Customer clubs growing more rapidly than consumer spend

Consumers now hold a total of 5.9 million club memberships, for which they pay an average fee of R18 per membership per month.

The 26 profiled clubs, among which are Discovery Vitality, Edgars Club, Jet Club, and Lewis Club, are earning an average of 40% more in membership-fee revenue than they were two years ago, when the first edition of the survey was conducted. The revenue growth is mainly a result of a growth membership numbers.

According to the report, the increased growth in customer clubs attests to the value of a growing industry in South Africa.

Highest number of members

The Edgars and Jet clubs remain tops in membership number of the 26 clubs profiled in the research report. However, the fastest growing club is Ellerine's Inhouse Club, with a growth of 34% per year for the two-year period since the first edition of the report was published. The total growth in memberships across all clubs was 14% per year for the two years.

Among the ten biggest clubs are three clothing-retail clubs, three furniture-retail clubs, and three healthcare clubs. Only one club among the top ten is from another sector and that is automotive.

A growth of 10% per annum

The CCiSA research conducted in 2004 reported the South African public held 4.4 million club memberships between them. Today this figure is an estimated 5.9 million, a growth of 10% per annum for the last two years. These figures are for club members who are paying monthly membership fees or are actively participating in free-membership clubs.

Of the estimated 5.9 million club memberships, the clothing retail sector contributes approximately two thirds, the furniture retail one third, and healthcare an eighth.

Membership of clubs has been boosted by organic growth and by the launch of new clubs. The same period has also seen the launch of three new clubs: Momentum Save Thru Spend Multiply, African Life's Go! Health, and Old Mutual Rewards. In contrast, only one club - Old Mutual's Oxygen Levels - closed in the period under review.

The top four revenue-earnings clubs are: Vitality, Edgars Club, Jet Club, and Foschini Club.

Adding value

Although customer clubs may be perceived by some to be a coercive effort to obtain customer loyalty, the Razor's Edge's researchers are of the opinion that clubs play a significant role in adding value to both members and providers. The 15% growth rate of customer clubs is well ahead of the consumer spend in the economy. The R1.3 billion in revenue generated by clubs highlights the value of an industry growing at a rate more rapidly than consumer spend.

Says Bruce Conradie, principal researcher for the survey and managing director of Razor's Edge, "Consumers do not balk at paying membership fees up to R100 a month to belong to customer clubs. This shows that they find value in club offerings.

"It can easily be proved that, for many clubs, the member who makes an effort to use the club benefits receives a very good return on his or her fee investment."

Common benefits

The most commonly offered benefits are automatic entry into monthly competition draws, club magazines, help and advice lines, discounted accommodation, and discounted air-travel.

Says Prof Adele Berndt of the Department of Marketing, University of Johannesburg, and consulting researcher on the survey, "Looking at the long lists of benefits that the survey fieldwork uncovered it makes it important that club members receive benefits that they regard as important and which, according to them, add value."

Although the CCiSA survey did not set out to measure club benefit use, evidence came to light that consumers do indeed value and use benefits. Examples of well used benefits include the Ster-Kinekor discounted movie ticket benefit offered by Discovery Vitality and the equivalent benefit offered for Nu Metro tickets to Edgars Club members. Other benefits known to be well used or appreciated are discounted gym membership, funeral benefit, and automatic enrolment in competition draws.

Differentiation

"The range of benefits offered across all clubs suggests that club operators are using these benefits to differentiate their clubs," says Berndt. "Some benefits are offered by numerous clubs and are of high value, such as, discounted gym membership. However, this is not the case with the benefits offered by all clubs.

"Some benefits are unusual but are carefully chosen to tie-in to the core product. An example of this is the clothing retailer's club which offers members free alterations of clothing purchased from the store."

"Customer clubs can be expected to continue to grow significantly, benefiting both consumers and club owners, should the economic climate remain stable, that is, one of low inflation, low interest rates, and continued economic growth," says Conradie.