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2022-10-04 5:30 pm
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Paid Memberships – Can You Buy Loyalty?
Kasia Wanat
Kasia Wanat
September 2, 2022
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Paid Memberships – Can You Buy Loyalty?

Nowadays, offering participation in a loyalty program is nothing extraordinary or distinctive, the market is so full of such benefits that it has resulted in many people refusing to participate in loyalty programs altogether. Why? Are loyalty programs a thing of the past? What else can be offered to the clients to strengthen their loyalty? What about paid loyalty programs, where customers have to pay a fee to participate?

What is a loyalty program?

Let’s start with a quick look at the idea of loyalty programs. Each of us is a member of at least one, no doubt. But is it a loyalty program if you are just assigned a card or a unique identifier in return for making one purchase and providing your data? This is what it often looks like. Designing an engaging program that brings tangible results requires a solid plan. If done correctly, it may be a very helpful tool to manage customer retention and loyalty. Unfortunately, customer behavior changes dynamically, while loyalty programs remain the same.

Loyalty programs are based on building an effective and close relationship between the customer, your business, and the products you offer. However, launching a club membership will likely not be enough to make customers love your brand. The first challenge is to make them join it. Here you can find some interesting tactics on how to make customers join your loyalty program. Then if you want to earn genuine loyalty, you have to meet customers’ needs, which will require a careful study of who they are and what they are looking for.

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Why do people participate in loyalty programs?

Well, it's simple. Who doesn't like gifts, bonuses, and paying less for goods and services that they were going to buy anyway? This is the most obvious motivation to sign up for a loyalty program.

But it is not all. There are other mechanisms behind the final decision to fill in the form and provide personal data, such as gamification, increased savings, or the willingness to be up to date with offers and promotions.

But do we always need to be club members to achieve this? No. Companies focus so much on customer acquisition that often special promos are unconditionally offered to anyone. Moreover, new customers often receive better offers than existing ones, even loyalty program members. Demotivating? Of course.

Do standard loyalty programs work?

At this point, it is worth asking the question: who is a loyal customer? The one enrolled in the program? Not really. A loyal customer is devoted and will not be tempted by a random promotion from your competition. The genuinely loyal customer feels positive emotions about your brand and continues shopping and sharing positive reviews with friends and family, despite higher prices or market fluctuations.

One of the studies conducted by Invesp shows that loyalty programs can generate as much as 20% of a company’s profits if they’re done well. 84% of consumers say they’re more willing to stick with a brand that offers a loyalty program, while 66% of customers say the ability to earn rewards changes their spending behavior.

In today’s shopping reality, loyalty incentives seem to be a must. Based on a survey of Millennial and Generation Z shoppers, 63% will not commit to a brand that does not offer loyalty benefits – they know they have plenty of options when it comes to shopping and expect rewards in exchange for their purchases.

Observing a decline in interest in loyalty programs, companies started to look for alternatives to building loyalty and came up with the idea of… paid membership in loyalty clubs.

What are paid membership loyalty programs?

At some point, a new type of loyalty program appeared on the market, which requires... a fee to join. Wait, what? Are we supposed to spend money on products and services and also pay extra for the possibility to collect points and redeem them for prizes?

This is a pretty different thing. This approach takes the traditional loyalty model of transactions first for benefits later and completely turns it upside down. In a paid loyalty program, members agree to pay a recurring membership fee upfront for great benefits they can use immediately and all the time. Sounds surprising? Well, as a report from Clarus Commerce points out, 81% of free loyalty program members would join a paid loyalty program at their favorite retailer, as long as the benefits were valuable.

Premium loyalty programs are often the result of a broader marketing strategy. If a company decides to manage sales and marketing activities through customer segmentation, this approach will also be reflected in the types and rules of loyalty programs it will offer to its recipients.

What type of customer is the target audience for the premium program?

