We’ll share the potential advantages of fee-based loyalty, retail examples and tips to help you decide if this tactic is worth a try.
- Paid loyalty programs are not the same as subscription loyalty programs
- Premium loyalty programs can differentiate your brand, improve retention and increase repeat purchases
- Fee-based loyalty programs will appeal to fewer people than free loyalty programs, so you’ll collect less customer data
- Creating a distinct and meaningful value proposition that fits your customer base is critical to success with a premium loyalty program
Loyalty programs have long been a path for retailers to develop deeper customer relationships, grow their best customer ranks and gather vital data. But as the popularity of such programs has expanded — and consumers have come to see basic perks almost as entitlements — the challenge of differentiating your program and your brand has likewise grown.
Ironically, one way to help distinguish yourself and encourage active participation from key customers is to have people pay for the honor of joining your loyalty program. But this tactic doesn’t work for every retailer or every situation. Here, we’ll look more closely at how these so-called premium loyalty programs work, share examples and provide other insights to help you decide if a paid membership loyalty program fits your goals.
Will customers join a fee-based loyalty program?
A LoyaltyOne survey cited in Total Retail says yes.1 In fact, about two-thirds of respondents said they would consider joining if it was offered by their favorite retailer and if the rewards were relevant. Interest jumps past 75% for customers aged 18 to 34.
What’s the difference between paid loyalty and subscription loyalty programs?
They’re similar, but these two approaches to customer retention have definite distinctions. Subscription loyalty programs require customers to join by paying a monthly fee. In exchange, the customer automatically receives a product or package of products on an ongoing basis. It offers a convenience factor around products that consumers purchase frequently.
Premium or paid membership loyalty programs, on the other hand, typically have either a one-time or annual fee to join. Members receive exclusive rewards — and they don’t need to accrue points or spend a specific dollar amount to earn most of those perks. About 5% of loyalty programs today are fee-based, according to a Gartner Daily Insights article.
What are the pros and cons for paid loyalty programs?
One advantage to a premium loyalty program is that it can improve perceptions of the brand and the program’s value. In fact, nearly half of respondents in the LoyaltyOne study said that they believe benefits in paid loyalty programs are better than those in free loyalty programs. In younger demographics, that belief is even stronger, with 61% of customers aged 18-24 agreeing and 54% of those aged 25-34 agreeing.
What’s more, those membership fees give you funds upfront to stoke your benefits budget — while also giving you a faster time to profitability. And since a paid loyalty program won’t appeal to all of your customers, your budget doesn’t have to extend as far as for a larger audience. That means you may actually be able to offer those better benefits and be able to develop rewards that are more tightly targeted to that group. All of which can lead to greater customer engagement and increased lifetime value.
Another distinct advantage of fee-based programs is that they can encourage retention, as members don’t want to waste their “investment” by shopping elsewhere. This can lead to members concentrating category purchases with your store and even increasing repeat purchases as they work to cover the cost of joining by taking advantage of program discounts or other benefits.
On the downside, since the fee will deter a number of customers from joining, you’ll only be gathering data on that smaller group. If your primary objective is to attract and retain customers, and to glean information on your elite customers, that’s okay. However, if your goal is to accumulate as much data as possible about all of your customers, then a traditional free program may be a more effective route.
In addition, there is some evidence that paid program members tend to shop more upfront, to cover the cost of joining, and then taper off their spending once they feel they’ve “covered the spread.”
It’s also important to realize that, if you plan to have a recurring annual membership fee, you’ll also need to re-sell your existing members every year. There is a high risk for year-over-year attrition. To improve your odds, build renewal marketing — and a corresponding budget — into your program plans from the start.
How do you attract customers to a premium loyalty program?
Convincing customers to join a fee-based loyalty program comes down to creating a value proposition and messaging that clearly shows what members will get out of belonging. For instance:
- Illustrate the value of program rewards compared to the cost of membership to show how members can “earn back” the cost of joining.
- Highlight the instant gratification advantage, explaining the benefits members will receive automatically — without needing to build up purchases or points.
- Play on customer emotions by promoting concepts such as status, exclusivity, appreciation and so on.
