THE CLARUS Blog

The One Thing Driving The Evolution of Premium Loyalty

Loyalty programs have been around for a couple hundred years, but the evolution of premium loyalty programs has only happened over the past couple decades.

It all started with transaction-based loyalty programs.

Our ancestors were rewarded for purchases with copper coins and green stamps. These could later be redeemed for products.

That’s not much different than traditional loyalty programs today. Consumers are expected to spend over time. They eventually collect points that can be redeemed for rewards later.

While the tokens have changed from tangible to electronic, the idea has remained the same. Keep spending over time and see a reward later. Either way, we pay for rewards.

What hasn’t remained the same is what consumers expect.

Now, they expect the best benefits upfront, immediately, all the time. And if those benefits are good enough, they’re willing to pay for them upfront. It’s the opposite of traditional loyalty programs.

Once retailers realized this, a new type of loyalty program branched off. That’s premium loyalty, and its time is now.

Here’s how it started.

Here’s everything you need to know about premium loyalty at a high level.

2001: A Free Shipping Odyssey

While ecommerce became technically possible in 1991 after the internet was first opened to commercial use, it took almost a decade to really take off.

During this time, consumers became keen to the idea of being able to order online, anytime and anywhere. Retailers took note and began offering consumers the ability to buy products and pay for them securely online.

This is where loyalty programs reached a fork in the road.

Most companies continued offering traditional, transaction-based loyalty programs, but brought them online. But a couple of companies started thinking differently about loyalty.

Rather than asking customers to spend their money over time for rewards later, they asked customers what their pain points were when shopping online.

Shipping charges were at the top of the list.

So, in 2001, www.freeshipping.com was launched. This membership program asked consumers for a monthly fee. In return, members received an important immediate benefit that they could use all the time: Shipping rebates at many top online retailers.

For frequent online shoppers, the program quickly paid for itself in reimbursed shipping costs. Then, in 2005, Amazon launched Prime. The main difference was that a Prime membership awarded members with free shipping only on Amazon rather than a network of retailers like www.freeshipping.com.

Both programs shared a common theme: Solving for customer pain points and offering immediate value. What’s more, both programs offered so much value to members that they were willing to pay for them.

While the term didn’t officially exist at the time, those were the first premium loyalty programs.

 

2006-2015: Premium Loyalty on the Rise

While many retailers continued to dedicate more resources toward discounting and promotions as part of their loyalty strategies, a few more retailers started to focus on their best customers. They developed premium loyalty programs of their own.

In 2006, Barnes & Noble launched its B&N Membership premium loyalty program. For $25 per year, members receive 40% off list price of hardcover bestsellers, free express shipping, and other exclusive offers.

GameStop launched PowerUp Rewards in 2010. This program offers members exclusive video game related rewards, a subscription to Game Informer magazine, additional discounts on pre-owned games, and additional credits on trade-ins. With almost 50 million members, the program continues to grow.

Moviegoers were delighted by the release of AMC Stubs in 2011. Membership recently hit 13 million U.S. households.

The Premier tier costs members $15 annually. This gives members waived online ticketing fees, a free large popcorn and fountain drink on birthdays, free popcorn and drink size upgrades, and exclusive premier services at the box office and concession stands.

Newegg introduced Premier in 2014. For $49.99 annually, members receive free expedited shipping, free returns, waived stocking fees, dedicated customer service, and exclusive members-only deals.

All these memberships offer enough value to pay for themselves and, in return, retailers enjoy increased engagement and AOV from their best customers. It’s a win-win and that’s the key behind premium loyalty.

 

Free Shipping Becomes Table Stakes

While free shipping was the focus around all these premium loyalty programs, customers started to expect it and some retailers began offering free shipping thresholds even for non-loyalty program members.

Walmart’s Shipping Pass, launched in 2016, ended just a year later as Walmart rolled out free shipping over $35 for all customers.

Amazon saw this coming, however, and began offering other valuable benefits, in addition to free shipping.

In 2014, Prime members were given access to over 5,000 movies and TV shows without ads for free. Prime Music also launched, affording members access to more than 2 million commercial free streaming songs.

Prime Photos, which gives members free unlimited photo storage on the Prime Photos app, was added to the mix.

Then in 2017, Prime partnered with Chase to offer members 5% cash back on the Amazon Prime Rewards Signature Visa Card. After its recent Whole Foods acquisition, Prime members in certain cities now receive free two-hour grocery delivery.

Amazon keeps sweetening the deal. That’s why it was able to raise the annual membership fee of Prime from $99 to $119. With 100 million Prime members and growing, it’s working.

To be clear, free shipping remains extremely important to customers, but customers are looking for more. Just like Amazon, companies need to figure out what unique benefits create the most value for their customers.

 

2016 – Present: The Next Generation of Premium Loyalty

In early 2016, Restoration Hardware CEO Gary Friedman made a tough call.

Promotions were killed off entirely and a new premium loyalty program called the RH Grey Card was born. It was a decision that paid off.

For $100 annually, members receive 25% off in addition to other monetary benefits. In the style of Prime, however, Restoration Hardware dug deeper than monetary benefits to find alignment with its customers’ needs.

That’s why the RH Grey Card also offers experiential benefits in the form of free interior design services. Members love it. The program currently has nearly 400,000 members and drives most of the business.

GNC had a similar motive when it launched myGNC PRO Access in 2017.

Sure, members get free shipping, but they also enjoy quarterly personal sale days, PRO Boxes with free samples, and gifts delivered twice a year, exclusive lifestyle giveaways and the PRO Access Insider Line.

The program quickly reached over 325,000 members and PRO members visited stores twice as much as non-members.

Both retailers found ways to make their programs so valuable that customers were willing to pay for membership.

 

The Future Evolution of Premium Loyalty

Premium loyalty programs started around free shipping, but customer demands have shifted. They are asking for so much more now. A retailer’s best customers want the best benefits and experiences that make their lives easier. Whether it’s a shipping refund or streaming video, they want it 24/7.

Loyalty programs have changed because customers have changed. Solving for customer pain points has been the one thing leading the evolution of premium loyalty.

A successful premium loyalty program, whether launched in 2001 or tomorrow, creates so much value that customers are willing to pay to be a part of it.

If a retailer can figure out what is truly valuable to its customers and solve for that, everyone wins.

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