How to best choose between Paid or Free Loyalty Programs


By  Sarah Ghobar , Guest Contributor.

 Loyalty programs became a norm for many customer-centric businesses as they use them as a competitive advantage and a way to retain customers and increase spend. In fact, by 2023 the consumer loyalty management market is expected to reach nearly $6.95 billion as compared to $1.93 billion in 2016 according to Allied Market Research.

Successful loyalty programs are structured to best fit the general character of the brand and target the preferences of top-tier clientele. Companies aim to build a unique and exciting program that motivates committed customers and keep them coming back. There are many forms of loyalty program from punch cards to exclusive memberships, and this article explores the difference between the paid (fee-based) and free loyalty programs in terms of member onboarding into the program. Once the goal behind the program is set, the following factors would help towards the final decision:  


Criteria

Free Membership

Fee-Based Membership

Enrollment Levels

Free memberships bring in  3x the number of members than Fee-based programs

Fee-based memberships have limited subscriptions

Inactive Members

High levels of inactive members, especially if the program requires too many transactions to receive rewards

Low to no inactive members, as paying membership fees gives consumers a sense of commitment to the program  

Type of Customers

Occasional Consumers looking for offers or discounts

Committed consumers who appreciate the brand and have an emotional connection to it

Flexibility

Limited options for change or creativity due to the generally limited funds available to the program

Many opportunities to change, grow and adapt to consumer needs.

Earnings

Longer time for break even and profitability as growth is usually measured in other departments (e.g. sales) 

Earning faster ROI as cash is received when members sign up and rewards are more attractive for consumers, which motivates them to invest more

Promotion

Easy of promotion as the statement “Free Registration” already sells. Furthermore, joining is low risk for them and requires no commitment

Requires more targeted user acquisition and sales effort gain the membership and recruit qualified members who will develop into loyal committed members

Data Collection

These programs normally require general information that hold no liability on the member signing up. This increases the chance of wrong information or simply non-real members; the same person signing up with multiple emails or phone numbers thus making the data collected unreliable for loyalty statistics

These programs collect data that commits the consumers and is often checked before approval. This kind of information is more accurate and can be very useful in reading consumer’s preferences, spending habits and trends

Fraud Risk

Higher tendency for fraud especially among inactive members where their points could be compromised and them unaware due to low activity 

Lower risk of fraud since payment is involved, thus suspicious transactions on cards are flagged in real time and cease of payment would disable benefits in case of a hack  

Although the advantages of a paid loyalty program might be more appealing, it comes with a huge responsibility to deliver on the reward program side keeping in mind that determining the right price of the monthly/annual membership is a science on its own, and certainly locking in the value customers get in benefits compared to the price paid for the membership. A free program could be a good start and eventually migrate to a paid program based on behaviour, or simply have a ‘Premium’ membership as an upgrade. 

In conclusion, a loyalty program is an important factor of the company’s marketing strategy, and  as such the program should align with the ultimate goal of that strategy. If attracting and engaging with a broader range of consumers fits the company’s marketing strategies, service concepts and budgets than a free membership program is perfect. However, if the goal is to identify the top tier consumers and prioritize their investment to encourage continued loyalty than a fee-based program is a better choice. 

What makes customers ready to pay for a loyalty program? read here


Last Updated  October 3, 2019