Retailers have started to realize that traditional discounting and loyalty programs of the past are no longer effective.
According to a survey from Accenture, a frightening 78% of U.S. consumers are retracting from loyalty programs.
But the success of premium loyalty programs like Amazon Prime, GameStop PowerUp Rewards and others has many retailers rethinking loyalty.
Restoration Hardware is now the latest retailer to get on board with a better approach.
Let’s look at why they chose to leave tradition behind to join the ranks of the premium loyalty revolution.
Why Make The Switch?
Paid programs attract and retain better customers than traditional free programs and those customers are what Restoration Hardware needs.
It’s no surprise that Restoration Hardware CEO Gary Friedman attributes some of their recent struggles to the traditional discount model.
In 2016 he wrote, “Much of how we behave promotionally is left over from the Great Recession. The multiple sale events and email communications do not reflect the brand we are building, nor are these promotions aligned with how our customers shop with us.”
So, Restoration Hardware decided to eliminate their traditional discounting and promotions entirely and introduce their own paid premium loyalty program.
A study by loyalty one showed that 65% of participants felt rewards are worth paying for if relevant to their needs. This percentage was even higher at 79% among millennials ages 18 to 24.
Speaking of millennials, Friedman said in a press release announcing the new program, “Our lives are filled with complexity – and we long to break through the clutter to find simplicity. We want to shop for what we want, when we want and receive the greatest value. So rather than navigating countless promotions, we’re changing things… because time is the ultimate luxury.”
They want what they want, when they want it, without being inundated by promotional emails and discount offers.
What’s The Value?
Customers will pay for membership if they’re getting enough value out of the program.
Like Amazon Prime, the RH Grey Card premium loyalty will charge an annual fee in exchange for membership benefits.
This makes a lot of sense given their luxury assortment. Affluent shoppers are among the largest users of loyalty programs, with more than 70% of households with than $112,000 in annual income having an Amazon Prime subscription.
For $100 annually, members receive the RH Grey Card. It entitles them to 25% off in all departments and 10% off clearance items. It also gets them first access to clearance events and lower interest rates on the RH credit card.
If a customer plans on spending $400 or more per year, the program pays for itself immediately.
Again, comparing this program to Amazon Prime, it also goes beyond just monetary benefits. While Prime first centered around free shipping, many other experiential benefits were adding over time, such as music and video.
Members of the RH Grey Card program will receive free interior design services.
Service oriented experiences like this make emotional connections. Those can’t be bought with discounting and points.
This goes right along with Friedman’s letter, in which he also stated, “We are focusing a significant amount of our energy on improving the end-to-end customer experience.”
Members that pay for these benefits are more likely to stick with Restoration Hardware to make sure they are getting a return on their investment on the program.
What Are The Results So Far?
Friendman stated, “We believe the new membership program will greatly enhance the customer experience, render our brand more valuable, improve execution, and significantly reduce costs.”
So far it seems to be working.
Q2 revenue rose 13% to over $615 million.
Same-store brand revenues in the quarter rose 7% compared to a 3% decrease last year, direct revenues rose 14%, and store revenues rose 13% from the year-ago period, the company said
Restoration Hardware specifically noted success in their new premium loyalty model.
Friedman said, “Our most valuable asset is not what we’ve done, but rather who we’ve become.”
On moving forward, he said, “Our goal is to break down the silos that exist in most businesses of scale, and cross functionally design a fully integrated operating platform that simplifies our business, enhances the customer experience, and amplifies decision quality and speed.”
The retailers that will break through the competition aren’t the ones that are afraid to scrap what isn’t work anymore. They’ll build new models that focus on what their customers want.
Don’t Be Afraid To Tear Down The Walls
Although most loyalty programs are still free, Restoration Hardware has realized that by charging a fee upfront, they are able to generate revenue upfront and give their members a valuable experience.
We’ll end off with a statement near the closing of Friedman’s letter.
“History has taught us that real value is created by those who have the courage to lead rather than follow, who are willing to destroy today’s reality to create tomorrow’s future.”
About Restoration Hardware, he remarked, “At our core we are innovators. We obsessively look for opportunities to destroy the current version of ourselves to create something significantly better and more valuable.”
We’re glad that Restoration Hardware is not afraid to tear down the walls and walk boldly into the future.
Restoration Hardware is just the latest retailer to get on board the loyalty revolution and roll out a premium program.
We’re excited to see who will do it next!
If you think it might be your brand, or if you would just like to learn more about the premium loyalty revolution and how you can get involved in it, get in touch with us anytime.