Premium loyalty is proven to work well. Companies like Restoration Hardware and Amazon have had tremendous success with these programs, but they are not a fit for every customer.
In fact, premium loyalty probably makes sense only for a small percentage of your customer base.
But, they’re the ones raising their hands. They’re the ones telling their favorite brands that they are willing to pay for the exclusive benefits, access, and experiences that a traditional loyalty program just can’t offer.
They represent a smaller but massively important part of your total customer base. And they’re willing to pay for the best your brand has to offer. Here’s why this customer group is so valuable.
Premium Loyalty and the 80/20 Rule
We’ve all heard of the 80/20 rule as it applies to business. It means that 80 percent of sales come from 20 percent of customers.
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 will just as easily go to 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.
The remaining 20 percent (where most of your sales come from) are your best customers. 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.
Premium loyalty is about making the relationships with your best customers even more valuable.
That’s why brands who are thinking about the future should consider putting their best customers at the center and offer paid loyalty programs. Paid programs keep the brand top of mind for the program members.
When they’re investing for that exclusivity, it means they’ve committed to your brand and will engage more regularly. That ultimately leads to higher AOV and order frequency for your brand.
How Do You Give Your Best Customers the Best Experience?
For the program to make sense for customers, the benefits must be extremely valuable. How do you ensure they are?
First, it comes down to really figuring out your customers pain points and what they need to make their overall experience better. The good news is that most consumers are willing to have various details of their activity tracked by a brand in exchange for a more personalized and relevant relationship with the brand or program.
While most of these programs offer instant, 24/7 benefits like free shipping and cash back on all purchases, experiential benefits are really starting to bridge the gap between transactional and emotional.
For example, Restoration Hardware’s RH Members Program gives members 25 percent off all purchases, but the $100 per year membership fee also includes interior design consultation. Experiential benefits like that are what keep members coming back.
Of course, there’s the question of funding those benefits.
That’s where the recurring membership fees become very attractive to retailers. Even if only that top tier of your customers elects to sign up for a fee-based loyalty programs, those fees can add up to a significant amount of additional revenue.
That revenue allows retailers to afford the best benefits for these top customers. It ensures they’ll keep renewing year after year.
What About the Customers That Aren’t Willing to Pay for a Loyalty Program?
So, what about the other 80 percent of your customers that might not raise their hand to sign up for a paid loyalty program?
No one is saying that your free loyalty program needs to go away. In fact, free and fee loyalty can work very well together. It’s all about considering your customers at every level of engagement.
The lower 80 percent might currently possess enough brand love to sign up initially, but once they are in the free program, it’s much easier to convert them to premium tier members. On the flip side, if a member does decide to level down from the paid tier, at least they’re still moving within the overall ecosystem and not leaving completely.
Therein lies the beauty of combining the two types of programs. By offering both tiers, you’re including your entire customer base.
It’s not a question of one or the other, but rather which segment of our customer base is premium the right program for?
Consider Premium Loyalty for Your Best Customers
So, we’ve established that your top tier of customers is likely willing to pay for the exclusive status, access, benefits and overall enhanced experience that only a paid loyalty program can offer.
And the reason only premium loyalty programs can offer this top tier experience is because of the membership fees. Brands are seeing this as a huge potential revenue stream that also allows them the opportunity to fund the richer, more tailored benefits.
But that’s not to say retailers should exclude their lower tier, casual customers from their overall loyalty strategy. Fee and free can coexist together to help keep your brand top of mind for your customers in the increasingly challenging retail landscape.