THE CLARUS Blog

Are Free Loyalty Programs Really Free?

In reality, the answer to that question is unequivocally no.

The acquisition of points/miles over an indefinite period of time to receive benefits at an undetermined time in the future can prove very costly indeed to a member of a “free” loyalty program.

Hotel/airline “loyalty” programs, in essence, wind up punishing customers if they don’t travel regularly. The second you don’t fly enough with a particular airline, you are unceremoniously demoted, for example, from Gold member status to Silver.

Or, in some cases, retailers say they won’t “charge” consumers for their loyalty, yet these are the same retailers that force their customers to spend $100 to receive free shipping. How is that any different?

The loyalty program value proposition, for example, where you buy nine sandwiches and receive the 10th one free doesn’t sound very “free” to me.

Whereas premium loyalty programs operate by a membership fee upfront in exchange for immediate and relevant benefits that can be used at any time, a free loyalty program, as far as locating a road map to receive benefits, lies somewhere in limbo.

Given the instant appeal of a free loyalty program on its surface, what a consumer winds up paying for in purchases over an extended timeframe to, ultimately, reach a desired benefit certainly doesn’t add up to a “free” experience.

How Many Miles for a Free Flight?

Let’s see how many miles a consumer needs to accrue to get a free flight?

According to ValuePenguin, for a one-way domestic flight, consumers need to rack up anywhere between 5,000 and 147,000 award miles to receive a free flight.

Other airlines do not publish any award charts, and instead charge miles on a case-by-case basis, according to ValuePenguin.

It’s anyone’s guess as to how much a consumer must spend on flights to accrue the necessary amount of miles needed to redeem a free flight.

Hotel loyalty programs offer a similar value proposition for acquiring X number of points for a free stay.

The bottom line? Members of these free-to-enroll loyalty programs are spending various amounts of money to finally reach their goal of a free flight or free night at a hotel.

Loyalty Fatigue

Many consumers who are members of these types of reward programs develop loyalty fatigue.

Loyalty fatigue occurs when program members lose interest because they either don’t understand the benefits, or the incentives aren’t worth the purchases they must make to receive them.

Free, or traditional loyalty programs have historically focused on acquisition.

But, in today’s loyalty world, retention is absolutely critical.

To combat loyalty fatigue, brands must:

  • Differentiate
  • Offer Real and Relevant Value
  • Close the Experience Gap
  • Collect Data … And Use It
  • Build a Paid Loyalty Program

Premium Loyalty Option

A paid premium loyalty program, like Amazon Prime, creates a steady additional revenue stream which can be used to enhance member benefits continually.

This also equates to better customer data.

Cookie-cutter loyalty programs aimed at large-scale audiences often neglect the most basic and overarching need: What customers want.

For example, many grocery store loyalty programs don’t reward loyalty. They reward card ownership. Consumers are given discounts on the commodities they would buy anyway, and there is no incentive to only shop with one grocery store.

Other traditional free loyalty programs have conditioned consumers to wait for discounts.

The “Me too” or “commodity” programs are difficult to distinguish from their competitors. Rewarding customers for existing behavior doesn’t motivate or modify behavior, which is the main goal of any successful loyalty program.

When Marvel launched its Marvel Insider loyalty program in 2016, Peter Phillips, EVP/GM, Interactive & Distribution for Marvel, said that the program is “really about fan engagement, rather than points for purchase.”

Phillips’ point is a critical one in today’s loyalty world because points-based programs offer little to motivate consumer behavior, and that customer engagement factor is omnipresent in premium loyalty programs.

Amazon Prime recently eclipsed 100 million global members, effectively displaying the power of premium loyalty. Premium loyalty programs are associated with higher member spend, higher advocacy, and longer-term brand loyalty.

Consumers have very high expectations and premium loyalty programs meet and exceed those desires in a relevant and personalized way.

The word “free” instantly suggests to a consumer the possibility of getting something for nothing.

Unfortunately, that is far from the reality when it comes to how much consumers spend in free loyalty programs to acquire various benefits.

You Get What You Pay For

Loyalty, like most things in life, comes with a price.

The old adage, “You get what you pay for,” certainly applies to free loyalty programs. With a free program, there is little incentive to take any action.

Conversely, the magic of a premium loyalty program is that members truly get what they pay for in terms of immediate and recurring benefits. That’s where the value lies for the retailer.

It boils down to what value you receive for your money.

Are You Ready to Go Premium?

If you want to become a 24/7 presence in your best customers' lives, it's time to get started.