Who usually decides to participate in paid loyalty programs? Usually, those are quite aware consumers who identify with the brand from the beginning and are ready to spend more, but at the same time, they also expect more. So, in other words, this is a high-quality customer, but a more demanding one. This type of consumer is often present in such areas as premium and luxury goods, where benefits are of a really high value; or in businesses where people buy a lot and with high frequency (i.e. Amazon, drugstores and pharmacies, or pet shops).

Consumers are also becoming more selective when it comes to sharing their data with companies as part of a loyalty program. Premium memberships bring fewer people sharing the data with the company. Still, it is easier to obtain more information from such members, which then can be used for a more personalized experience. Learn more about why loyalty programs are a powerful source of first- and zero-party data.

Paid loyalty programs generate value by changing customer behavior
Source: McKinsey Consumer Paid Loyalty Survey 2020

As a report from McKinsey shows, there is a noticeable change in the behavior of people who decided to join a paid club. They buy more often, are more attached to the brand and make bigger orders. Almost 60% of responders are more likely to spend more on the brand after subscribing, while free loyalty programs only increase that likelihood by 30%. 

Doesn't this sound like a great option for companies focusing on increasing sales by building brand awareness and customer relationships?

What are the benefits of paid loyalty programs?

As mentioned above, there are a lot of positive aspects of paid loyalty programs, and incremental revenue from membership fees is just the most obvious one, but for sure not the most important. Let’s have a look at some other benefits.

1. Increased customer engagement

Well-designer paid programs offer members a huge variety of benefits and activities, available only to them. Once the customer gets such an invitation, knowing it’s something he or she paid for, there is a much bigger chance that the message will be read, and acknowledged, and the person will decide to participate in the activity. An interesting article about how people value something more when they perceive themselves to be its owner is here.

2. Increase in purchase frequency

The numbers don't lie –- subscription-based loyalty programs are designed to keep the members active and increase their purchase frequency. This is due to a greater attachment to the brand, often becoming its ambassador. In addition, marketing content that encourages shopping, including promotions and special offers, is better absorbed by such customers.

3. Insightful zero-party customer data 

Knowing that we are dealing with very valuable customers, it is worth spending more time analyzing their behavior and preferences to be able to provide them with an even better product in the future, whether in a store or a loyalty program. Data from such programs is much more precise, so it is easier to draw the right conclusions from them and identify potential brand loyalists.

4. Better personalization

Personalization is present almost everywhere and is a must, not an option, especially for loyalty programs. Even more for paid loyalty programs, where you have to treat your customers in a very special way. It may be difficult to craft a program that is tailored to specific needs, but at the same time has to be addressed to thousands of recipients. In paid membership programs, personalization is much easier.

5. Higher loyalty program ROI

Fee-based loyalty programs are more likely to have a higher ROI after launch, thanks to more precise planning and operating with better-explored needs and possibilities. Loyalty program ROI is an effect of activities generated by the program, and let’s highlight once again, that paid membership pushes the customer to interact with the brand more often.

6. Advantage in highly competitive areas

For some brands where there is high competition, and the differences between the products are rather slight, paid membership programs may come in handy to build the desired loyalty. If such an operation is a success, the customer won’t consider choosing another product, even if it’s pretty much the same, or there is a special offer because he or she will be already committed to the selected one by having paid a membership fee and by declaring personal attachment to this choice.

Woman at the counter in a store paying for purchases

What are the downsides of paid loyalty memberships?

1. Fewer members

Paid programs will be dedicated to a smaller group of people, which in some situations may be a hard thing. Therefore it’s better to analyze it before implementation: do you need rather access to a wide group or a smaller but more dedicated one?

2. The need for good planning

As you start offering something that is usually free, for money, you have to design it well, so as to not disappoint the people that will decide to toss a coin for a paid club. What does it mean? Well, more or less, you have to plan everything. Scroll down for some insights on what is important when planning such a program.

3. The risk of a negative impact on the brand image

If done in a bad moment, in a bad way, or if the paid programs stand in stark contrast to your company's activities and brand image some negative comments may pop up. In marketing and sales activities, everything must be consistent, only then does it work.

