Skip to content

Adding a Premium Tier to Your Existing Loyalty Program

Most retailers are thinking about premium loyalty programs in 2021 and beyond. These programs offer the best benefits to your best customers for a membership fee.  

These programs target your best customers – The ones that already have a distinct degree of affinity for your company, which is part of the reason they’re willing to sign up in the first place.  

The goal with premium loyalty is to get your best customers engaging more and spending more when they do by offering them benefits that a free program can’t touch.  

But what if you already have a loyalty program in place? How do you successfully add a premium tier on top of it? And should you?

The Rise of Premium Loyalty

Premium loyalty is the future.  

According to McKinsey, premium loyalty programs generate revenue by changing customer behavior.  

Consider these McKinsey statistics about premium loyalty members: 

  • 43% are more likely to buy from your brand weekly after joining.
  • 59% are more likely to choose your brand over competitors.
  • 62% are more likely to spend more on your brand.

According to our 2021 Loyalty Industry Data Study, premium loyalty is certainly on the minds of retailers. Ninety-five percent of retailers with traditional loyalty programs have discussed launching a premium loyalty program in 2021.  

And more than half (51%) of retailers with premium loyalty programs consider their members to be 4x as valuable as non-members.  

Traditional loyalty members are increasingly willing to shift to premium loyalty for better benefits.   

According to our soon-to-be released 2021 Premium Loyalty Data Study, 81% of respondents said they would join a retailer’s premium loyalty program if they were already part of its traditional loyalty program, assuming the benefits were valuable.  

This statistic is interesting and shows an increase of 14 percentage points from our 2020 Premium Loyalty Data Study (67%).  

Carlos said premium loyalty programs drive a “great deal of passion” along with transaction frequency.  

“Brands don’t want to devalue their product,” Carlos explained. “They want to add a more exclusive, status-driven relationship and membership. Premium loyalty programs create a sense of VIP status and exclusivity.” 

Breaking Down Traditional and Premium Loyalty Programs  

Traditional loyalty programs are great at getting consumers in the door and collecting first-party data​. They appeal to most consumers. 

A traditional tiered program, which is an enhanced version of a free program, improves members benefits and includes things like double points, exclusive offers, early access to sales, and free shipping with no threshold. Most importantly, it starts to introduce status to the loyalty ecosystem. 

But a premium loyalty program introduces new benefits and creates a different type of member relationship. Premium loyalty members are rewarded every time they engage and receive instant discounts, free shipping with no minimums, and VIP experiences.  

Brian explained the biggest difference between traditional tiered and premium programs is tiered is based on spend over time. With a premium program, your customers pay a membership fee upfront and immediately receive all the program’s benefits.  

So, can traditional and premium loyalty programs work together?  

The answer is yes.  

Traditional programs serve as the entry point for members while premium programs serve as the aspirational, VIP goal. Customers can move seamlessly between both programs. Giving your customers options broadens your brand loyalty reach.  

In the results from a poll question, 50% of the webinar attendees were unsure if their existing loyalty members would be willing to pay for better benefits.  

But our data found that 81% of consumers are likely to join a premium loyalty program if they already belong to that retailer’s free loyalty program.  

Having a free program and a premium tier is one of the best ways to keep your entire customer base engaged. 

How Your Program and a Premium Tier Can Work Together  

A premium loyalty tier allows a brand to offer benefits that extend beyond typical transactional incentives. These benefits can take many forms, including convenience perks such as free shipping and returns.  

If a member downgrades from the premium loyalty program to the free tier, they’re still moving within the overall program and not dropping out completely. If a free member is interested in joining your premium program because of the demonstrated value, it’s easier to convert them than a cold customer.  

Either way, your brand stays top of mind. This makes it easier to move customers toward the premium tier.  

And while some premium loyalty programs are more of an upgrade model where they offer all the benefits of the free program plus more, other programs are completely different. 

Here’s a look at Bob’s Stores Classic free program benefits and the Best of Bob’s Premium benefits.  

