In China, the e-commerce battle rages among market leader Alibaba (BABA 2.49%), JD.com (JD +0.28%), and new IPO Pinduoduo (PDD 0.48%).
Last week, Alibaba made a move to protect its lead and engender fierce customer loyalty through a new VIP tier for its "88" loyalty program (88 in Chinese is pronounced "Baba"). That 88 program, which offers Alibaba's customers points for both shopping and activities on Alibaba's platforms, was unveiled exactly a year ago in August 2017 for Alibaba's Taobao and Tmall platforms. But the new VIP tier cranks things up a notch, functioning as a super-subscription that extends benefits to a wider array of Alibaba's services beyond the core e-commerce platforms.
The original 88
Last August, Alibaba combined its previous Taobao and Tmall loyalty programs into one program across the company's entire e-commerce universe. For those who don't know, Taobao is the company's consumer-to-consumer platform, sort of like an enhanced and bigger eBay (EBAY +2.17%), while the company's Tmall platform is where large brands can sell their wares to Alibaba customers. Previously, each platform had its own loyalty program, where consumers would earn points for transactions. In the combined 88 program, Alibaba extended the ability to gain points via other "engagement" activities beyond mere transactions, such as writing reviews or sharing product pages on social media. All that membership data is especially alluring for brands, which gain access to program insights in exchange for becoming exclusive partners.
Image source: Alibaba.
The 88 benefits include discounts on partner brands or even exclusive products and services (not unlike credit cards' loyalty programs). Members could also find discounts in Alibaba's Tmall supermarket, which takes a page out of Amazon's (AMZN +0.97%) playbook for exclusive Whole Foods discounts for Prime members.
Alibaba has several tiers for its members: Standard, Super (1,000+ points), and APASS (2,500+ points), with each tier leading to greater and more luxurious benefits (APASS members would even get access to a digital shopping assistant).
The VIP tier just unveiled, however, takes Alibaba loyalty to the next level.
88 VIP
If you're already a Super user (1,000 or more points), the new VIP subscription upgrade will only cost RMB 88 (which equates to roughly $12.86). For standard users, the subscription will be much more expensive at RMB 888 (which equates to almost $130, even more expensive than the $120 Amazon Prime).
The benefits include not only more discounts at Alibaba platforms and 5% off all groceries at the Tmall supermarket but also enrollment in Alibaba's other subscription services such as video streaming service Youku Tudou and Alibaba's Xiami music streaming service and further discounts on Ele.me for food delivery. Alibaba itself estimates users will average RMB 2,000 in benefits ($292.08), though that will depend on how much stuff one buys.
Keeping it in the family
A lot of what Alibaba has been doing lately -- 88 VIP included -- is focused on keeping customers fenced in to its leading e-commerce platform, which is under threat from JD.com and Pinduoduo, each of which have gained market share over the past few years. Another strategy behind the VIP program seems to be to boost Alibaba's ancillary businesses that do not have leading positions. For instance, Youku Tudou is estimated to be in third place in the Chinese video streaming wars, while Xiami is only the fifth-largest music streaming service just in China.
Alibaba and rival Tencent (TCEHY 1.57%) are looking to consolidate much of the Chinese online and offline retail economy -- what they term "new retail" -- under their respective corporate umbrellas (Tencent owns minority stakes in JD.com and Pinduoduo). In this battle, 88 and other loyalty programs will become super important. Alibaba is perhaps learning from the phenomenal success of Amazon's Prime program, which provides a similar host of benefits and for which Amazon was able to raise the price earlier this year without much customer churn.
In addition, these subscription programs can be a valuable source of data, which can lead to better products and services, which may put an even greater distance between market leaders and smaller competitors.
Loyalty is everything
Investors in any retail business -- and especially these rising e-commerce platforms -- need to be aware of how they construct their loyalty programs. In a world with more and more options for consumers and new competitive threats popping up every day, they are key tools for retail companies of all shapes, sizes, and geographies.
