THE CLARUS Blog

5 Reasons Why You Should Consider Offering a Paid Loyalty Program

As subscription-based loyalty programs continue to gain popularity, many retailers are asking themselves if they should consider offering a paid loyalty program 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 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, GNC, GameStop and others have launched their own premium loyalty programs and have been seeing success.

Here are five compelling 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 do join loyalty programs because they want to get the discounts, there exists a very special group of customers that are more concerned about exclusivity.

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 (37 percent this year, up from 30 percent in 2017) are willing to pay a fee for access to enhanced benefits.

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.

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

 

2. Paid Loyalty 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.

myGNC Pro Access, GNC’s paid loyalty program, sees PRO members visit stores and purchase twice as much as nonmembers.

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.

For example, I recently signed up for Lids Access Pass Premium. For $5 a year, I get 20 percent off all hat purchases among other benefits. I’ve been back to Lids twice to buy hats. Why would I buy one somewhere else when I know I’m going to save every single time I go to Lids?

Read my complete review of the Lids Access Pass loyalty program from a marketer’s perspective here.

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

Rational 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 rational 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.

The Restoration Hardware RH Member program not only offers 25 percent off for $100 a year, it also provides members with interior design consultation. In most cases, purchasing one piece of furniture will make the membership fee pay for itself. It’s a very rational benefit. But, where else are members going to get that VIP interior design service?

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.

 

4. It’s an Opportunity to Differentiate

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 consequence.

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. Most consumers belong to over a dozen loyalty programs, but they’re only active in half. 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 the discounts. They are about offering something special to your best customers.

 

5. The Membership Fees Are an Incremental Revenue Stream

What makes all these great, instant benefits possible are the program membership fees themselves. The investments that the program members make are what fund these programs.

Even if only the top 20 percent of your customers elect to invest in your paid loyalty program, these dues can add up to a significant amount of revenue. This allows retailers to keep offering better benefits to their best customers

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

Ninety-five percent of Restoration Hardware’s business is driven by its nearly 400,000 paid loyalty members.

 

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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