Wayfair’s new $29 membership program aims to spur shoppers to purchase more than twice a year.
Home furnishings retailer Wayfair launched a paid loyalty program dubbed Wayfair Rewards at the end of October.
The membership program is $29 and shoppers receive:
- 5% back in rewards
- Early access to sales
- Free shipping on all items
- A dedicated phone line for customer support
- Exclusive discounts
In a Nov. 1 earnings call, Wayfair’s co-founder and CEO Niraj Shah discussed how a goal for the program is to increase purchase frequency, according to a SeekingAlpha transcript.
The average Wayfair shopper purchases with the online retailer twice a year, spending roughly $300 each time, Shah said. If these average shoppers became rewards members at $29, the 5% back would roughly be breakeven, he said. The key is getting these shoppers to purchase one more time for Wayfair to gain that incremental spend and create a “flywheel effect.”
“If that average customer now makes an incremental third order on Wayfair versus a competitor, we’ve grown our share of wallet by 50%,” Shah said. “Those three orders at $300 a piece are worth $900 of total revenue, $45 of which goes back to the customer, thanks to the program.”
Wayfair said the more consumers shop on its site, the jump from three to four purchases in a year should be faster than the jump from two to three.
“There’s a flywheel we see from customers that grow their shopping occasions on Wayfair, as they increasingly spend more time on the site, browse a broader selection of the catalog and are more likely to shop through our app,” Shah said.
Additional benefits for Wayfair beyond incremental spend
After incremental spend, the membership fee generates additional revenue for Wayfair. Amazon.com Inc., for example, generates billions in annual revenue from just the Prime membership fee from its approximately 180 million program members, according to U.S. data from consumer research firm Consumer Intelligence Research Partners.
What’s more, once consumers are in the membership program, they are more likely to think of Wayfair for their home goods purchases. This means, Wayfair is less likely to spend money to get that shopper to its website or app to shop.
“Customers who shop four or more times on Wayfair in any 12-month period, not only spend more, but also nearly a third more likely to come to us via free traffic. So growing that cohort is highly beneficial to margins,” Shah said.
Wayfair does have a segment of shoppers who purchase four or more times a year with the brand. The retailer can tap even more out of these shoppers as consumers purchase in the home category six to eight times per year, he said.
The home furnishings retailer plans to market the program to new movers, renovators and remodels, who purchase in the category frequently and would receive a lot of value from it. In addition, Wayfair plans to market the program as a way for shoppers to use their cash back rewards to “treat themselves” to upgrades in the kitchenware, tabletop, decor and bedding categories.
Wayfair also reported for its Q3 2024:
- Total revenue decreased 2.0% year over year to $2.9 billion.
- A net loss of $74 million.
- 21.7 million active customers, a 2.7% year-over-year decrease.
- Repeat customers placed 79.9% of total orders, compared with 79.7% in Q3 2023.
- Average order value was $310, compared with $297 in Q3 2023.
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