Clarus Commerce CEO Tom Caporaso discusses the 80/20 rule (80% of sales comes from the best 20% of customers) and how that applies to premium loyalty programs.
(As originally published on NASDAQ on September 27th, 2018.)
We all know about the 80/20 rule—80 percent of a brand’s sales come from 20 percent of its customers.
These 20 percent are a brand’s best and most valuable customers, and they are the ones who will appreciate a better experience than the other 80 percent of customers.
But what does that have to do with premium loyalty programs?
Making Your Best Customers Even Better
A brand’s best customers behave that way because they have an emotional attachment to the company. Sprinkle in rewards and perks that customers desire, and a premium loyalty program raises that emotional connection to another level.
Whereas traditional, transaction-based loyalty programs focus on getting lots of people to sign up (that 80 percent), premium loyalty programs really focus on that all-important 20 percent by offering an experience than free loyalty programs can’t touch.
With paid premium loyalty, a brand’s top customers become even more important because of a stronger bond that prompts two-way conversations. Rewarding your best customers encourages magnified engagement and allows for loyalty inroads with newer customers.
As your best customers drive your premium loyalty program, a new company culture develops that extends higher engagement levels and personalized interactions.
From this premium loyalty program comes a tight-knit community that guides the brand through ongoing engagement, experiences, and customer journeys.
With a premium loyalty program, your most valuable customers become engaged to the point where they become brand evangelists and true advocates.
Investing in Exclusivity
Since a premium loyalty program is about maximizing that 20 percent to its fullest potential, making those relationships even more engaging and valuable is critical.
While things like discounts and other rational benefits are still appreciated, your best customers want to feel like VIPs. They’re the customers that already have some sort of affinity for your brand. To these customers, the membership fee of a premium loyalty program is seen as a small investment for the benefits they receive in return.
That’s why brands who are considering a premium loyalty program should target their best customers. Paid programs keep the brand top of mind for the program members.
When your customers pay for that exclusivity, it means they are committed to your brand and will engage more regularly. That, ultimately, leads to higher AOV and order frequency for your brand.
When your best customers become members of a premium loyalty program, their engagement levels soar and they become strong brand advocates. In this advocacy role, these customers also serve as de facto sales associates and spread the word about your brand and your amazing premium loyalty program.
When your best customers engage and spend at very high levels, and share your brand message, the value they represent is almost immeasurable.
Balancing A Free Loyalty Program With a Premium Tier
Think of 80 percent of your customer base as casual shoppers. They’re the people that may shop your brand when you have a sale, but might be swayed by the competition if the price is lower. They’re not tied to a specific brand and there’s no consequence to switching in their minds.
Premium loyalty is not for them.
If you’re trying to attract and build as many members as possible, a free program could be the way to go. After all, there is little barrier to entry for consumers to sign up.
But if you want elevated engagement and spend from your best customers, a one-size-fits-all free loyalty program may not do the trick.
That’s where premium loyalty programs come in.
By charging a membership fee, you’ll get your most loyal customers and be able to offer them the best, most personalized and engaging experiences from your brand.
Free and premium loyalty programs complement one another.
For brands, overlaying a paid tier program is a great strategy. It provides them with an opportunity for a test and learn approach.
Premium Loyalty Is Shaping the Industry
Premium loyalty is shaping the industry. Customers have higher expectations and a paid tier is a great way to deliver on your brand promise and provide those experiences customers desire most.
With a premium loyalty program, the retailer enjoys more engagement, more order frequency, and higher AOV, in addition to collecting valuable data about their best customers.
The membership fee also becomes a recurring revenue stream which the retailer can use to fund the benefits. Given this model, the loyalty program becomes an attractive ancillary revenue source.
It Pays to Focus on Your Best Customers
While a paid loyalty program isn’t for all consumers, it is aimed at a brand’s best and most loyal ones.
Focusing on your top 20 percent of customers (who typically account for about 80 percent of your sales) should always be a top priority for any brand.
In a time of intense competition, retailers need to differentiate themselves in noticeable ways. A premium loyalty program can provide a path to noticeable differentiation.
When this type of program is managed correctly, the sky’s the limit for magnified engagement and sustainable customer loyalty.