How a Paid Tier or Program Can Add Recurring Revenue for Your Brand
As younger generations acquire more spending power, the marketplace has shifted its focus on how to engage this new powerhouse. While growing up through the Great Recession has indicated Millennials to be more cautious with taking on debt and spending than previous generations, their actions have indicated they are willing to pay for better brand experiences and offers, particularly in travel and hospitality.
This begs the question of whether or not to charge for your loyalty program. Sadly, many programs fall into the undifferentiated realm of “spend money, get stuff,” and frequently increasing paid programs are catching the eye and ears of brands and members alike. Credit cards have long seen success from paid program tiers, and now other industries are adopting the practice to drive predictable revenue.
The Benefits of Paid Loyalty Programs:
- Become a Habit for Your Members: Amazon is the poster child for consumer habituation. Amazon combined its key notability (free 2-day shipping, automated ordering for household staples, the place to go for literally everything) with the psychology behind sunk cost to drive habit. Once members pay for Prime, they use it more frequently because they have already invested in it. Additional perks like free media help sink in the brand hook. Analysts anticipate Prime will add $18 billion to Amazon’s top line by 2020.
- Drive Second Purchase: Similar to Amazon’s hook in consumer habits, Stitchfix uses customer behavior within their program and Machine Learning to curate styling suggestions. Over 80% of clients return within 90 days for a second order, and a third of clients spend 50 percent of their clothing budget with the subscription service.
- Predictable Revenue: Paid membership is reliable revenue that allows you to make better business decisions. By taking the number of your members times the annual fee, you can better predict your revenue for the year, and determine what to invest in to continue to grow your brand.
- Attract More Members: Shifting away from your loyalty as an initial cost center for a brand to a direct revenue contributor from the outset allows you to invest into the exclusive benefits you can offer members. Better benefits and experience creates buzz and more attraction for new members, who will continue to add to predictable program growth. Leading Hotels of the World has made new member acquisition streamline by allowing its Premium tier members at $1,200/annual to gift Leader memberships to three family members, usually costing $120/year. This gives new members a taste of exclusive tier status and extends LHW’s reach to new members.
- Make Acquisition Dollars Efficient: It’s still costly to acquire new customers, so once you have acquired them, moving them onto paid loyalty show high initial engagement after joining, and periodic communication about the paid benefits show lifts in member behavior.
- Limit Liability: While some programs may incorporate both points and paid tier options, this could affect the value proposition for members negatively. But should you eliminate points to move to paid tier options, not only can you avoid promotional loyalty, but you can avoid the headaches and financial accountability that comes with points programs. Restoration Hardware has moved into this space. Its relatively modest member count of 400k pays $100 annually for discounts and design benefits has directed a stream of revenue into the business, allowing the brand to shift its focus from low quality sales to long-term incremental growth. In turn, it sees 95% of its sales coming from members, a data foundation they can continue to grow upon.
- Form the Right Partnerships: When looking outside your offers to improve benefits for members, partnership relies on complementary brand values, as well as common customer interests. As a leading travel card, AMEX partnered with Uber to offer credits to members of the platinum card (who pay $500/year) for the rideshare brand. Not only was this a premium benefit for AMEX users, but it likely cost little to the credit card brand, while also giving Uber a chance to engage new customers.
- Identify and Build Exclusivity for Highest Value Customers: The IHG Ambassador program charges members $200 annually for room upgrades, welcome gifts and late checkout times – among others – but its Royal Ambassador Program is by invite-only. Using customer behavior to identify those members most likely to value and move into this higher tier creates the status that and exclusivity for members on the cusp of achieving the higher tier through spend or membership.
As the leading global loyalty provider, Aimia has the proven 6-step methodology to designing and executing award-winning loyalty programs. For more information, please see contact us at email@example.com or fill out the form to the right.