By definition, distinguishing between free and paid loyalty programs seems obvious; one is free to sign up for and one requires a repeated fee to be part of. However, paid loyalty programs go beyond membership fees to create a unique relationship with customers who appreciate the brand and are looking for exclusivity.
What makes customers ready to pay for a loyalty program?
Paid loyalty revolves around truly listening to customers and providing the best benefits for them. Premium customers indirectly become brand ambassadors through advocating for the brand within their environments, which makes this a great public relations asset for the company. This type of program helps the company identify the top tier customers who look for a tailored two-way relationship with the brand.
The main reason top-tier customers are willing to pay is that they want to receive benefits without having to make a number of transactions or abide by too many restrictions; in a world of instant gratifications loyal customers want instant benefits. As of December 2018, Amazon Prime has hit 100 million members even though the company raised the membership price from $99 annually to $119; however, with this rise, Amazon offered a lot more value to its customers by increasing the benefits for members of the program. The list of benefits ranges from FREE Same-Day or One-Day Delivery services to subscriptions for music, readings, and others. Along the years, the company has kept a firm customer-centric strategy to engage and retain those Prime members by giving them exclusivity in offers and priority over regular Amazon members.
Typically, customers who sign up for paid loyalty programs have memorable experiences with the brand and with time build a strong emotional connection to it. This unique customer experience strengthens customer’s affinity to the brand even if a competitor has a lower price. Many hotels adopt paid loyalty programs to retain their VIP customers, Abu Dhabi-based Rotana, for example, has an Exclusive Rewards program that offers a Dh 250 dining certificate on enrolment, 50% off couples dining, 20% off beverages and room rates and a 6 PM check-out for Dh 1050 membership fees. The brand has expanded fast in the UAE, GCC and Middle East region gaining more than 335,000 active members, the fact that this hotel has branches everywhere and offers the same high-quality comfort experience in each of them attracts customers and builds up their connection with the brand.
Another example to take into consideration is CVS Health in the US; they recently launched CarePass; the program offers its members free delivery within 1-2 days on most prescriptions, direct access to pharmacists, 20% discounts on certain CVS Health branded products and a $10 worth promotional reward on monthly basis all of $5/month or $48/year. The benefits of such a program for members is that it gives them 24-hour access to the CVS pharmacist helpline and an easier delivery of their prescriptions, which creates a sense of safety for most customers.
A brand’s top 20% customers typically account for 80% of the company’s sales, hence paid loyalty programs help the company highlight those top customers and meet their expectations. For many of those customers, the membership fees are like an investment; people invest in programs because they feel they will get great value in return and that the benefits will make their lives easier. In return, companies receive increased average order value, order frequency, and customer commitment. In addition to that, the revenue from paid memberships can, in turn, be used to fund more benefits that keep members involved throughout the years.
If implemented correctly, these programs can make the most valuable customers even more valuable. Amazon Prime is a great example of a program that continues to improve through listening to its customers, in fact, 73% of the free trial users become active Prime members after experiencing the benefits the program offers.
Almost every study on loyalty programs confirms that consumers are part of at least a dozen programs; however, they are only active in half. Therefore, as the competition continues to increase, companies need to differentiate themselves in evident means. A paid loyalty program can provide opportunities for this kind of differentiation. The quality of the product alone is no longer enough to be different; companies need to become more service-oriented as consumers are pursuing personalization as well as creativity and are willing to pay a premium for such services.
According to the 2017 Loyalty Barometer Report by HelloWorld, 81% of millennials prefer loyalty programs that extend beyond offering basic rewards such as discounts, which proves that there are vast openings for more innovative lines in future programs and that differentiation is a key success factor for these programs.
Loyalty programs proved to be a major factor that drives positive returns and increases market share. However, in order for these programs to create the required brand appreciation and increase customer engagement, they need to leap into a new paradigm of services that goes beyond the discount-driven rewards system. Needless to say, these programs have limitless options that can maximize customer engagement and sustain loyalty, and what better way to connect with customers than giving them a successful investment?