For any business, the main measures of loyalty are seemingly obvious: customer retention, repeat purchases, life-time value, maybe customer satisfaction and advocacy – ‘paid loyalty programmes’ can achieve all these and more.
However, we must remember that customers don’t decide on their loyalty along these parameters. For them (us!), things like relevance, utility, value, brand purpose and service are the angles that matter. Successful loyalty propositions exhibit such hallmarks and play to them to such an extent that many consumers see great value in paying for them, making. paid loyalty programmes a phenomenon that is growing exponentially.
What is a paid loyalty programme and how is it different?
Most programmes operate on a free-to-join basis and offer increasing benefits for increasing spend (referred to as earned loyalty). As such, they are inherently backward-focused, rewarding past spend, with a hope of future loyalty, mainly based on the aspirational power of the benefits and rewards. They are proven to work for some customer segments, although it is difficult to determine the true incremental contribution and answer the question: How much money would these customers have spent with the brand anyway?
Such earned loyalty concepts miss out a significant mindset, and a growing market: Subscription-based access to products and services (paid loyalty). Call it the Netflix or Prime generation, the underlying impact of such a commercial relationship is loyalty. The inexorable growth of fee-based membership propositions - inside or outside an actual loyalty programme - is testament to their attractiveness to brands and consumers alike.
Examples of paid loyalty programmes
Paid loyalty is among a set of innovations being most commonly considered by existing loyalty programmes, according to our loyalty landscape research. The loyalty leaders we surveyed see subscription schemes as one of the top three trends for the next 3-5 years and one of their main challenges too. The insurance sector in particular sees paid loyalty as a key model for the future.
There are many examples across a growing range of industries that offer propositions based on paid loyalty principles, such as Amazon (Prime service), easyJet (easyJet Plus), Prêt a Manger (coffee subscription), CVS Drugstore chain (CarePass), but also cooperative-based programmes such as outdoor retailer REI. Each of these takes a slightly different perspective on paid loyalty.
Amazon Prime: Born out of a protective motivation to focus eCommerce spend on Amazon (with a simple value equation for the customer: Order X times per year to be ‘in the money’), Prime has evolved into a multi-content subscription with a number of services with opaque and diverse customer value. Scale helps Amazon to maintain attractive pricing and usage data to support communication targeting.
easyJet Plus!: Never intended as a direct loyalty play, easyJet Plus! has nevertheless become the low-cost airline’s de-facto loyalty programme. Behavioural statistics show that those members who extract direct value from the membership (and are ‘in the money’), exhibit incremental booking behaviour compared to a control group. In other words, the programme drives incremental contribution to core revenue – i.e. loyalty!
Prêt a Manger: The coffee subscription is a traditional retail footfall play: The margin of coffee (or any other drink) is so substantial that it can easily fund a membership with great value for customers. The objective is to get those customers to buy additional items at the same time and create bias for the brand whenever sandwiches or pastries are top of mind.
REI: A co-op scheme for lovers of the great outdoors, REI charges a one-off membership fee to join its huge community of some 21 million people and then enjoy a lifetime of benefits which include earning rewards for buying outdoor clothing or using their snow and bike services for example. What’s different here is the one-off payment and the focus on community; members are encouraged to enjoy and protect the great outdoors as a collective force for good.
CVS: This US pharmacy and healthcare giant launched its paid-for loyalty programme, CarePass with a simple proposition: $5 per month in exchange for free prescription delivery, up to 20% in-store discounts, a 24/7 Pharmacist Helpline and the real clincher - $10 credit per month. CarePass sits alongside their free loyalty programme, ExtraCare, which offers members instant savings and is delivered through a seamless, digital experience. With 75M members, it’s one of most popular programmes in the US and the paid scheme is a great example of how a truly reciprocal ‘value exchange’ creates enduring relationships.
Key points to consider before launching a paid loyalty programme
Given the examples above and the success enjoyed by companies behind them, is it time for your brand to benefit from a paid loyalty programme? If you are considering making this move, see our five fundamental questions designed to kick-start your thinking – from avoiding cannibalisation through to monetization and what we call ‘loyalty magic’.
Does your current loyalty proposition lend itself to a paid-for version? The key challenge is to align free and paid-for programmes so they are complementary and don’t risk cannibalisation. There are many tried and tested tactics to ensure this. We’ve done it many times before and can show you how!
Which loyalty assets does your brand have that are most attractive for monetization? How will this affect your service ability? Where can you create better scale to improve margins? Our commercial modelling tools hold the answer! (It’s also worth noting that using much loved brand assets will engender true brand loyalty ensuring your paid loyalty programme becomes a differentiator as well as a defender of your customer base).
Are there specific segments of your customer base at risk of attrition? In particular, we like to focus on the so-called ‘latent loyals’: Those customers who are already attracted to your brand but need a better value exchange for their ongoing loyalty and to encourage share shift.
Will your customers pay to go further, faster? For many of your potentially highest value customers, the time it takes to get to a meaningful programme level is just too long. Increasingly, customers are willing to pay for a short-cut. A paid loyalty proposition that is powerful enough to convince customers to tie them financially to your brand is the best way to capture market share without the commensurate acquisition costs.
Can you create what we at Collinson call ‘loyalty magic’? This is all about offering rewards with high perceived value which are available to the business at much lower cost. It is a smart way to combine customer appeal with commercial viability, especially when subscription revenue is factored in. Here a wide ecosystem of partners and content is a great way to generate ‘magic’. Often, the ‘low cost – high value’ principle is met most easily though partners.
Collinson Loyalty Services are designed to help loyalty managers consider all of these issues and more, offering a set of outcome-focused, accessible loyalty advisory services. These range from a health-check style assessment of your current loyalty programme to comprehensive design and development packages designed to elevate your programme on the loyalty maturity scale.
Collinson’s conclusion on paid loyalty
It’s proven that paid loyalty propositions increase the reach of a loyalty programme, engage with customers on a different, deeper level (because there is a financial commitment) and implicitly secure future commercial engagement. At the same time, the paid model allows business to monetize service and product assets that were previously only used to fill up an earned loyalty programme (and thus only seen as a cost).
From many conversations with loyalty managers, Collinson knows that the principles and benefits of a paid loyalty strategy are easily understood. The challenge lies in designing a paid proposition (with the right commercials and behavioural incentives) which sits well alongside an earned loyalty framework.
Collinson Loyalty Services are designed to help loyalty managers achieve exactly this, offering a set of outcome-focused, accessible loyalty advisory services. These range from a health-check style assessment of your current loyalty programme to comprehensive design and development packages designed to elevate your programme.
Contact Peter Gerstle, Head of Travel Products and Loyalty, to discuss what will work best for you.
For more on paid loyalty and other emerging trends, see our loyalty landscape research.