A Comprehensive Guide to Paid Loyalty Programs

Are customers willing to pay for something they may get for free? As it turns out, yes. Paid loyalty programs are not only becoming more and more popular, but also attract customers who have higher value. Why? Find out what makes subscription loyalty programs work – and how to make them work for you.

What’s a Paid Loyalty Program?

A paid loyalty program is a membership service in which customers pay a monthly or annual fee to join and receive exclusive benefits, such as discounts, coupons, free miles, or early access to certain products. Unlike their free counterparts, premium loyalty programs require a membership fee or a subscription, which often results in higher engagement from their members.

The Rise of Subscription Loyalty Programs

With so many brands investing in a loyalty program, more and more businesses struggle to stand out from the crowd. For many, it’s paid loyalty programs that represent a strategic venue to attract new customers. 

But does it work? If your customers can join a program that’s free, why would they pay for a premium one? Well, the answer is not that simple.

According to the BCG survey, over 60% of digitally savvy consumers under the age of 35 anticipate joining at least one new paid program within the next years, with a notable 17% expecting to enroll in three or more. It seems that paid membership programs are gaining momentum, and the pandemic only increased their popularity as it forced consumers to move their shopping online.

In the aftermath of the lockdown, paid programs have emerged as a way to show your clients you’re ready to take that relationship to the next level and offer exclusivity and a personal touch that free programs simply can’t.

"In today's evolving consumer landscape, loyalty isn't just about discounts; it's about forging meaningful connections and delivering tailored experiences. Paid loyalty programs are emerging as a powerful tool for companies to deepen customer engagement and drive long-term value," says Veronica Cacciotti, Loyalty Consultant at Comarch.

Are Paid/Subscription/Premium/VIP Loyalty Programs All The Same?

Though all of these terms are often used interchangeably and do share a lot of similarities, such as targeting high-value customers and requiring some form of front-up investments, there are some key differences that distinguish paid, subscription, premium, and VIP loyalty programs. Here’s a short rundown of how they diverge from one another:

What benefits can you expect?

More revenue

Why does anyone start a loyalty program? The answer is simple – to make money. In that vein, the most important and obvious benefit of a paid rewards program is the revenue it drives. Research shows that 62% of premium loyalty program members are more likely to spend more on your brand and 59% more likely to choose your brand above competitors. 

Increased customer retention

By providing exclusive benefits and more tailored experiences, paid rewards programs are a great way to reduce churn and make sure your customers stay with your brand for the long haul. In fact, as much as 98% (!) of premium loyalty members shop with that retailer at least once a month. Why? It’s often because customers who pay to join your program see bigger value in the benefits they receive, and they want to continue shopping with your brand to have their investment pay off.

Higher Customer Lifetime Value (CLV)

Though subscription-based program members may be more rare, they’re usually more valuable. The enhanced value proposition and personalized experiences lead to greater customer satisfaction and retention, driving repeat purchases and higher overall expenditure over time. This maximizes the customer's long-term financial contribution to the brand.

More flexibility in benefits

Having a smaller but more committed audience means that you can get creative with the kind of benefits you offer your premium members. Whether it’s early access to a product or even something as big as a complimentary trip – going premium offers flexibility that you will not find in free loyalty programs. Those are often focused on more general benefits that will cater to broader audiences.

Enhanced customer experience

Building upon the point above, when your member base is smaller, you’re better equipped to provide them with more personalized and tailored experiences. Your customers can receive priority support, faster shipping, special discounts, or one-on-one meetings, which create a sense of exclusivity and make them feel valued. The enhanced services and attention to customer needs contribute to a more enjoyable experience, fostering stronger brand loyalty.

What challenges do you have to tackle?

Cost and initial investment

The very obvious caveat to setting up a paid loyalty program is that members have to – well –  pay to join it. And for many customers, the initial investment may be enough to scare them off. When it comes to shopping, the majority of people rarely look at the big picture and just want what’s the most profitable or desirable right now – regardless of how beneficial it may be in the future.

High expectations

Another problem with subscription-based loyalty programs is that customers who are willing to invest in the hope of long-term benefits will probably expect them to be really worth it. Research shows that consumers in paid loyalty programs expect at least a 150% return on their subscription fee, which may not be realistic for many brands – at least at the very beginning. Companies that decide on a premium loyalty program need to account for the pressure and make sure they don’t over-promise and under-deliver.

Limited appeal

While paid programs can be very enticing to customers in particular industries – especially those on the more “luxurious” side, such as high fashion or jewelry – they’re hardly the best way to attract a very large crowd. They’ll usually appeal to a specific segment of customers, which will limit their overall reach and effectiveness. It’s also worth remembering that not all consumers are willing to pay upfront for some potential future benefits – especially if they’re occasional buyers.