For example, the GameStop PowerUp Rewards Pro program is an upgrade model. For $19.95 per year, it offers all the benefits of Player status plus:  

  • $5 welcome reward, $5 monthly reward 
  • 10% extra in credit 
  • Pro-only event access 
  • Game Informer subscription 

But Best Buy’s new Beta program is an addition model. For $199.95 per year, it offers all the benefits of the elite tier of My Best Buy, plus:  

  • Concierge support 
  • Unlimited Geek Squad tech support 
  • Member pricing on products 
  • Free in-home delivery and installation 
  • Two-year protection (includes Apple Care) 
  • 10% off subscription prices 

Although the models are different, each program makes sense for its intended audience. 

What Should You Consider When Designing Your Own Solution  

There are three fits you need to consider when designing a premium loyalty program that will significantly impact its success:  

  • The right benefits for your customers 
  • The right cost for the benefits 
  • The right cost for your customers

Your program must be created for your unique customers.   

Create a mix of program benefits that makes the most sense for your customers. Understand the market’s needs and create a product that fills that need.  

Second, figure out the right cost of these benefits. Your customers should find the program so valuable they are willing to pay for it. The more valuable the benefits of your premium loyalty program are, the more you can charge for membership and vice versa.   

Third, make sure your program cost matches the customer expectations of your market.   

CVS CarePass is a great example.  

It offers enhanced benefits, targets customers using prescriptions on a regular basis, and gives Rx customers a reason to come back to the store for other things they might not have shopped for if they weren’t in the program.  

And the program costs $5 per month which fits the benefits offered and is also in line with what CVS Rx customers would be willing to pay for those benefits.  

Members of CVS CarePass, the brand’s premium loyalty program, spend four times as much as non-CarePass customers.   

On the other end of the spectrum, the Lululemon program costs around $170 per year but included a pair of leggings, free shipping, and access to classes. The benefits make sense for the audience and the cost fits the benefits and is in line with what that audience would pay.  

Figuring out this flywheel can be a challenge in and of itself. Webinar attendees also said their biggest hurdle to adding a premium loyalty tier is technology (38%), expertise (38%), and resources/budget (25%). 

A Premium Loyalty Tier Can be a Powerful Addition to Your Existing Loyalty Program  

Free traditional loyalty programs and premium loyalty programs can coexist seamlessly for your brand. And when you offer both loyalty options for your customers, you’re covering all bases as far as expectations and creating options for your best customers.  

Free programs are great for acquiring and collecting first-party data and, from a loyalty perspective, serve as a springboard to your premium tier offering.  

By adding a premium tier to your free loyalty program, your brand truly gets the best of both worlds.  

A premium loyalty program targets your best customers. They are the ones that already have a distinct degree of affinity for your company.   

That’s part of the reason they’re willing to sign up in the first place.  

The goal with premium loyalty is to get your best customers engaging more and spending more when they do by offering them benefits that a free program can’t touch.  

Consider that 95% of retailers are considering launching a premium loyalty program this year, and more consumers want to join one. 

“Walmart+ coming out in 2020 opened a lot of people’s eyes because Walmart didn’t have to do it,” Carlos said. “Walmart saw an opportunity to provide a different kind of service and different level of service to its customers.”  

Would adding a premium loyalty tier to your existing loyalty program make sense for your brand?   

Or contact us to chat about premium loyalty.  

ebbo

ebbo helps brands achieve their customer loyalty goals with full-service, end-to-end solutions and also creates original educational content straight from the experts to help loyalty marketers stay on the cutting edge of customer engagement.

Subscribe to Newsletter

Thank you for subscribing!

ebbo™ is an all-in-one loyalty company. With our data driven strategy, full-service approach, and the unwavering support of the people behind the platform, our dedicated team will work with you to understand your loyalty goals, innovate solutions and help you build customer engagement on repeat.

Related Posts

Loyalty

6 Benefits of Adding a Free Tier to Your Paid Loyalty Program + 6 Strategies for Success 

Read now

Industry Trends

Top 5 Takeaways from Shoptalk 2024 

Read now

Loyalty

The Ultimate Guide to Subscription Loyalty

Read now

Premium Loyalty

Things to Consider Before You Price Your Subscription Loyalty Program

Read now

Premium Loyalty

How to Mitigate Your Loyalty Program Costs By Adding a Subscription

Read now

Be the brand people love