Business Model Trends: Buyer’s Club

A membership is at the heart of a buyer’s club model.

On one hand, a Buyer’s Club isn’t necessarily a new thing; on the other hand, Buyer’s Clubs in this ‘new era’ of digitization and on-demand delivery is definitely new.

What drives people towards Buyer’s Clubs is traditionally an economic imperative and social structure. Is this Business Model Trend about to be reinvigorated or is it a fad bound to pass by?

Membership Business Models

  • To access any Buyer’s Club, individuals must purchase a Membership. Membership Fees help turn any Buyer’s Club into a sustainable business, in turn offering better access to products
  • Buyer’s Clubs then enter into certain purchasing agreements with various suppliers and generate volume discounts for their members and/or offer bespoke products
  • The business model can generate an enormous profit in the mid/long-term as seen when looking at Costco as an example of a Buyer’s Club at scale
  • The key to the whole model is the Customer Relationships and the loyalty created compared to typical retailers who sell from the same product category
  • In the future, Cooperatives may see Buyer’s Clubs as a viable model to move beyond their existing limitations and become a ‘Capitalized Cooperative’ capable of competing at the core of major industries

This is why there is so much potential in a Buyer’s Club Business Model. While there are always perks and promises that are made to Members, the cashflow from setting up a Membership Revenue Stream helps bootstrap the whole model.

Buyer’s Club Business Model

Value Proposition Canvas - Buyer's Club
Value Proposition Canvas
  • Value Proposition the combined buying power of a group offers much more attractive purchasing power and pricing to the group (versus individuals alone)
  • Revenue is generated from a combination of Membership Sales and margin on the Sales made through the platform (either via eCommerce, in-store, or both)
  • While initially Membership sales help create a source of upfront cashflow, a Buyer’s Club usually looks to create new Revenue Streams off of bespoke products in the future
  • Customer Relationships are unique to any other traditional retail brand – whether online, offline, or both- as Customers are Members, creating an added layer of loyalty
  • Key Resources are therefore the brand itself and the ability to leverage the brand into something that looks and feels special. It can’t be a Buyer’s Club without it feeling like a club
  • Cost Structure is similar to any retail model. In the modern era, this resembles more of an eCommerce structure, as Buyer’s Club do not have a retail storefront most times

Buyer’s Club Business Model Canvas (Mockup)

Business Model Canvas - Buyer's Club
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Example Companies:

Beauty Pie – “Luxury Makeup and Skincare Products Direct” (£60 per year, Beauty)

Italic – “Luxury without Labels” ($60 per year, Fashion)

Thrive Market “Organic without Overpaying” ($60 per year, Food)

Reference Business Model: Costco

Everybody knows Costco, and Costco is the OG (Original Gangster) of the Buyer’s Club Business Model.

Membership at a Costco is typically $60 per year. The company has a Market Cap (Ticker: $COST) of north of $200 Billion, so it is safe to say that they make the vast majority of their money by buying wholesale good and selling them at a markup to consumers, the very traditional retail model.

But Costco is well-known in the market for (typically) offering the lowest prices. They also typically buy the highest volume, along with other major volume retailers. The difference is that Costco remains a member’s experience.

One can go to Walmart and buy something they see is cheaper than Costco without a membership, but one can’t go to Costco and buy something they see is cheaper than Walmart without a membership. This structure creates a set of embedded loyalty in the customer base and ensures the brand competes on more than just price.

Costco Membership Fee Revenue

Membership Revenue + Wholesale Revenue

As we can see above, Membership Sales are still a very important part of the Costco Business Model, with $3.88B generated in revenue in 2021.

The company generated $192B in revenue in 2021 in total, but Membership Sales and Net Sales from stores are NOT the same type of revenue. The latter is subject to the margins associated with operating a physical retail business model, while Membership Sales are literally revenue associated with the issuance of a membership.

Costco P&L - Annual Report 2021
Costco – 2021 Annual Report

This is why there is so much potential in a Buyer’s Club Business Model. While there are always perks and promises that are made to Members that must be paid out, the cashflow from setting up a Membership Revenue Stream helps bootstrap the whole model.

Future Trend: Capitalized Cooperatives

Future Trends - Capitalized Cooperatives

Much to the chagrin of many in this world, the Corporation’s major advantage is the fact that it is capitalized to the tune of Billions and Billions of dollars. When they run out of money they can usually raise more with the snap of their fingers.

Many people like the idea of a ‘co-operative,’ yet somehow they become synonymous with ‘anti-capitalism.’ But without capital, there is no purchasing power. There is no ability to make any sort of move, and as we see time and time again with many well-intentioned cooperative, they fail in the medium term.

Buyer’s Club vs. Cooperatives

A Buyer’s Club provides one very intriguing model in relation to Cooperatives. Naturally, a Buyer’s Club can be itself a pureplay business, one that offers tonnes of value to consumers and businesses alike. Or it can also be a building block into the future around other models.

In today’s world, a Buyer’s Club is considered a global brand that operates to profit, and a Cooperative is considered a local group without a mandate to profit. This will likely change as economic stresses in the market force innovation.

The membership model is at the heart of both a Buyer’s Club and a Cooperative. This creates both a consumer base and a loyalty for future action in either direction. What starts as one or the other can – and probably will – evolve in the future as both small businesses and individuals look for ways to survive in the inflationary environment we are currently living through.

Capitalizing a coop and competing with the likes of Costco’s and other big retail chains in any specific vertical is a Future Trend to keep an eye on. It is much more likely to start at the back-end of the supply chain among suppliers/producers than at the front-end by someone with a lot of money who wants to reinvent retail.

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