Negative brand perception

The thing with premium loyalty programs is they’re a bit like a double-edged sword. On one hand, the required investment can make it seem like joining an exclusive club, which invokes positive feelings from customers. On the other hand, paid programs may also look elitist, potentially harming a brand’s image. There’s also a threat that the program will be perceived as a “cash grab,” which – again – can lead to negative publicity.

Economic sensitivity

Last but not least, premium programs may be more unstable and susceptible to change than their free counterparts. In times of economic hardship, customers will usually cut down on unnecessary expenses, which can include membership or subscription to a loyalty program. What’s more, any changes in a program fee can significantly – and negatively – impact membership numbers. 

Top 5 Paid Loyalty Programs Examples from Successful Brands

1. Amazon Prime

Perhaps the most prominent example of a premium loyalty program, Amazon Prime, is a lesson on creating value through diverse benefits. Members pay an annual or monthly fee to enjoy perks such as free two-day shipping, access to Prime Video and Prime Music, exclusive deals, and early access to sales. The comprehensive suite of services not only enhances customer experience but also drives frequent engagement with Amazon’s ecosystem. The average Prime member spends about $1,400 per year, compared to $600 for non-Prime members. The number of members itself is just as astounding, with over 220 million worldwide and counting.

2. Swarovski Crystal Society

Swarovski Crystal Society is the perfect example of customer loyalty in the luxury sector done right. Members receive exclusive access to limited-edition pieces, invitations to special events, annual gifts, early notifications about new collections, free repair service, and a dedicated magazine. These high-end, exclusive perks cater to their clientele's desires for uniqueness and prestige, strengthening their emotional connection to the brand.

3. Barnes & Noble Membership

In 2023, Barnes & Noble revamped its loyalty program by supplementing the free version with its paid counterpart. The premium option, Barnes & Noble Membership, provides members with significant discounts on purchases, free express shipping, free drink-size upgrades at B&N Cafés, and exclusive offers and events. The program is designed to appeal to avid readers who make up the core base of this biggest U.S. online bookstore’s clients. By focusing on the interests and needs of their customers, Barnes & Noble effectively fosters loyalty and encourages more frequent purchases.

4. Walmart+

Speaking of USA-born retail giants, it doesn’t get better than Walmart. The mega-chain of supermarkets is currently operating in 24 countries and was named the world’s largest company by revenue in 2022. Walmart also boasts a very successful premium loyalty program called Walmart+, which offers a range of benefits, such as free shipping, video streaming, and early access to deals, contributing to the brand’s power and substantial growth. As of November 2022, Walmart+ generated $2.2 billion in fees, with over 50 million members in the U.S. alone.

5. DashPass

DoorDash, a popular online food ordering & delivery platform, offers its customers a subscription-based loyalty program that wildly cuts down on the costs of delivery. With just 9.99$ a month, DashPass gives members access to benefits such as free delivery and reduced service fees on eligible orders. By providing consistent savings and convenience, DashPass appeals to the most frequent regular users of the platform and encourages them to choose DoorDash even more often.

Is Paid Loyalty Program Right for Your Business?

Given how beneficial paid loyalty programs seem for so many renowned brands, going premium may seem like a great idea… Unless it’s not. As with anything else, there’s no universal recipe for loyalty success, and what may work for a particular business will not work in a different industry. So, the question is – will they work for you?

Here’s some food for thought:

• There are certain sectors in which paid programs have a higher chance of succeeding. Those include industries such as luxury (like Swarovski), subscription-based media (like Disney+ or Netflix), fitness (like Nike+), and hospitality (Mariott Bonvoy).
• Paid programs have to be worth it. Sounds like a no-brainer, yet it’s really important to lay out what the actual benefit of paying a subscription or a membership fee is. Your members need to know exactly what they can get out of your proposition – and how they can unlock the perks. While that’s true for any loyalty program, the expectations are simply higher if your customers are expected to pay. If you can’t give them a solid reason why they should invest in your program when they can join some other one for free, then perhaps it’s time to rethink the idea altogether.
• The program may cost you more than you think. Yes, you will get the initial investment from your members, but you still have to make it up to them while also accounting for a smaller audience. After all, you probably won’t pull numbers as big as you would with a free proposition. That’s why a premium loyalty program works best if a company is already rather established and has a solid financial situation.

7 Rewards Ideas for a Premium Loyalty Program

Let’s say you decide to set up a premium loyalty program.

One of its most important – if not THE most important – things to consider is its value proposition. It all comes down to a question we mentioned before – why would a member pay for your program when they can probably join a similar one for free? The rewards you choose are the key to attracting customers. 

What should they be? Here are our 10 ideas for different types of perks and benefits your brand can offer within its premium loyalty program.

