THE CLARUS Blog

5 Reasons Why You Should Consider Offering a Paid Loyalty Program

As paid loyalty programs continue to gain popularity, many retailers are asking themselves if they should consider offering one to their customers.

This approach takes the traditional loyalty model of transactions first for benefits later and completely turns it upside down. In a paid loyalty program, members agree to pay a recurring membership fee upfront for great benefits they can use immediately and all the time.

While Amazon pioneered this model with Prime, many other companies have been rethinking their loyalty programs as well. Bed Bath & Beyond, Restoration Hardware, CVS, Walmart, and others have launched their own programs and have been seeing success.

Here are five reasons why you should consider offering a paid loyalty program as well.

 

1. Your Best Customers Want the Best Experience (and They’re Willing to Pay for It)

While many customers join loyalty programs because they want to get discounts, there exists a very special group of loyal customers that are more concerned about getting the best your brand has to offer.

These are your top-tier customers.

And they want to feel like top-tier VIP members. But offering VIP benefits only after earning points doesn’t work with your top customers.

With free loyalty programs, members must make a certain number of transactions before they can ever hope to receive a reward. And what is that reward? Many times, it’s a $5 coupon for spending $100. Is that even worth it?

That doesn’t build loyalty. Your best customers need a better reason to stick around.

In this world of instant gratification, they want instant benefits. That’s why an increasing number of customers are willing to pay a fee for access to enhanced benefits.

According to our 2020 paid loyalty data study, 70% of consumers not in a paid loyalty program would join one if their favorite retailer offered one, and the benefits were valuable.

And 67% of respondents are likely to join a premium loyalty program if they already belong to that retailer’s free loyalty program.

See what makes customers willing to pay for loyalty.

If you need proof, just look at Amazon Prime. Membership just hit 100 million even as Amazon raised the price from $99 annually to $119. Prime members are willing to pay for membership because the benefits make their lives better.

See why Amazon was able to raise the Prime membership fee without much pushback.

When your program makes their lives better, that relationship is strengthened.

 

2. A Paid Loyalty Program Makes your MVP Customers Even More Valuable

People invest in things because they feel they’ll get a return. It’s no different with loyalty programs. For people to pay a membership fee, the program must be valuable and make their lives better.

Members want to get the most out of their investments in the program. When that happens, retailers enjoy increased average order value, order frequency, and engagement.

Ninety-four percent of paid loyalty members shop at that retailer at least once a month.

Members of CVS CarePass, the brand’s paid loyalty program, are quite valuable. They spend four times as much as non-CarePass customers.

Not only do those transactional metrics increase, actual loyalty increases as well. Those members are going to be much less likely to shop the competition when they’re investing in great benefits from your brand.

Our study found that paid loyalty programs are so attractive that 88% of consumers who belong to a paid loyalty program are likely to choose the retailer whose program they belong to over a competitor offering a lower price.

More than half of retailers say paid loyalty members are at least 4X as valuable as non-members.

When customers pay to belong to a loyalty program, they’re committed to that brand and will engage more regularly. Retailers also gain valuable data about their top-tier customers, and the insights can be leveraged for more personalized experiences.

 

3. It’s Important to Build Emotional Connections

Transactional benefits can only get a brand so far, but experiential benefits are what bridge the gap between transactional and actual loyalty.

One hundred million shoppers obviously see the transactional benefits like the fast, free shipping that Prime offers, but Prime Video continues to drive Prime member adoption and retention. Jeff Bezos himself said it in a recent letter.

Lululemon is making an impact with its new paid loyalty program.

For $128 annually, members receive a free pair of pants or shorts. Since most of those items cost more than $100 anyway, it makes sense to join the program if you’re planning on mailing one purchase per year.

It’s a simple value proposition with a smart transactional benefit.

Also, Lululemon takes it a step further by adding curated events and workout classes for members.

That’s why the Lululemon premium loyalty test program is doing so well.

It’s the unique experiences that consumers can’t get elsewhere that strengthen their affinity to your brand. It’s what makes the overall customer experience hard to replace elsewhere, even if a competitor has a lower price.

Nearly 90% of consumers would recommend a retailer to family and friends if the retailer’s paid loyalty program offers valuable benefits.

 

4. You Can Differentiate Through Your Loyalty Program

Technology has made it more necessary than ever before to differentiate.

For the average shopper, access to the lowest price and an unlimited supply of products is literally at their fingertips. Switching brands doesn’t come with a lot of consequences.

See why loyalty is more important than ever in the age of unlimited choice.

That’s why the product alone is no longer enough. Retailers need to start thinking more like service-oriented companies to figure out what they can offer besides discounts. When every free program is pretty much offering the same value proposition, why would customers stay loyal to one?

Paid loyalty programs make it harder for your customers to switch brands because, unlike traditional free loyalty, it’s not just about discounts. They are about offering something special to your best customers.

According to a McKinsey study on paid loyalty, “brands struggling to compete in a highly fragmented or undifferentiated market should consider paid loyalty as a means of acquiring consumers and creating an economic loyalty loop, where the paid features make it unfavorable to switch brands.

 

5. The Membership Fees Are an Incremental Revenue Stream

What makes all these great instant benefits and exclusive experiences possible are the program membership fees themselves. The investments that the program members make are what can help fund these programs.

According to McKinsey, brands must use the membership fees to invest in exclusive offerings with more emotional resonance, such as access to personalized experiences or members-only content.

Even if only the top 20 percent of your customers elect to invest in your paid loyalty program, this revenue can add up quickly. This allows you to keep offering better benefits to your best customers

This ensures your members will stay engaged with your program and keep renewing year after year.

 

Give Your Best Customers the Best Experience and Keep Them Engaged with Paid Loyalty

This is not to say that free loyalty programs should be killed off.

Consumers still love discounts and most of them enjoy the low barrier to entry that free programs have to offer. But, for the best customers, retailers need to consider adding a paid tier for the VIPs.

  • Your best customers want the best experience and they’re willing to pay for it.
  • Paid loyalty programs make the most valuable customers even more valuable.
  • Emotional connections bridge the gap between transactional and true loyalty.
  • Brands need to differentiate more than ever with their loyalty programs.
  • The incremental revenue from paid loyalty memberships can be used to fund awesome benefits that keep members engaged year after year.

More retailers are getting on board with paid loyalty and giving the best of the brand to their best customers. As customers come to expect an elevated loyalty experience more and more, where will your brand be?

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