Retail reality 

Is paid loyalty the future of retail?

Naturally, every retailer dreams of loyal customers who spend an increasing share of their disposable income on your brand. One tool that is often used for this is the old tried-and-trusted loyalty programme. It seems like a useful tool for gaining insight into your customers, but is it worth the discounts you give away? The discounts are at the expense of your margin and to what extent are loyal customers not prepared to pay the full price anyway? Isn't it time for another kind of loyalty: paid loyalty?

To fee or not to fee?
Despite the fact that customers are now accustomed to 'free' discounts and rewards in a loyalty programme, a significant proportion of consumers have indicated that they are open to a paid form of loyalty (The Loyalty Report 2018, survey of 16,000 consumers). Overall, 37% of respondents said that they would be prepared to pay for enhanced benefits in a loyalty programme. This percentage is many times higher in the case of Gen Z and the millennials, at 47% and 46% respectively.

Why are they open to a paid loyalty programme? Of course, as consumers, we understand the idea behind membership very well - to convince us to buy more products and spend more money. Consumers want to know the value of such membership for them: “what's in it for me?”

With Amazon Prime, you're sitting in the first row
In 2005, game changer Amazon already understood that the consumer was looking for a different kind of membership and launched Amazon Prime. In June 2018, the programme had some 95 million subscribers and would already have an annual revenue flow of $9 billion from the Prime programme alone. According to various sources, the subscribers shop twice as much and also spend twice as much as non-Prime members. And that makes it an interesting deal for Amazon.

But what makes the deal so interesting for consumers? For many, Amazon Prime is a no-brainer for its shipping perks alone. For $119 a year, not only can you enjoy unlimited free two-day shipping, but also access to the Prime streaming video and music service, Kindle books, and additional partner discounts and deals.

[quote] Amazon Prime is a no-brainer for its shipping perks alone

However, it's not so easy for every retailer to turn their loyalty programme into a 'product' that people want to pay for. Yet this is what the customer is increasingly asking for. Loyalty programmes have become so commonplace that the benefits, such as birthday discounts, free upgrades and savings, feel more like a right than a reward. The customer wants to feel special and retailers could respond to that.

Shoppers want to pay for the privilege of loyalty
For example, Calvin McDonald, CEO of Lululemon, the retailer of yoga and workout gear, concluded after a test with a paid loyalty programme in Edmonton, Canada: “Guests are seeing value just beyond the product.” Customers pay $128 a year, for which they get a member-exclusive pair of trousers or shorts, no shipping fees, and access to special events and yoga classes. The paid loyalty programme was so successful in Canada that it is now going to be rolled out to other markets. And at Lululemon they are confident that membership can also be increased a bit further.

The outdoor brand REI offers its customers the opportunity to become a lifetime Co-op member for just $20. The term Co-op member goes back to the early days of REI when it was a company in which the customers were co-owners. As a Co-op member you now receive a discount, access to the 'garage sale' and a discount on adventure classes.

A future-proof paid loyalty programme

How do you ensure that customers continue to find your loyalty programme worthwhile? Or to put it better: that they love the brand so much that they will willingly spend money to stay a member. The main thing is that the loyalty package is and remains relevant. The great thing about a membership is that you are allowed to store a lot of data about your customers (an opt-in on registration is essential under the GDPR). Also, do not forget to check how much members use the benefits of the loyalty programme. If they barely use the benefits, they will also be less inclined to renew membership. Add benefits that make the programme more relevant for the customer.

As an example, take the extensive free loyalty programmes of Sephora's Beauty Insider and Nordstrom's The Nordy Club, which have 'exclusivity' as an important argument for membership. Consider free entry to members-only workshops, priority access to events, access to 'Invite-only' events, or the services of a personal shopper, stylist, or beauty expert, etc. And last but not least, there comes a point when even the truest of fans gets used to the content of the programme. So reward your loyal customer with surprising new benefits from time to time and your paid loyalty programme will be future-proof.

Do you want to know more about this trend? Then you should contact Erica Twigt,  or +31 (0)252 750275.