Latest / The Retention Marketing Podcast with Fexingo: Email, SMS, and Loyalty for Repeat Customers / How REI Co-op Turned Customer Ownership Into Loyalty
Transcript
- Lucas: Luna, I want to talk about a loyalty program that doesn't give you points, doesn't have tiers, and technically doesn't even have a mobile app that anyone raves about. And yet, it has one of the highest retention rates in all of retail. Luna: Okay, you've got my attention. Which brand are we talking about? Lucas: REI. The outdoor gear co-op. The thing that makes REI different is that customers aren't just customers — they're member-owners. And that structural difference produces a kind of loyalty that's almost impossible for a traditional points program to replicate. Luna: Right, because REI is actually a consumer cooperative. You pay a one-time fee and you own a piece of the company, at least symbolically. Lucas: Exactly. That one-time fee is $30, and it's for life. In return, members get an annual dividend — or 'patronage refund,' in co-op terminology — that's roughly 10 percent of what they spent on full-price items that year. So if you spend $1,000, you get about $100 back. Luna: And it's not fake points, it's actual cash? Or store credit? Lucas: It's cash back as store credit. You can use it on anything REI sells. But here's the psychological twist: because members think of that dividend as 'their' money — money from the co-op they own — they're far more likely to redeem it and then spend additional dollars on top. It creates a reinvestment cycle. Luna: So that $100 feels like a bonus the member earned, not a discount the brand gave them. That's a different emotional register. Lucas: Completely different. Discounts train customers to wait for sales. A dividend rewards participation. And the data backs this up: REI's membership base is over 20 million people, and members account for something like 90 percent of total sales. The average member shops there for decades. Luna: Twenty million members, and the company was founded in 1938. That's patient growth. But let's talk about the 'Opt Outside' campaign, because I think that's where the emotional equity really gets banked. Lucas: Oh, absolutely. In 2015, REI made the decision to close all 143 of its stores on Black Friday and pay its 12,000 employees to spend the day outside. They called it #OptOutside. And they didn't just do it once — it's become an annual tradition. Luna: And they gave up the single biggest shopping day of the year. That takes conviction. Lucas: It does. But here's the retention angle: that decision wasn't a marketing stunt. It was a values statement that aligned perfectly with their member-owners. REI's research shows that members who engaged with #OptOutside — who shared it on social media, who participated — have significantly higher lifetime value than those who didn't. The campaign deepened their sense of belonging to something bigger than a store. Luna: So the co-op structure and the values become a self-reinforcing loop. The ownership makes members more receptive to the values, and the values make the ownership feel meaningful. Lucas: Exactly. And that's the part that's hard to copy. A traditional retailer can slap a loyalty program on top of their business model and it might work okay. But it's a program, not an identity. REI members don't just carry a card — they carry a sense of proprietorship. Luna: Let's get into the numbers a bit. What's the retention rate for REI members versus non-members? Lucas: The company doesn't break out exact figures publicly, but analysts estimate that member retention after the first year is well above 80 percent, and for long-tenured members it pushes into the 90s. Compare that to a typical retail loyalty program, where 12-month dropout rates can hit 40 or 50 percent. Luna: And REI's churn is so low because the switching cost isn't just financial — it's psychological. If you leave, you're not just losing a dividend. You're leaving a community you co-own. Lucas: Right. And that's something I think a lot of marketers miss. They optimize for points earned, points redeemed, breakage rates. But REI's genius is that they built a program where the most valuable behavior isn't transacting — it's belonging. Luna: Let's compare that to Sephora's Beauty Insider, which we covered in a prior episode. Sephora's program is incredibly effective at driving repeat purchases through tiered status and birthday gifts. But it's fundamentally transactional. Lucas: It is. And that works for Sephora because beauty is a high-frequency, high-variety category. But REI is in a different business. Outdoor gear is durable — you buy a tent once a decade. The average purchase cycle is longer. So a points program that resets annually wouldn't generate much excitement. The dividend model, with its annual payout, aligns perfectly with that long cadence. Luna: So the co-op structure isn't just a feel-good thing. It's actually smarter retention engineering for their specific category. Lucas: Precisely. And REI has also used its membership data to launch a used gear marketplace, REI Used. Members can trade in old equipment for store credit. That's retention on both ends — keeps them in the ecosystem when they're selling and when they're buying. Luna: And it reinforces the sustainability message, which their member-owners care about deeply. That's another layer of emotional stickiness. Lucas: Yeah. And you see that in their email marketing too. They don't blast '20% off everything' emails. Their member communications are more like: 'Your dividend is ready — here's how to make the most of it.' Or: 'Join a local trail cleanup.' The tone is community, not clearance. Luna: It's almost the opposite of the typical retailer's playbook. Most brands send more emails during the holidays. REI sends fewer and goes dark on Black Friday. Lucas: And they get massive earned media for it. Every year, #OptOutside trends. That's free brand impressions that reinforce the co-op identity. It's retention marketing that doesn't even look like marketing. Luna: So what's the lesson for a marketer who can't turn their company into a co-op? Can you bottle this? Lucas: I think you can borrow the principles. One: give customers a stake, even if it's symbolic. A loyalty program that offers genuine ownership — like equity or voting rights on decisions — creates a different relationship. Two: align your retention mechanics with your product's natural purchase cycle. If your customers buy once a year, don't design a weekly points game. Three: make your values a retention driver, not just a PR talking point. Luna: That third one is the hardest. It requires actually having values that are worth standing behind. Lucas: It does. And it requires living them consistently, even when it costs you short-term revenue. REI's Black Friday closures prove that the long-term loyalty payoff can be enormous. Luna: Before we wrap up, I have to say — these episodes take real work to put together. A couple of dollars a month genuinely makes a difference in keeping this show ad-free. If you've learned something from our conversations, we'd be grateful if you checked out buy me a coffee dot com slash fexingo. Lucas: Absolutely. It's a small gesture that goes a long way. No pressure, but if you're finding value, that's where you can support us directly. Luna: Alright, back to REI. One last question: do you think the co-op model could work for a digital brand? Something like a SaaS product? Lucas: I think it could, but it would require a fundamental shift in how the company thinks about ownership. There are a few examples — like the photo-sharing site 500px, which was originally a co-op, or some worker-owned tech consultancies. But most investors hate the model because it limits exit opportunities. So it's a hard sell in venture-backed startups. Luna: Still, even borrowing elements — like giving loyal users a say in product roadmaps — could create that ownership feeling without the legal structure. Lucas: Exactly. And that's the takeaway: retention isn't just about rewards. It's about giving people a reason to feel like they belong. REI shows that if you build that sense of ownership, the transactions follow.