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New McKinsey Survey Shows the Value of Premium Loyalty Programs in 2021

Consumer expectations have changed dramatically since the pandemic started, which has challenged customer loyalty.

According to the new McKinsey Paid Loyalty 2020 Survey, there’s another enticing option for brands that want to attract new customers and strengthen customer relationships amid an array of choices:

Premium, or paid, loyalty programs.

In premium loyalty programs, members pay a fee in exchange for instant, always-accessible benefits like free shipping, discounts, and VIP experiences.

These types of benefits make their lives easier and make them want to shop with you more.

This lets you create greater loyalty and trust with your customers.

According to the McKinsey survey, here’s why you should be thinking about premium loyalty in 2021.

 

Customer Loyalty Is Getting Harder

Even before COVID-19, our 2020 Premium Loyalty Data Study found that two-thirds of consumers said their loyalty was harder than ever to maintain.

COVID-19 has pushed more consumers to try new things, especially purchase online.

 

“35% of U.S. consumers have tried a new brand since the COVID-19 pandemic began while 77% demonstrated new shopping behaviors, including new channels, stores, and brands” – Source: McKinsey Consumer Paid Loyalty Survey 2020

 

E-commerce revenue soared to an unprecedented 71% in the second quarter of 2020 compared to the same period in 2019.

This push has given consumers even more choice. It’s leveled the playing field for retailers of all sizes and types.

You need to work that much harder to earn and retain the loyalty of your customers.

That requires offering valuable benefits in your loyalty program to create meaningful relationships, not just coupons and promotions. It means using your loyalty program as a differentiator.

But many traditional loyalty programs lack differentiation because they prioritize acquisition over retention. And they are too similar.

According to the McKinsey survey, the shift away from points-only loyalty programs was already well under way when the crisis hit.

Traditional loyalty programs have struggled because they are designed to acquire members.

But beyond that, there is little brand encouragement to engage other than to continue making transaction after transaction with a small reward in the future.

 

Premium Loyalty Members Are More Valuable

Did you know that 63% of consumers pay for at least one loyalty program?

These programs are highly valuable for consumers, but the same goes for the retailers that offer them.

According to the McKinsey survey, premium loyalty programs drive higher purchase frequency, basket size, and brand affinity compared to free loyalty programs.

Specifically, 43% of respondents are more likely to buy weekly since joining, 59% are more likely to choose that brand over competitors, and 62% are more likely to spend more on the brand.

And members can be worth several times more than non-paying members.

And a 2020 McKinsey report on loyalty programs found that members of these premium loyalty programs are 60% more likely to spend more on your brand, while free loyalty programs only increase that likelihood by 30%.

 

“Paying members can be worth several times more than nonpaying members, even setting aside revenue from membership fees themselves.” – Source: McKinsey Consumer Paid Loyalty Survey 2020

 

Quite an impressive selling point for premium loyalty.

This data aligned with what we found in our own 2020 premium loyalty data study.

From a value perspective, consider that 94% of premium loyalty members shop at that program’s retailer at least once a month.

And 88% of consumers who are satisfied with the special benefits offered by a retailer’s premium loyalty program will likely choose that retailer over a competitor that is offering a lower price.

Premium loyalty members pay for value and show your brand significant value in return.

 

Your Program Has to Offer High Value to Keep Members Engaged

While a premium loyalty program can be a great choice for your brand, you have to make sure the program keeps members engaged.

Consumers are empowered and have more choices now than ever before. And because of this, consumers carry higher expectations and demand value.

Differentiation has become non-negotiable. And premium loyalty can help brands differentiate from their competition.

Your focus as a brand should be providing instant benefits with apparent value.

You need to provide an attractive value proposition for your customers.

A premium loyalty program can serve as a deep level differentiator, when done right, and offer a deeper reason for consumers to engage with your brand.

To show value in your loyalty program, your benefits must clearly outweigh the membership fee, the McKinsey study says.

In fact, consumers expect to receive at least a 150% return on their subscription fees in the form of new offerings.

Those benefits include free shipping, instant discounts that can be used whenever you shop, free giveaways, surprise rewards, holiday discounts, and personalized offers.

In fact, our study found that 66% percent of consumers say free shipping is a perk that would motivate them to join a premium loyalty program.

Sixty percent said it’s instant discounts.

But while these benefits may get members in the door, building true loyalty requires brands to offer unique experiences that aren’t available anywhere and add significant value to their lives.

 

“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.” – Source: McKinsey, Coping with the big switch: How paid loyalty programs can help bring consumers back to your brand

 

Seventy percent of consumers would join a premium program if it were offered to them and the benefits were valuable.

Keeping your members engaged is the key to loyalty and premium programs are designed to achieve exactly that.

 

Can Premium Loyalty Work for Your Brand?

According to McKinsey, “In 2019 consumers spent an estimated $25 billion to $30 billion on paid loyalty programs, reflecting a 25%-50% growth rate over 2018. With 63% of consumers already members of at least one paid loyalty program, it’s clear that paid loyalty is not a niche trend.”

While Amazon may have started the trend with Prime, many other retailers like Lulelumon, CVS, and most recently Walmart have jumped on board.

Seventy percent of consumers would join a premium loyalty program if their favorite retailers offered them and the benefits were valuable.

Have you considered launching a premium loyalty program in 2021?

If you’re thinking about it, we’re here to help! Feel free to reach out to us anytime.

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