- Build benefits around the values and needs of your specific audience, while ensuring they also stay true to your brand and your mission. Also consider how, when, where and why customers interact with your brand to make sure rewards fit within that scope.
- Refresh rewards periodically based on surveys, data and other input. This will help maintain member engagement and make it easier to gain renewals.
What are some paid loyalty program examples?
Fee-based loyalty programs make up just 5% of the loyalty program realm,2 but those include offerings from many top retailers. Here are eight examples that demonstrate the wide range of fees and benefits.
Member fee: $119/year
Benefit highlights: Free expedited shipping, exclusive products, early access to sales and added services such as video, music and Kindle e-books.
Other: Currently boasts 65 million members
Link: Amazon Prime
Barnes & Noble Membership
Member fee: $25/year
Benefit highlights: Discounts, free express shipping, 40% off the price of hardcover bestsellers, 10% off almost everything else
Link: Barnes & Noble Membership
Lids Access Premium Pass
Member fee: $5/year
Benefit highlights: 20% off all hat purchases, 20% off embroidery, 10% to 20% off apparel and novelties, plus benefits of the free Lids Access Pass program
Link: Lids Access Premium Pass
Member fee: $128/year
Benefit highlights: One free pair of pants, free expedited shipping, and access to workout classes and events
Other: The paid program is in testing as a premium tier of the retailer’s free loyalty program
Member fee: $20 one-time
Benefit highlights: Annual dividend based on spending, discounts on REI travel, rentals, classes and more, members-only special offers and access to “garage sales”
Other: Members are essentially co-owners and have a vote on certain company decisions
Link: REI Co-op
RH Members Program from Restoration Hardware
Member fee: $100/year
Benefit highlights: 25% off all purchases, 20% off sale items, early access to clearance items and concierge support service
Link: RH Members Program from Restoration Hardware
Is a paid loyalty program right for you?
Premium loyalty programs aren’t right for every organization or every customer base. Here are some factors to consider as you determine whether this tactic might work for you.
- Do your customer preferences and behaviors match with the idea of a fee-based loyalty program? For instance, if your customers are largely bargain hunters, this might not be the right approach. On the other hand, a segment of best customers interested in status or exclusivity might find it appealing.
- Does fee-based loyalty fit well with what you offer and with your retail sector? This tactic tends to work best when your product or service offerings have a high value in comparison to the cost of membership, give a sense of exclusivity or are purchased somewhat infrequently.
- Consider how you would want to incorporate fee-based loyalty — for instance, as a premium tier of an existing program, as an invitation-only club or as a stand-alone offering.
- Do you have specific KPIs — such as impact on enrollment, purchase frequency, spend per visit and year-over-retention — that you’ll use to help determine program success?
- Do you have the technology infrastructure to support a fee-based loyalty program, particularly if you are going to run it as a tier of a free loyalty program?
Of course, one of the best ways to see if a premium loyalty program will work for your brand is to try it out. Run a test by sending invitations to a small group of your audience or by piloting the program in a specific set of stores. Then see how it goes. If your KPI measures aren’t impressive, at least you’ve limited your financial investment and hopefully come away with some new learnings. Then you can decide whether to abandon the plan or refine your approach and try again.
If your trial returns encouraging results, great! You now have a new way to distinguish your brand from the competition and stand out in a crowded market, all while helping to build loyalty by exceeding the high expectations of today’s consumer.
If you want objective insight on whether a premium loyalty program is right for your company, or if you want help implementing one, CCG’s retail marketing consultants are here for you. We’ve specialized in customer loyalty for more than 40 years, including designing and revitalizing loyalty programs of all types. We offer a full range of retail marketing solutions, from strategy to data analytics, technology sourcing to creative services and more. Schedule a free consultation or call 303.986.3000.
1 “Can a fee-based loyalty program work for your brand?” Lance Du Chateau, Total Retail, posted July 29, 2015, https://www.mytotalretail.com/article/retail-ready-fee-based-loyalty-strategies/, accessed Aug. 15, 2019
2 “How effective are fee-based loyalty programs?” Camilla Opperman, GartnerL2, posted July 19, 2017, https://www.l2inc.com/daily-insights/how-effective-are-fee-based-loyalty-programs, accessed Sept. 19, 2019