Club magazines;
  • Help and advice lines;
  • Discounted accommodation;
  • Discounted air-travel.

Professor Adele Berndt of the Department of Marketing at the University of Johannesburg, and consulting researcher on the survey, added: "Looking at the long lists of benefits that the survey fieldwork uncovered, it is important that club members receive benefits that they regard as important - and which, according to them, add value."

Consumer uptake
Although the CCiSA survey did not specifically set out to measure club benefit usage, it came to light that consumers do indeed value and use the benefits of the clubs they belong to.

Examples of well used benefits include the Ster-Kinekor discounted movie ticket benefit (offered by Discovery Vitality) and the equivalent benefit offered for Nu Metro movie tickets (for Edgars Club members). Other benefits known to be well used or appreciated include discounted gym memberships, funeral benefits, and automatic enrolment in sweepstakes.

Club differentiation
According to Berndt, the range of benefits offered across all clubs suggests that club operators are using their benefits well to differentiate their club from others in the marketplace.

Some benefits are offered by numerous clubs and are of high value (such as discounted gym membership), while other clubs offer more exclusive benefits. Some benefits may be unusual but they're carefully chosen to tie-in with the company's core product. For example, one clothing retailer's club offers free alterations of clothing purchased from the store.

Conradie predicts that customer clubs in South Africa can be expected to continue to grow significantly, benefiting both consumers and club operators, as long as the economic climate remains relatively stable (i.e. low inflation, low interest rates, and continued economic growth).

The report is published by Razor's Edge, and includes aspects of customer clubs such as benefits, marketing strategies, key features of clubs in the retail sector, benefits of running a customer club, characteristics of the profiled customer clubs, and key performance indicators. The report can be purchased directly from Razor's Edge (contact Bruce Conradie on +27 11 792 4140).

Click here to see what's in the report, or to contact Razor's Edge.

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