1. Exclusive Discounts and Offers

• Higher percentage discounts on products or services – this is something done by Sephora that offers its Rouge members 20% off all items
• Access to members-only sales and promotions
• Special bundle deals – done, for example, by Apple Music during special promotions

2. Early Access

• Early access to new product launches – as presented by Nike+ and its early access to new sneakers releases for program members
• Pre-sale access to tickets for events or limited editions
• First access to special promotions or clearance sales – a great example is Lightning Deals, which are very short-lasting but high discounts offered by Amazon first to Amazon Prime members

3. Exclusive Events

• Invitations to VIP events such as private shopping nights, launch parties, or brand experiences
• Access to members-only webinars or workshops – for example, LinkedIn Premium members get access to exclusive webinars and professional sessions
• Opportunities to meet brand ambassadors or influencers

4. Personalized Gifts and Surprises

• Complimentary gifts on special occasions like birthdays or membership anniversaries – done by plenty of premium brands, e.g., Sephora or Starbucks
• Seasonal or holiday-themed gifts
• Customizable rewards based on member preferences

5. Travel Perks

• Complimentary upgrades on flights or hotel stays
• Access to airport lounges or expedited security lanes
• Special travel packages or discounts on travel services – as done by American Express Platinum

6. Anniversary Rewards

• Special rewards for membership anniversaries, such as bonus points, discounts, or exclusive gifts
• Acknowledgement of milestones with unique offers or experiences

7. Exclusive Content

• Access to premium content such as detailed guides, behind-the-scenes videos, or expert tips – an interesting example is MasterClass courses & online classes offered to subscribers
• Members-only newsletters with exclusive insights or previews – for example, Spotify Premium members receive curated playlists and exclusive content previews
• Special access to digital downloads or e-books

How to Create a Paid Loyalty Program

Does a premium loyalty program sound like something that would fit your brand to a t? Perhaps it’s time to think about practical steps you can take to design and launch one that would become a success.

Here are 5 that you may find helpful:

1. Define the goals

Obviously, the goal of any loyalty program is to attract more customers and simply make more money. But before setting one up, it’s important to get into specifics. Is it increased customer retention that you’re after? Higher order value? Enhanced customer engagement? Creating a more exclusive image for your brand? It’s also crucial to establish key performance indicators (KPIs) to track the program’s success, like membership growth, revenue increase, or customer satisfaction scores.

2. Decide on the program structure

The structure of your loyalty program determines how it operates and how members interact with it. In this case, you should probably start by deciding on the type of investment needed. Is it a paid membership? Subscription? VIP type? Another thing to consider is whether you want your program to be single- or multi-tier. Single-tier programs offer the same benefits to all members, making them simpler to manage but less tailored. Multi-tier programs, on the other hand, provide escalating benefits as members progress through different levels based on their spending or engagement.

3. Establish fees and benefits

As explained before, the rewards in a premium loyalty program are everything – but so are the fees. This is an aspect that can make or break your whole initiative, so tread carefully and really take your time to evaluate what your brand can offer its members – and how much money it can expect in return. Consider conducting surveys or focus groups to understand what your customers value most and are willing to pay for. Balancing the cost of membership with the value of benefits is key to ensuring customer satisfaction and program profitability.

4. Choose the right technology

Creating a program that will be engaging yet simple to follow can be tricky. Most brands invest in technology to help them. The right loyalty software provider will handle stuff like a program set-up, app design, member enrollment, points & rewards management, communication, customer support, real-time analytics, and much more. Ensuring data security and privacy compliance is also critical, as you’ll be handling sensitive customer information.

5. Launch, market, and monitor

Once the program is up and running, it’s time to go live. It’s best to start with a soft launch to test the system and iron out any issues. Use multiple marketing channels to promote the program, including email campaigns, social media, in-store promotions, and your website. Highlight the exclusive benefits and value proposition to entice customers to join. Post-launch, continuously monitor the program’s performance against your KPIs. Remember that your program is never fully “done,” and it should adapt to the ever-changing market and customer expectations – especially if you’re investing in a paid version.

Premium Loyalty Program in 2024

With paid loyalty programs, it’s all about give and take – your customers make a bigger investment and capitalize on it more. Though it may be surprising, often, it’s exactly what they want. Premium is a big word in the 2024 customer loyalty landscape, and it seems that more and more loyalty program members are willing to go that extra mile and pay a subscription to yield benefits they won’t get for free.

In the future, we’ll probably see paid loyalty programs grow even further, with the focus likely put on AI-powered hyper-personalization and data-driven tailored experiences. Programs will increasingly offer experiential rewards, such as exclusive events or personalized services, rather than just discounts. This approach will allow brands to make their programs even more engaging and worthy of the fee required from members.

Want to learn more about creating a loyalty program that’ll captivate your audience as much? Go to:
https://www.comarch.com/trade-and-services/loyalty-marketing/.