Clarus Commerce CEO Tom Caporaso discusses how adding a paid tier to a free loyalty program can enhance the experience for a brand’s best customers and cover all the bases.
(As originally published on NASDAQ on August 31st, 2018.)
Relevancy is a massive buzzword in today’s retail world and customer loyalty industry.
Loyalty programs play a pivotal role for brands in driving increased engagement and relevancy.
Loyalty is based on relationships, and truly listening to your customers is the path toward brand enlightenment. But, free loyalty programs fail to provide a rich mix of benefits that drives true emotional engagement among members.
Traditional, or free, loyalty programs do a nice job on the acquisition side. But, too often, these programs fail to offer many reasons for customer engagement because the level of benefits offered isn’t that great.
As a result, it makes it hard for brands with these types of programs to differentiate and retain customers.
Adding a premium loyalty tier can complement your free loyalty program and spark heightened customer engagement. Paid, or premium, loyalty programs are a great way to provide elevated experiences to customers who have shown the most interest in your brand.
Free Versus Fee Loyalty Programs
With a free loyalty program, the barrier to entry is low so it’s easier to acquire a higher volume of members. Free programs, however, tend to be structured on an earn-and-burn model, which means that members need to achieve certain spend levels for the rewards to be meaningful.
For example, a $5 reward after you spend $100 is typical in free programs. But, a premium tier can allow consumers to buy-in via an annual membership fee and receive elevated benefits immediately. Those benefits are also accessible 24/7.
Loyalty is based on relationships and truly listening to your customers is the path toward brand enlightenment. Free loyalty programs fail to provide a rich mix of benefits that drives true emotional engagement among members.
Adding a premium loyalty tier can transform a static free loyalty offering into an inviting and engaging program.
In March 2017, Lids launched the Access Pass loyalty program, which has two tiers: Access Pass is free while Access Pass Premium costs $5 per year. With premium, members receive 20 percent off all hat purchases. The program almost pays for itself after one purchase.
Premium loyalty programs can make it easy for customers. Due to the program’s simplicity, customers can rely on a consistent, unified experience and the benefits far outweigh the initial cost of membership.
Premium Loyalty Offers Experiential Benefits
A premium loyalty tier allows a brand to offer experiential benefits that extend beyond typical transactional perks.
Experiential benefits can be incredibly powerful: The recipient feels like a VIP, the brand gets social media buzz, and the customer usually feels a stronger tie to that brand. Everyone’s happy.
A great example is Restoration Hardware’s RH Members Program, which gives members 25 percent off all purchases. The $100 per year membership fee also includes interior design consultation. Experiential benefits like that are what keep members coming back.
To introduce a premium tier that offers elevated benefits that your customers desire, it’s important to understand the needs and values of your target consumer. The best way to do this is through a combination of qualitative and qualitative research.
If you are targeting a particular demographic, you can access consumer databases or studies to get a macro view of your consumer to get a sense of who they are and what they care about. Layering in qualitative interviews with your actual consumers will give you a much more complete picture of their world and will help you uncover how your brand fits into it.
One of the best things about offering a premium tier as an upgrade to a free program is that you already have a built-in base of free program members. It’s much easier to demonstrate the value of a membership program to those that already have some experience with your brand.
Free and Fee, not Free or Fee
Free programs might attract the masses, but premium loyalty programs make the relationships with your best customers more valuable.
It shouldn’t be a question of which type or program to offer. It’s a question of which customer segment would benefit the most from it.
Having both tiers seamlessly covers all the bases. It allows members of the free program to easily upgrade. If a member downgrades from the paid tier, they’re downgrading to the free program and not out of your ecosystem completely.
A combination of a free loyalty program with a premium tier can maximize the best of both worlds.