Consumers Are Willing to Pay for Loyalty Programs

Chris Duncan, Chief Marketing Officer for Inte Q, believes that paid-tier loyalty programs are effective because they drive sales, traffic, repeat purchases, and customer engagement−while taking the customer relationship to the next level.

Duncan participated in an intriguing Q&A with Loyalty360 to talk about paid loyalty programs and their future in the loyalty marketing world.

Are people willing to pay for loyalty programs, provided that the benefits included are attractive?

Duncan: Consumers are willing to pay for loyalty programs. This is evidenced by the growing number of brands introducing paid-tier loyalty concepts into their marketing mix. In a tough competitive market, brands as diverse as Restoration Hardware, Hilton, AMC, Lands’ End, GameStop, and Frank + Oak are using paid-tier programs to take customer engagement, customer loyalty, and incremental revenue to new heights.
Amazon Prime is a “prime” example of a brand that understands the value of member-funded loyalty initiatives. Piper Jaffray estimates nearly half of all U.S. households subscribe to Amazon Prime and Prime members spend an average of $1,500 per year compared with $625 per year spent by Amazon customers who aren’t Prime members.

Do you see these types of loyalty programs growing? Could they form a trend?

Duncan: VIP programs are growing because consumers’ expectations have changed. How consumers shop and engage with brands has changed. It’s no longer about bringing the customer to you, but instead it’s about taking your brand to your customer to drive interest and behavior.

And these programs are not a trend, but an evolution of the loyalty program model. With the abundance of loyalty programs, consumers have become immune to enrollment offers and incentives. Paid-tier programs are paving new ground in this mature field to take customer engagement, customer loyalty and incremental revenue to new heights.

In your recent whitepaper, what were the main conclusions regarding the effectiveness of paid-tier loyalty programs?

Duncan: It’s more than just a consumer shopping a brand. It’s about integrating that brand into a customer’s lifestyle through that paid relationship with the brand and that brand granting access to different savings and values.  Consumers may be more likely to shop with a brand because they’ve invested and want a return on their investment and brands gain additional insight beyond just transactions.

Paid-tier loyalty programs offer benefits for both brands and consumers. In essence, they are a win-win. Brands achieve a high-margin revenue stream while consumers have access to benefits others may not have access to, which, in turn, drives stronger relationships. But the biggest reason brands are looking to this type of loyalty offering is results. These self-funded loyalty programs generate a recurring high-margin revenue stream without inventory costs, capital investment, or financial risk.

How do they impact customer acquisition efforts, retention, and CX?

Duncan: One of the major objectives paid-tier loyalty programs accomplish is to help your best and most loyal customers self-identify – helping them say “I want to sign up to pay you for access to an array of benefits or services that can exceed that monthly or annual fee.”

Not only do these programs generate that high-margin revenue, they also engage your top, most engaged customers and provide the “on the fence” customer a reason to try your brand. This impacts customer acquisition, retention, and customer experience by providing an exclusive opportunity for an array of customers that might otherwise not engage in a traditional free loyalty program.

From a brand perspective, paid-tier programs are a great way for brands to better target and quantify what they spend overall on their customers; whether it is discounts, shipping, customer service, or benefits and payroll. Because customers raise their hand and self-select enrollment, brands can specifically know where to focus their efforts.

If people will pay for these types of programs, it seems as if brands could leverage them as an even larger point of differentiation than a standard loyalty program?

Duncan: Paid-tier loyalty programs are a HUGE point of differentiation for brands! Consumers are smart. At the end of the day, it can’t be just about points and discounts. With the bulk of loyalty programs focused on transactions, brands must look for more experiential, bigger, and better benefits for their customers.

What was your biggest surprise from this whitepaper, either positive or negative?

Duncan: The biggest surprise we found was the proliferation of brands that are interested. The concept of VIP or member-funded programs is not new, but the interest and awareness is creating new opportunities for brands. We fully expect to see more brands launch paid-tier loyalty programs in 2017.  

What drives loyalty in customers?

Duncan: That’s the billion dollar question, isn’t it? Customer loyalty is just more difficult to achieve with today’s fickle consumers. Probably the biggest “thing” that drives loyalty ties back to the consumers’ emotional connection to a brand. When you love a brand, there’s an emotional connection to it. Why that is varies, but can be traced back to values (i.e. shared values with the brand) and tangible value. 

Brands that share distinct values make it more likely to attract loyal customers with similar values. This, in turn, starts creating customer love.  

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