Lifetime churn-proofing for $30 - the REI model

REI has bet big on membership to reduce churn to zero. Their recent update to the REI membership scheme came with a lofty goal - 50 million members. HUGE! And yet, the cost of entry remains small. Their membership costs $30 - for life. You never need to renew, you never really have to consider cancelling. Retention is almost a vanity metric for REI - it’s all but guaranteed. Nobody churns, because... why would they?

Anyone can shop at REI: membership is not obligatory, but it is encouraged, and for many it’s something of a no-brainer. One of the top-line membership offerings at REI is rewards. Typically, 10% of every spend is returned to users in the form of a ‘dividend’ - in-store credit to use the following year. So spend $300, and you’re likely to have your membership fee paid back to you.

For REI, that benefit alone creates a nice loop - the ‘dividend’ gets spent with them, and pays forward each year, encouraging a returning spend. Other benefits include free shipping, free repairs, and members-only gear, offers and more. Because their communications with members are so benefits-led, churn is low.

HOW TO THINK ABOUT REI’S MEMBERSHIP

REI’s membership pricing lies outside of a more typical rev-gen category – kind of. They’re not reliant on the money generated from membership subscriptions to drive revenue, it’s really just a token sum to cover admin and the cost of acquisition. It’s low enough that it suggests they’re confident the user will see value in what it unlocks, and it’s high enough to feel like it’s not nothing - i.e. that it’s an actual membership of sorts.

Part of the reason for it is that REI is structured as a customer co-operative. The co-operative is a co-ownership model, wherein the members are also owners, having a say in how the business is run, but also benefitting from the services it provides, or the products it sells. That’s the genesis of that incentivizing loop - the more you spend within the co-op, the better it can serve you with discounts and better offers, etc.

REI is not your traditional co-op, in that the members don’t share in the profits, but the rewards they receive are a version of that, and they do get to vote in board elections (if they meet some basic criteria). So in terms of membership, REI’s is quite unique in the world of commerce, and more meaningful than most, even if to the majority of ‘members’, it’s really only perceived as a means to get discounts, offers and access to slightly preferential services.

Does it work? YES. REI generates enormous amounts of revenue from its co-op members. It aligns its messaging and CSR efforts with the values of those users – lovers of the outdoors – and all of that combined drives enormous member loyalty. The company had a record year in 2021, with $3.1bn in sales. They returned $234 million to members in rewards, suggesting that at least 70% of sales came from existing members (it. has been as high as 95% in previous years).

THE TAKEAWAY

• Don’t limit your membership thinking to monthly subscription payments - memberships can mean many things depending on your business model. If the membership itself doesn’t unlock all the value (i.e. if you still want your members to pay more money for products) don’t make it an additional hurdle.

• Think long-term. REI’s membership fee has doubled since it was originally put in place. What constitutes membership now may change in the future.

GO DEEPER

• Read REI’s 2021 financials