Walmart (WMT -0.10%) plans to announce its own membership program later this month in its most direct assault yet on (AMZN -0.34%). The subscription loyalty plan, which is expected to be called Walmart+, will cost customers $98 per year, according to a report by Vox. 

In a strategy similar to that used so successfully by Amazon Prime, the program is expected to offer a number of perks designed to get customers to shop more often once they become members. This will include same-day delivery of groceries and other merchandise, increased access to delivery slots, discounts for fuel purchased at Walmart gas stations, and early access to promotional pricing and product deals. Additional benefits could come at a later date.

Woman with a credit card in one hand and a smart phone in the other making an online e-commerce purchase.

Image source: Getty Images.

Sidelined by the pandemic

The retailer originally planned to launch Walmart+ in March or April, but the COVID-19 pandemic scuttled plans for the earlier unveiling. Walmart hasn't yet publicly confirmed its plans, so it isn't clear if the program will be given a nationwide launch or a more modest regional debut before being rolled out across the country.

The move has been rumored for some time, with reports emerging back in February hinting at Walmart's plans. This would also mark a stark about-face for Walmart, which has long boasted "free delivery without a membership fee." 

Following a successful template

There's little doubt that Amazon Prime has been wildly successful at helping the company cement its place as the e-commerce leader. Once a member subscribes, they want to be sure they get their money's worth. As a result, a customer is more likely to look for a product on Amazon after becoming a Prime member. This results not only in an increase in the number of visits but an increase in overall spending. The success of this strategy is well documented.

Prime customers spend $1,400 annually, on average, compared to just $600 per year for non-Prime shoppers, according to research by Consumer Intelligence Research Partners. By modeling its program after Prime, Walmart could see a large boost in its sales revenue, as well as collecting the annual membership fee. For context, Amazon generated more than $19 billion in subscription services in 2019, with the majority of that coming from Prime memberships. 

Increased customer loyalty and engagement

Loyalty programs like Prime tend to lock customers into longer-term relationships, as Prime has proven time and again. Once they sign up for a free trial of Prime, 64% of customers will become paying members -- and they tend to stick around for the long haul. About 93% of customers continue their Prime membership after one year, and 98% stay on the subscriber rolls after two years. 

The decision to price Walmart+ at $98 is a brilliant tactical play, as the membership is noticeably less than the $119 per year customers pay for Amazon Prime. By undercutting the cost of its biggest rival, Walmart is drawing attention to its value proposition, which could potentially draw customers away from Amazon Prime, while also encouraging regular Walmart shoppers to sign up.

A Walmart associate wearing a yellow vest, face mask and rubber gloves.

Image source: Walmart.

Investor takeaway

This move isn't without some level of risk, and it will be an expensive undertaking. Amazon spent nearly $38 billion on shipping last year, an increase of 37% from the $28 billion in shipping costs it generated in 2018. Walmart will have its work cut out for it, particularly if it intends to keep pace with Amazon, which has developed a certain level of expertise in delivery and fulfillment.

If Walmart+ can duplicate anything close to Prime's success at customer retention and increased spending, this move could easily catapult Walmart to the next level of competition with Prime.