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Marketing Strategy: A billion rand industry revealed

by Bruce Conradie

South African consumers pay almost a billion Rand a year to belong to customer clubs: a “hidden” industry revealed for the first time in a new report.

“Customer Clubs in South Africa 2004”, a survey conducted by Razor’s Edge Business Intelligence and World Wide Worx, reveals that South African consumers hold 4,4 million club memberships with commercial organisations, most of which charge fees for the privilege. The monthly club membership revenue of the 28 clubs surveyed is an estimated R69,5 million, and the top four clubs command 80% of the combined total revenue.

Surveyed clubs include those offered by clothing retailers (for example, Edgars Club), furniture retailers (Morkels Club), and medical aids (Discovery Vitality).
Customer clubs are often confused with loyalty programmes. The research shows that the clubs provide a set of benefits in exchange for a fee, whereas a rewards programme allows the customer to accumulate loyalty points and redeem these for a reward. The one is a profit centre, the other a cost centre or marketing cost.

The clubs typically exist as an extension to the company’s product range, rather than to market the products. They generally offer benefits that have little or no connection with the core product, such as movie tickets, which have no direct connection to clothing or health, yet discounts on movie tickets are offered by customer clubs run by clothing and health companies.

It may surprise some to discover that, for many South African operators, the chief benefit of a customer club is not customer loyalty, but profit. Clubs make money. Any gain in customer loyalty that might accrue is a bonus.

Only two clubs assessed in the survey were regarded as growing passion for the core product. These were the Harley Owners’ Group (HOG) and the Kaizer Chiefs Supporters Club (KCSC).

All but one of the customer clubs surveyed required their members to pay a membership fee. The fee varies from R30 a year for the entry-level tier of the Kaizer Chiefs Supports Club to R1 200 a year for the Backbeat music club. These numbers add up to close to a billion rand a year.
Customer Clubs are distinct from loyalty programmes in that members pay a membership fee, do not accumulate points for their activity, and enjoy a fixed set of benefits. Yet, despite the greater profit they bring to club owners, they have little profile when compared to loyalty programmes.

Bruce Conradie is director of Razor’s Edge Business Intelligence and principal researcher for “Customer Clubs in South Africa 2004”. Contact him on bruce@razorsedge.co.za, or by telephone on +27 11 792-4140 or mobile +27834614130

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The Big Change is a business strategy blog and newsletter published by Arthur Goldstuck, managing director of World Wide Worx, a leading technology research organisation based in Johannesburg, South Africa.

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