How a paid customer loyalty program generates value by changing customer behaviors

Grace Alexander

MarTech Blogger | June 6, 2022

They are the solid bedrock of your customer base, the ones keeping your revenue strong. These are your most loyal customers and the biggest spenders among your whole audience.

Rather than treating this elite group exactly the same as the rest of your customer base, you can deliver a premium experience that benefits consumers and company alike. This is where a paid loyalty program comes in, creating a cycle of positive interactions and increasing customer lifetime value.

The time is right for the kinds of more in-depth loyalty programs that come with paid subscriptions. McKinsey reported that the standard “earn and burn” point model is losing some of its appeal for customers. Despite this fact, 24% of companies still have basic rewards programs and 24% don’t have any loyalty scheme at all.

When a paid loyalty reward program makes sense

Almost any kind of company can put a subscription model in place, and this kind of effort almost always delivers results. Adding a paid option to a customer loyalty program is a way to “double dip.” You’re combining the reliable revenue of a subscription service to the engagement and positive brand experience of a rewards program.

There are two kinds of scenarios when this pairing is especially valuable, as described in a separate McKinsey study:

  • Funding premium rewards: When brands such as fitness clothing company Lululemon need ways to subsidize more involved and expensive perks for their most loyal customers, they can balance the books with a paid subscription program.
  • To create an ecosystem around customers: Subscription-based loyalty schemes are useful for businesses, such as pharmacies, that create long-lasting relationships with customers who always come back to the closest store with the most convenient hours. Since these buyers are committed to returning, they may be willing to contribute to more intensive paid rewards programs.

Once customers commit to entering such a paid program, they may engage more deeply with the brands than if there had been no fee. McKinsey’s researchers describe the effect as an “economic loyalty loop” where the shoppers now have a financial stake in staying with their chosen company.

But when does a paid loyalty program not make sense?

Of course, there are some cases when a standard loyalty program is perfectly acceptable as the only option. The McKinsey study suggested that brands should use paid loyalty to deliver new rewards they couldn’t deliver otherwise, and to stop high-value customers from leaving. If neither of those are relevant points, sticking with free loyalty for the time being could be a fine decision.

What kinds of companies can use a paid loyalty program platform?

As the difference between a clothing brand and a pharmacy chain demonstrates, there are no limits regarding which kinds of brands can create closer relationships with their customers through paid subscriptions and loyalty reward programs.

This effect can be felt across industries, including:

  • Hospitality and travel: Companies can offer positive experiences to their most loyal and committed customers, such as special deals, offers and bundles that fit their specific needs and history. Interacting with all-in-one travel companies through mobile apps is a way for customers to provide a rich stream of useful data that can shape future offers.
  • Entertainment: While standard perks such as discounts can be a factor in entertainment, the true value of a loyalty program may come from exclusive experiences. Consider premium video subscription services, where content is only available to paying customers. If they want to follow a show they have made an emotional connection with, people will have to keep paying.
  • Retail and food service: When selling premium experiences to customers at stores or restaurants, or even storefront banks and similar businesses, it can pay to go beyond a standard loyalty point system, especially for paying subscribers. These individuals are paying to get the best brand experience, so they should have constant ways to interact with the brand, potentially through mobile apps.

Building stronger emotional connections with a paid loyalty program

Connecting with paying loyalty customers through frequent contact and exclusive offers can give your brand a valuable type of bond: an emotional connection.

An Mblm study revealed which companies have an “intimate” emotional connection with their customers, and many of these major brands connect with their customers via subscription programs. Apple’s offerings such as Apple Music make it a part of users’ lifestyles, while the Disney+ subscription streaming service has put Disney directly into the homes of paying customers. Costco, running exclusively on paid membership, is also a strong performer in the loyalty space.

What do these top performers get for forging these connections? Mblm noted that its top 500 brands by intimacy outperformed the S&P 500 and Fortune 500 in both profit and stock prices, and virtually tied them in revenue.

Paid loyalty can provide a new revenue stream

When thinking about the endpoint of paid loyalty programs, it’s natural to wonder just how much businesses can earn from these offerings. To see the ultimate example of this phenomenon, you can look to one of the world’s biggest companies: Amazon.

The Prime program is a tier of loyalty rewards for the most committed Amazon shoppers, but it’s also more than that. It fits into those buyers’ lifestyles, especially through the connection with exclusive entertainment offerings via services such as Prime Video. People who want to watch a new streaming TV show they’ve heard their friends talking about may have to become Prime subscribers to do so.

So, what is the financial result of having this deep a connection, with such clear rewards for members in the form of discounts and exclusive content? The company makes an annual rate of $119 for each subscriber, $12.99 a month or $8.99 a month for Prime Video alone. Multiply that by the company’s declared subscriber base of 200 million people and you can see the financial power of customer loyalty.

Why is Perx the perfect technology to power customer loyalty?

Upgrading to a paid loyalty program based on high-quality gifts and premium, exclusive experiences is a big moment for a company. If customers aren’t thrilled by the offerings, they may decide against subscribing.

Your business needs the ultimate lifestyle marketing platform to power its subscription plan: You need Perx. Using data from customer interactions to power experiences that truly delight and engage shoppers, and keep them coming back for more, you can power a top-quality loyalty reward program with Perx.

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