Subscription loyalty programs have been popular for years and continue to pick up steam for both brands and consumers.
Benefits from a subscription-based loyalty program include a recurring revenue stream, increased customer lifetime value, reduced customer acquisition costs, enhanced customer loyalty and additional customer insights that can be used to personalize future offers and recommendations.
But how do you set the price for your subscription loyalty program so it is fair and offers good customer value?
This article will look at various factors to consider before pricing your subscription loyalty program.
What is the Cost of Running Your Subscription-based Loyalty Program?
This is your single biggest cost in launching a subscription loyalty program. You need to consider the costs related to program software, marketing and customer support.
Software and technology costs will include member registration, reward tracking and redemption processing. Reward costs will depend on the types of rewards you offer in your program. You’ll also need to market and advertise your program to make potential members aware of it and educate them about it. This could include costs for email marketing, social media marketing and paid advertising.
You might need to hire additional staff to manage your program and train them so they’re well-equipped to educate customers about your program. Train your employees to understand why the loyalty program is important to your brand and your customers. Explain to them how the program benefits the business, such as by increasing customer retention and spending, and how it benefits customers, such as by offering them rewards and exclusive offers.
Employees need to know how the loyalty program works, including how customers sign up, earn rewards and redeem rewards. They should also be familiar with the different types of rewards that are available and how to answer customer questions about the program. You could also offer incentives for employee signups so they become better acquainted with the program.
There are two main ways to manage a subscription loyalty program: in-house or by working with a partner.
Managing your program in-house gives you the most control over your program and allows you to tailor it to your specific needs. However, it also requires you to invest in the necessary software and technology, and to hire and train staff to manage the program.
Working with a loyalty partner can be a more cost-effective option for small businesses and businesses with limited resources. Loyalty partners offer a variety of services, such as program design, implementation, and management. They can also help you save money on rewards costs by negotiating bulk discounts with suppliers.
At ebbo, we have a unique pricing model where we can partner with your brand for little or no upfront or ongoing costs, including design, build and program management. Learn more about ebbo premium loyalty programs.
Will My Subscription Loyalty Program Add Incremental Revenue to My Brand?
This is a crucial piece of the ROI connected to your subscription loyalty program and the cost of membership. The incremental revenue represents the additional revenue members spend through your subscription program beyond what they would have spent without it.
This metric helps you track the impact on your core KPIs, such as:
Customer lifetime value (CLV): This measures how much a customer will spend with your brand over time.
Churn rate: Churn is simply the number of members leaving your loyalty program over a specific period.
Average order value (AOV): AOV is the average amount of money that customers spend per order. A subscription loyalty program can encourage customers to spend more per order by offering attractive benefits.
New customer acquisition: Loyalty programs can help your brand acquire new customers by offering enhanced benefits to members.
There are two revenue streams connected to a subscription loyalty program: One is the membership fees charged to members that you receive and the second is the additional revenue you receive that’s driven by an increase in average order value, frequency, redemption rate and customer lifetime value.
Who Do You Want to Target With Your Subscription Loyalty Program?
Pricing your subscription loyalty program directly depends on the type of customer you’re targeting.
For example, CVS CarePass focuses more on money-saving benefits like a $10 monthly promo reward, 20% off CVS Health brand products, free 1-2-day shipping on every qualifying order and free same-day or 1-2-day delivery on eligible Rx.
And the key experiential benefit of the CVS CarePass program is the 24/7 pharmacist helpline. It only costs consumers $5 per month to join CVS CarePass.
Best Buy launched a new membership program this year called My Best Buy Total™ that carries an annual fee of $179. The program includes a ton of great member benefits for Best Buy’s best customers, including:
- Geek Squad 24/7/365 tech support for all your tech—no matter where you bought it
- VIP priority support at any time and access to specially trained team members for advice, customer service and coordination via phone or chat
- Up to two years of product protection, including AppleCare+, on most new Best Buy purchases while you’re a member
- 20% off repairs
- Promotional service offers such as discounted in-home installation and haul-away
It comes down to what each of your brand’s customer segments (repeat customers, specific product-focused customers and highly engaged customers) values and how you deliver it to them.
What Will the Customer Experience Be Like?
With your program, you want to make your members remember your brand through a great customer experience. Great experiences will help you retain and acquire members and encourage them to spread the word about your program and become brand advocates.
You want your members to feel like they’re getting value for their money. This is critical because if the price is too high, they may not sign up for your program. According to our 2023 Paid Enrollment Data Study, 71% of consumers are likely to recommend subscription products that they are excited about to friends and family.
Make sure it’s simple for your customers to sign up for the program and that they can easily access information about their loyalty program accounts, including their current points balances, available rewards and redemption history. Personalize your member rewards so that they are relevant. Make the rewards redemption process smooth and easy and offer great customer service.
All these ingredients will make your customer experience memorable.
What Is the Value of Your Program Benefits?
Your benefits can include discounts, exclusive content and early access to products or services. Consumers love experiential VIP events as well. The more valuable your benefits are, the higher you can price your program. You should mix transactional benefits and rewards with a high perceived value, but low cost (sweepstakes, content).
With high perceived value/low-cost benefits, you can reward members with tangible benefits that don’t cost you a lot of money.
For example, one of the most popular and desired loyalty program benefit among consumers is free shipping because it saves them money. You can keep your costs associated with free shipping low through bulk discounts negotiated with carriers.
Early access to new products is another benefit that consumers love because it makes them feel special and gives them a sense of exclusivity. This doesn’t cost you much because these are products you’re planning to launch anyway.
Sweepstakes generate excitement and engagement around a loyalty program. For you, the cost of managing a sweepstakes is low, especially if you partner with other businesses to cross-promote the event.
When brands mix transactional benefits and rewards with a high perceived value but low cost, they can create a loyalty program that is both attractive to customers and cost-effective for the business.
Here are two examples of how brands have used this strategy to create successful loyalty programs:
Amazon Prime: Amazon Prime offers a variety of transactional benefits, such as free two-day shipping and early access to new products. These benefits have a high perceived value for customers, but they don’t cost Amazon a lot to provide.
Sephora Beauty Insider: Members earn points for every purchase they make at Sephora and they can be redeemed for free beauty products and services. This program is highly successful because it also offers members personalized reward experiences.
Transactional benefits are great, but experiential ones build deep emotional connections.
According to our 2023 Loyalty Programs Data Study, it’s clear that consumers value transactional benefits like discounts and free shipping the most, but they’re costlier to your brand.
Consider that a quarter of consumers value experiences which is significant.
The benefits you offer should be valuable enough to entice customers to sign up for your program. But you also need to balance that by ensuring the rewards are affordable for you to offer.
We mentioned Best Buy’s My Best Buy Total™ program earlier and it also offers a My Best Buy Plus™ program for $49.99 per year.
My Best Buy Plus includes:
- A $49.99 annual membership plan built for customers who want value and access.
- Exclusive member-only prices on thousands of items
- Exclusive access to sales, events and highly anticipated products
- Free 2-day shipping with no minimum purchase
- Extended 60-day return and exchange window on most products
Make Sure Your Benefits Add Value for Members
Subscription-based loyalty programs can be a very effective way to increase customer loyalty, drive repeat business and boost revenue but if not priced correctly, the entire exercise can fail.
So, make sure to consider the cost of running the program, your incremental revenue from the program, who you’re targeting, the experience you want them to have and the benefits you’re going to offer.
If you consider these factors, you can set a price for your subscription loyalty program that is fair for you and your members.
If you want to talk to our experts about subscription loyalty, contact us here.
To learn more, check out The Ultimate Guide to Subscription Loyalty.