4. Dependence on external conditions

Unfortunately, some circumstances are beyond your control, for example, recession, and pandemics that make people limit their expenses. A loyalty club membership fee won’t be the most important thing to pay in such a situation and losing such a customer always hurts more.

How to design a paid membership loyalty program well?

If you decide to build a paid loyalty program, you need to start with analyzing your business needs. Once you know what your company expects from the program, then you need to think about the value it brings to customers. 

The first step in the entire procedure of preparing and implementing a loyalty program is to think carefully about what exactly the program should bring to the company to develop its goals. Unfortunately very often business owners put sales growth on the first place. Instead, in the development process, it is worth considering such steps as:

  • Defining profitable program rules and respecting customer expectations.
  • Proper preparation of the company's employees.
  • Choosing the right name for the program.
  • Promoting the program and contacting customers.
  • Monitoring the effectiveness of the loyalty program, and protecting consumer data.

What about general requirements that should be met for sure? Well, it depends on the company and customers, but I can highlight some universal truths. 

  • Engagement. The program should be designed in a way to keep people engaged all the time. It means that the calendar of events should be full: from special promotions, through gamified actions, and super interesting content sharing, to physical events with personal invitations. To meet those requirements, you need to engage different teams, not only those responsible for marketing. Since a loyalty program is deeply connected to your brand, you will need a creative marketing team to help acquire members. Once they are enrolled, it is crucial to ensure regular contact with them.
  • Program ROI. What about the fee? How much is the appropriate fee? It depends on the benefits you plan to offer. The profitability should be rather high to attract new members, but of course not too high to destroy the ROI.
  • Customer experience. Last but not least, don’t forget about emotions. All the actions, even the name and the shape of the program should resonate in the hearts of your future members. Without this kind of emotional attachment, you may face a higher churn level.

Ok, but what exactly can be offered in paid programs? Start with such benefits as:

  • Free shipping and returns.
  • Early access to new products/online sales.
  • Free samples with every order.
  • Members-only discounts.
  • Exclusive content.
  • Event invitations.
  • And more… be creative!
63% of consumers pay for at least one loyalty program
Source: McKinsey Consumer Paid Loyalty Survey 2020

Examples of paid loyalty programs

Here are some types of paid membership programs and brand examples that may be used as an inspiration for creating your own.

Amazon Prime

Amazon Prime is a paid subscription service from Amazon which gives users access to additional services otherwise unavailable or available at a premium to other Amazon customers.

Amazon says more than 200m people are now paid-up members of its Amazon Prime subscription scheme, data shows that the average consumer who isn't a Prime member spends about $600 a year on Amazon, while for Prime members, it's $1,400. Why is the program so successful? Well, once you start paying for Amazon Prime, you want to make the most from your subscription.

Amazon Prime services

Sephora Flash

Another interesting example of the paid loyalty program was launched by Sephora in 2015 and was active till August this year. The members got unlimited 1-2 day shipping, with no minimum purchase required, or a 1 business day shipping at a rate of $5.95.

Sephora Flash subscription

CVS Care Pass

The Care Pass program is an example of introducing a paid loyalty program in a very competitive environment. It offers free national pharmacy delivery on eligible prescriptions and more ways to access the health-focused care and products customers are looking for. Results of introducing the program? CarePass members spent 15% to 20% more at CVS, and 20% of people who enrolled were born between 1981 and 1996. This is what the company was looking for. (source: https://www.cnbc.com)

CVS Pharmacy Care Pass program

Zooplus

Zooplus, a pet accessories giant, decided to make their customers pay for taking part in their loyalty program. For 9,80 PLN customers get a yearly discount of 3%. You can read more about this case here.

Zooplus Plan Oszczednosciowy

Summary

As with every marketing project, loyalty programs require good preparation and should be designed for people, not numbers. Loyalty programs are not going anywhere, continually evolving and changing, to make companies fight for new clients in new, innovative ways.

Paid loyalty programs seem to be a fixed part of this ideology, however, their exact shape is changing. Some companies that introduced paid loyalty programs have already terminated them, and some developed them with great success. It all depends on the quality and precision of the program, and if it meets the needs of the customers.

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