Using Premium Loyalty Programs for Business Growth

Using Premium Loyalty Programs for Business Growth

Premium loyalty programs, paid loyalty programs, loyalty membership programs… whatever you want to call them, they are on the rise. For some time now, consumers have been losing interest in and becoming disillusioned with common loyalty and rewards programs. Traditional loyalty programs, or points programs, offering staggered rewards that are often too arduous to collect, have lost traction in recent years. 40% of consumers now only actively use one quarter of the programs to which they’ve subscribed.

With the average consumer being a member of approximately 14 customer loyalty programs and using less than half of them, do you think they’re paying to be part of those loyalty programs? The likelihood is that they're not. Before we get into the nitty gritty of free versus premium rewards programs, let’s take a look at some of the factors that may influence your decision:

• 79% of consumers say they don’t want to accumulate points anymore, and want to receive immediate benefits. 

• The top rewards that customers value are actually free shipping, faster shipping, and immediate discounts.

• 90% of consumers say they’re more likely to choose a retailer where they’re a premium loyalty member as opposed to a retailer with a lower price.

• 74% of premium loyalty members shopped more with their favorite retailers during the pandemic.

So, what exactly is a premium or paid loyalty program?

With paid loyalty programs, there are a few key differences in comparison to free loyalty programs. First of all, you have to pay for them - usually a monthly or annual fee. Second of all, the benefits are typically immediate and can be used at any time, either in a limited or unlimited capacity. Thirdly, the type of perks or rewards that are made available in paid loyalty programs are generally more valuable than those made available in free loyalty programs, and paid rewards programs don't always involve earning loyalty points or having to earn rewards. Fourthly, the redemption rate per customer is higher in paid programs due to the higher level of commitment that customers generally have, and the fact that there's no given amount of repeat purchases that the customer must complete before redeeming the reward.

Who are premium loyalty programs for?

If you said premium brands, I'm afraid you’re wrong. Not necessarily wrong, but just not seeing the full picture. Ironically, paid and premium loyalty programs don’t necessarily work better with premium brands than any other brands. This can be attributed to multiple things, starting with certain challenges that luxury and premium brands face that other brands do not.

These challenges include limited order frequency, damage to brand image from discounted products, and also the fact that these brands already provide premium service and customer experiences, so there’s a limited amount that a premium loyalty program can add to these brands.

Perks of Premium Loyalty Programs

Quality Over Quantity

One of the key upsides to a paid or premium loyalty program is the fact that members sign up far less frivolously than they do with free loyalty programs. This means that the customers are more committed, will have higher engagement levels, and will have a higher usage intent than the average subscriber to a free loyalty program. What’s more, this leads to a higher return on investment on rewards than there would be in a free loyalty program, which has lower redemption rates per member.

Increase Customer Lifetime Value

A customer that’s a member of your premium loyalty program is far more likely to have a higher customer lifetime value than a customer that is not. Why? Customers that are part of a paid loyalty program have higher average order values, higher purchase frequency rates, and a subsequently higher customer lifetime value. Customers that pay for your program will automatically have a higher tendency to spend more on your brand in order to justify their membership, turning more casual customers into loyal customers.

Customers expect it - but will pay for it

We’ve entered into a time whereby customer experience is now a more distinct brand identifier than price or product. Think about it - the average consumer now has virtually unlimited options for any given product or service category directly at their fingertips, and switching costs or opportunity costs are as low as they’ve ever been.

Given this climate, it’s become easier for companies to differentiate on the vector of customer experience rather than fighting a losing (or saturated) battle in trying to compete on price or product. Premium loyalty programs enhance the customer experience, giving members early access to certain products or promotions, personalized experiences and offers, exclusive access, member perks such as free shipping or fast-track access to customer service representatives - the list goes on.

Steady revenue stream for investment

Generally speaking, premium loyalty programs will operate based on a monthly fee. The beauty in this is that the money generated from membership fees can be fed back into the program through investments in the rewards and perks themselves, personalization, the optimization of collection or redemption processes, you name it.

The point is, customers are more than happy to splash the cash on premium loyalty programs, but you have to hold up your end of the bargain. Your most valuable customers will become even more valuable with a premium loyalty program, but only if you manage to keep them entertained and happy with their perks. This doesn’t just mean including great benefits and perks for members, but also elements of gamification and personalization that are far more on point than in any free loyalty programs.

Questions to ask yourself before embarking on a premium loyalty adventure 

Are you able to make the program worth paying for?

It can be tempting to make your loyalty program a paid one when you look at the benefits at face value. You get a nice, steady stream of revenue, customers are happy and you laugh straight to the bank.

The problem is that your drop-off rates will be through the roof if your program isn’t worth the price. As we already said, consumer expectations are higher and more demanding than they’ve ever been, which means you’re not seeing the light of day if you don’t meet those expectations.

The last thing customers want now is another program that revolves around earning points. Monotony is the arch enemy of customer engagement, and it's difficult to find something more monotonous than collecting points at every purchase until you can finally buy a slice of bread with your points on purchase number 78. For long-term success in your loyalty program, you need to keep your promises and engage customers even further with your brand after subscribing.

Can you maintain what’s required of you?

People don't want another points-based loyalty program with mediocre rewards. So, maybe you ensure to give great rewards. Maybe they’re high-value rewards. Maybe you even give access to more expensive perks or services. Unfortunately, that still might not be enough.

Consumers now don’t care about only price or only product, or even just both together, or both together along with service quality. Consumers care about everything. Customer experience has become so important and so broad that it’s almost impossible to quantify or qualify nowadays, and consumers seem to be the ones broadening the scope while companies scramble to catch up.

This is just on the most basic level, so offering a paid membership option adds another level of difficulty to the equation. Yes, you need great rewards. Yes, you need personalization. Yes, you need top-level communication. You also need top-tier automation, integrations, customer service, marketing campaigns, customer data and beyond.

But that’s not all - you have to make your rewards premium, update them frequently, have experiential as well as transactional rewards, make your communication as frequent as possible while maintaining high levels of relevance with context-based triggers, and so on.

With the right software, this will not be as difficult as it sounds. However, don’t enter this space with your eyes half open - the stakes are high, so the expectations are too.

Do you have the time and resources?

Premium loyalty programs generally have lower membership rates for the obvious reason that they're not free. While a degree of this is offset by the fact that you receive membership fees on a regular basis, it may take a quarter or so for your program to really gain traction and for you to start reaping the benefits.

In the meantime, you need to be sure that you have the time, resources and will to continue with the project despite the initial exodus of money and low membership fees. You have to play the long game here, but it is worth mentioning that the average return customer will have an average purchase value of +67% in months 31-36 of their relationship in comparison to months 0-6.