While many major retailers are getting on board with paid loyalty programs, there are some premium loyalty questions that we keep hearing.
We get it.
Almost every retailer offers some type of traditional loyalty program. Points and discounts in exchange for repeat engagement has been the standard practice forever. That’s how it’s always been done.
Premium loyalty is a new type of strategy. Here are five common questions about premium loyalty along with the answers that every retail loyalty marketer needs to know.
What is a premium loyalty program?
1. Is Premium Loyalty a Replacement for a Free Loyalty Program?
This is one of the most common concerns that we run across. Many retailers feel like they might need to completely let go of their current free loyalty program. But, premium loyalty doesn’t mean leaving your existing program behind.
In fact, free loyalty and paid loyalty can coexist to ultimately serve your entire customer base.
Free loyalty programs are great at one thing: Sign ups.
That’s because the barrier to entry for customers to sign up is so low. Often, they must simply provide contact information and some basic details. In exchange, they receive a membership and can rack up points to redeem for benefits later. They’re all very similar.
But, while lots of customers may sign up, the engagement often isn’t great. Traditionally, there hasn’t been much differentiation between brands, so there’s not much pain in switching brands if a customer finds a lower price somewhere else.
So, while a free program targets your casual customers, a premium loyalty program targets your best customers. These are the customers that already have some affinity from your brand. They’re the customers that would get the most out of the enhanced benefits of a premium loyalty program.
By offering both tiers, you can provide value to your entire customer base. Members also can move between the two tiers depending on their needs.
If a member decides that they’re not getting value out of the premium loyalty program, they can downgrade to the free tier and still be in the brand ecosystem. That gives the brand another chance to demonstrate the value of the premium program.
Likewise, if a customer signs up for the free program, it becomes easier to demonstrate the best of the brand and move them up into the premium tier.
Learn more about how to supercharge your free loyalty program with a premium loyalty program.
2. Will Customers Pay for a Loyalty Program?
To be completely honest, some customers won’t.
And, that’s perfectly okay, because premium loyalty isn’t for every customer. As mentioned above, it’s about giving the best of your brand to your best customers.
If the benefits are valuable enough, customers will absolutely invest in the program. Just look at Lids and Restoration Hardware.
Both of these programs are great examples because they represent much different customer bases. On the less expensive end of the spectrum, Lids Access Pass Premium costs only five dollars per year for membership. In return, members get 20% off all hats and other transactional benefits.
Read a marketer’s review of Lids All Access Premium.
Since most hats cost around $20, the membership can quickly pay for itself after the first purchase. The key is that the benefits are available immediately. There is no need to rack up points to get a discount.
Restoration Hardware is on the other end of the price point spectrum at $99 annually, but again, give the high-end furniture sold there, the membership cost can pay for itself on the first purchase.
See what happened when RH went all in on premium loyalty.
We’ve all heard of the 80/20 rule. 80% of business comes from 20% of your customers. It applies perfectly to premium loyalty. Free loyalty appeals to 80% of your customers. Premium loyalty appeals to the top 20%.
Read more about how the 80/20 rule applies to premium loyalty.
3. Should We Charge Customers for Loyalty?
Think about it. Don’t traditional free loyalty programs charge customers?
While they don’t charge customers a fee to sign up, they require members to spend money over time in exchange for rewards. Isn’t that the same thing?
Premium loyalty isn’t about charging customers, though. It’s about providing value so good that customers are willing to pay for it. Customers invest in the program to get the best of the brand, and it turn, brands can provide the very best to their customers.
It’s a two-way street. Isn’t that how loyalty should be?
Just look at Prime. Over 100 million members are happy to invest in the program because by doing so, they are unlocking everything Amazon has to offer. It’s not just fast, free shipping. It’s experiential benefits like Prime Video.
Are free loyalty programs really free?
4. Are Signups a Challenge?
This is probably true for some customers, but for your best customers, it just comes down to showing the value they’d be getting out of the program. It’s about so much more than a membership fee.
Premium loyalty centers on a brand truly putting its customers at the center and solving for their pain points. That’s how it can provide the best benefits possible.
The customers that do sign up are really raising their hands and saying, “I’m one of your best customers, and I want to get all your brand has to offer”.
We live in a world where everyone wants everything now, especially your best customers.
That’s the beauty of premium loyalty. Once a member signs up, they can use the benefits immediately. It’s the opposite of a traditional program where the where the member has to make purchases over time to receive rewards later.
Yes, it is harder to get a customer to sign up for a paid program. But, if a brand can demonstrate the value to its best customers, they know they can use the benefits immediately and will engage more often.
5. Is a Premium Loyalty Program Harder to Execute On?
Premium loyalty is inherently more complicated than free loyalty. While free loyalty is often seen as a tactic, premium loyalty touches on an entire brand. After all, customers are paying for membership, so the experience must be amazing.
For starters, it can be tough for companies with little paid loyalty experience to build this type of program. One of the most daunting aspects to a paid program is the recurring payments. This requires special billing, accounting and security expertise.
Optimization must also become a way of life. While many free programs become victim to that “set it and forget it” mentality, paid programs need to be constantly optimized.
See why optimization is more important for premium loyalty programs than traditional programs.
It takes time and resources to optimize a premium loyalty program, but when you’re running a program for your best customers, it’s completely necessary.
Learn more about hybrid loyalty solutions providers.
A premium loyalty program doesn’t have to be difficult and costly to build and run, though. If you have the right partner in place, you can trust your premium loyalty partner to handle the program while you focus on running your business. And in many cases, there isn’t much of a cost to build and maintain a premium loyalty program.
Premium Loyalty is for Your Best Customers
Although premium loyalty is a far cry from traditional, free loyalty programs, it is something that more and more retailers are getting on board with. It’s for the best customers.
- Premium loyalty isn’t meant to replace your existing free loyalty program. It’s meant to live in harmony with it and serve your entire customer base.
- While the more casual customers might not be willing to invest in a loyalty program, premium loyalty really targets the top 20% of your customers.
- Premium loyalty isn’t about charging customers. It’s about providing value so good that customers are willing to pay for it.
- It’s harder to get customers to sign up for a paid program than it is for a free program, but your best customers are the ones who will sign up if you can demonstrate enough value.
- Adding a premium loyalty program to your marketing strategy doesn’t have to be difficult if you have the right hybrid loyalty solutions partner.
If free loyalty programs don’t do much to increase engagement with your best customers, doesn’t it make sense to build a program that does?
Tony Muro
Tony is Vice President of Strategic Partnerships at Clarus Commerce. For over 25 years, Tony has driven revenue generation for Financial Service, Retail, Ecommerce and Travel & Hospitality partners by delivering winning customer acquisition, activation and retention solutions. Tony is an empty nest newbie with two daughters just taking flight. He's also a lapsed Minnesota Vikings fan who can be found tormenting his over 40 soccer league opponents on the weekends.
