Spending on loyalty programs is through
the roof.
In 2016, the consumer loyalty management market was valued at 1.93 billion dollars.
By 2023 that number is expected to grow to 6.95 billion dollars,
an annual compounded growth rate of 21%.
In the US alone consumers now collectively hold more than 3.8 billion loyalty program memberships
and who could blame retailers for wanting loyal customers.
It's a well-worn fact that retaining a customer costs a fraction of that of finding a new one.
Returning customers also spend more than first-time customers up to 67% more,
and if that weren't enough even a small drop in loyalty can be enough to kill a business.
No one disputes the intrinsic value of
loyalty which brings us to an inconvenient truth
Most loyalty programs
don't generate loyalty.
In fact a 2012 benchmark study from Edgell Knowledge Network
which surveyed the loyalty programs of 60 retailers found that customers of retailers
that offer a loyalty program were not recognizably more loyal than customers of those that don´t.
What's worse, according to the same study is that 81% of loyalty program members
don't even understand what their rewards entitlements consist of
or how they're redeemed and this shouldn't come as a surprise,
surprise considering the average
household belongs to eighteen loyalty schemes.
These findings were echoed in a
2017 study by Accenture which also
suggested that 16% of consumers actually have a negative or non-existent response to loyalty programs.
Here's the real punch in the gut though.
According to a 2015 study by Colloquy only 42% of loyalty program members are even active or engaged.
Further research shows that as consumers we're most likely to
seek out loyalty programs with brands we
already like.
Thus many retailers are spending mountains of money to retain the very customers
they had the least chance of losing to begin with.
In essence subsidizing purchases that been made anyway.
Put another way, very few people will drink four bad cups of coffee simply because every fifth cup is free.
So, while it pays to have loyal customers, you can't simply pay customers to be loyal.
What if the business could turn transient loyalty into something deeper,
more committed and more monogamous? What if the relationship between the retailer and the consumer
could go from being transactional to
being transformational and best of all
what if instead of paying customers to
be loyal those same customers actually
paid the retailers they wanted to be
loyal to?
It's a concept Amazon understands only too well. In its latest quarter Amazon reported growing it's
paid Prime membership ranks by 47%. Prime consumption junkies spend about 250%
more each year than non-members in fact an astonishing
82% of US households with incomes over a hundred and ten thousand dollars
per year are Prime members and
while standard loyalty programs tend to
bleed engagement over time, Prime members
actually become more engaged.
Consumer Intelligence Research partners noted
that 73% of thirty-day subscribers
end up paying for the first full year of
Amazon Prime.
91% of first year paid subscribers renew
for a second year and 96% of second year
paid subscribers renew for a third year.
The difference of course is that Prime
is not merely a points or reward system
but rather a carefully curated ecosystem
of valued service and content.
It's the veritable key to the kingdom of
all that Amazon has to offer. Special
pricing, promotions, streaming music,
on-demand video and of course fast free
shipping are among the benefits that
members are willing to spend 99
dollars per year to access.
And Amazon is merely the tip of a growing spear of retailers awakening to the power of paid membership.
For ten dollars annually
Sephora's flash program offers members
unlimited free two-day shipping with no
minimum purchase requirements.
Gamestop's powerup Pro and elite membership programs $14.99 and $29.99 per year respectively
offer members a select set of special gifts, discounts, benefits and privileges.
Restauration Hardware's RH member program cost $100 per year to join
and offers members a range of perks
and privileges including free interior
design services and early access to
promotional events.
What Amazon, Game Stop, Sephora and Restoration Hardware understand is that there's a difference
between loyalty and love. Loyalty simply means you've managed to put a card in the customers wallet.
Paid membership means you've secured a place in the customers heart.
Membership, even for a small fee, forms a sense of exclusivity
and transforms the customer experience
in a way that traditional loyalty programs simply cannot,
getting a customer to lay down a membership fee
forms an entirely new degree of mutual
commitment. Even a small sunk cost will
make a customer implicitly more engaged
with a brand.
And, by the same token, charging a membership fee creates an onus on the part of the retailer to
deliver value against the heightened
expectations that the fee creates.
After all membership fees are true and
present revenue a retailer cannot afford
to lose unlike the potential future
revenue traditional loyalty programs hope to realize.
Perhaps the most compelling reason of all to consider membership over loyalty
is that consumers clearly want it.
Research by Loyalty One suggests that 62% of
consumer respondents said they would
consider joining a fee-based reward
program, if their favorite retailer offered one.
Among Millennials the numbers were even more compelling, with 75% of 18 to 24 year olds
and 77% of 25 to 34 year old saying they pay to belong.
Lastly for retailers with a genuine interest in understanding their customers across channels
membership is the Holy Grail.
A membership is true and unfiltered permission to engage
and eliminates any ambiguity about the relationship.
Paying members are more inclined to share personal information
because they inherently understand that doing so
contributes to shaping their experience
with a brand.
It's this level of consumer transparency that allows brands to more clearly understand customer actions
throughout their ecosystem and across
channels
So, if you're serious about creating truly loyal customers I suggest you put their money where your mouth is
Paid membership is the new loyalty
