THE CLARUS Blog

How to Price a Premium Loyalty Program for Your Customers

Seventy-six percent of consumers would pay to join a premium loyalty program, according to our 2021 Premium Loyalty Data Study.

That’s because a premium loyalty program offers benefits that extend beyond traditional points. These benefits can take many forms, including convenience perks such as: VIP access, free shipping and returns, product samples, and members-only events.

Consumers want an enhanced customer experience that a premium loyalty program brings. While free loyalty programs are great at acquiring members and collecting data, premium loyalty programs create stronger connections with your members because they are engaged at much higher levels.

But how do you price a loyalty program so that your most valuable customers will be happy to join it?

You want to consider your customers, first and foremost, because this program you’re building should revolve around their needs and desires. Also, you want to come up with a price for your program that benefits members and your brand.

The value your program provides and the membership fee should truly be a win-win for members and your brand.

 

The Three Fits to Help You Price a Premium Loyalty Program

When you’re creating a premium loyalty program, there are three fits you need to consider that will significantly impact your customers and help you set the price:

  • The right benefits for your customers
  • The right cost for the benefits
  • The right cost for your customers

Your program must be created for your unique customers. First, consider the mix of program benefits that makes the most sense for your customers. Understand the market’s need and create a product that fills that need.

You must start with your market first. Your program must be created for your unique customers. Consider the program benefits that make the most sense for your customers.

If you’re an apparel retailer, your customers might value free shipping and returns on every order, plus limited-edition merchandise that’s only for members. Conversely, if you’re a fitness brand, perhaps your members would value classes or nutrition coaching.

The key is understanding your customers’ expectations and desires, and tailoring your program’s benefits around them. And it’s different for every brand.

Second, figure out the right cost of these benefits. Your customers should find the program so valuable they are willing to pay for it.

For example, CVS CarePass not only offers discounts and free prescription delivery, but it also offers a live 24/7 pharmacist help line to its members. Those benefits are worth the $48 per year.

Third, make sure your program cost matches customer expectations of your market. Price points should be different for different brands based on the benefits and products offered.

Remember, just because certain benefits might be technically “worth” the price on paper doesn’t mean your customers will be willing to pay for them.

If you get it right, to your customers, the membership fee connected to a premium loyalty program is merely a small investment for the attractive benefits they receive in return. They see immense value in the program and heightened engagement opportunities.

That’s why these three fits need to work together. Your loyalty program needs to provide attractive benefits at a cost your customers would be willing to pay.

This may feel simple but placing it through this structure helps you better understand how each aspect of your program works.

 

Some Examples of Premium Loyalty Programs Priced Right

There’s a vast spectrum of premium loyalty programs in terms of pricing. Some programs are well over $100 per year while others are only a few dollars. Why is that?

It all goes back to the three fits above.

LIDS and RH both have programs that offers 20% off for members, but one program is $5 per year and one is $100 per year. But it all makes sense for their customers.

For example, with the LIDS premium loyalty program it’s very easy for members to do the math. If they buy even one or two hats per year, the membership pays for itself.

But the same holds true for RH. If a member buy just one piece of furniture per year, that value proposition still makes sense.

Meanwhile, lululemon’s program is also on the high end of the spectrum. But it combines both transactional and experiential benefits in its enticing premium loyalty program and it appeals to an audience that is willing to pay a premium for it’s apparel.

For an annual fee of $148, members enjoy not only free merchandise and free shipping, they also can take part in top-tier online and in-store fitness classes. These benefits really fit the lifestyle of Lululemon’s customer base and offer an exceptional value.

That fee includes a free pair of yoga pants or shorts. The membership fee clearly is worth it, considering the amount of valuable benefits. 

Best Buy’s new Beta premium loyalty program is priced at $179.99 per year (for customers with the retailer’s credit card) or $199.79 per year.

Program members receive unlimited tech support from the Geek Squad, round-the-clock concierge service, exclusive member prices on merchandise, free installation of many appliances and products, fast, free shipping on all purchases and no minimum-order restrictions, and two-year warranties on most purchases, including Apple products like iPhones.

To join Bed Bath & Beyond’s BEYOND+ premium loyalty program, members pay an annual fee of $29.

In return, members receive 20% off all their purchases, free shipping, and 50% off interior design services.

These premium loyalty program membership fees and respective benefits match their customers’ expectations.

 

Test Your Premium Loyalty Program and Then Test Some More

The importance of testing your premium loyalty program can’t be understated. In an exercise that is often part science and part art, test your price points and value propositions.

There is no minimum or maximum amount of time to test your premium loyalty program. You do what works best for your brand and your program.

You want to test the benefits construct with research and focus groups to find that sweet spot that will attract the most customers.

Test for accuracy and make sure of your program mechanics, data flow, logistics, and launch plan.

lululemon, Best Buy, and Urban Outfitters are all testing their premium loyalty programs, slowly rolling them out by region.

Lululemon raised the price of its membership a year ago.

Urban Outfitters officials said the test duration could last six months to a year, and it depends on how many customers sign up for the program and what insights they learn from it.

The art side of the testing equation is a certain feel you get because sometimes consumer intentions don’t always lead to certain behavior.

Think about what will “wow” your customers and always err on the side of providing more value.

Consumers want options, so give them want they expect and desire.

 

Make Your Program So Valuable Your Customers Will Sign Up Immediately

A premium loyalty program must be filled with value to be successful. There are too many options for consumers to consider, so if your program value isn’t obvious and apparent, they will go elsewhere.

But you also need to make your program price is fair and worth it to your customers.

Your customers are very smart and will know quickly if your program is valuable. The good news is, if your program offers value, customers will join.

Layer in intangibles and soft benefits (like an annual members-only event similar to Prime Day) to your program.

And on the tangible side, think about how quickly your premium loyalty program pays for itself.

Success is based on acquiring enough customer data to inform your next moves with the program.

Make your premium loyalty program is so valuable, with a sensible membership fee, that your customers will sign up immediately.

Want more advice on how to price your loyalty program? Get in touch with us here.

 

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