Data Reveals Premium Loyalty a Strong Contender for Brands

Clarus Commerce helps brands, or the agencies that work on their behalf, increase customer engagement and overall loyalty – from promotions to end-to-end loyalty programs including points and premium loyalty programs. With over twenty years in the business, Clarus knows a thing or two about loyalty programs, what makes them work, and what makes them succeed.

The company recently released a study on premium loyalty programs where members pay a fee for enhanced, instant benefits. While many businesses benefit from free-to-join points-based programs, many may benefit even further by incorporating a premium loyalty program on top of their existing traditional program to give their customers a choice in how they want to engage.

The study, How to Keep Your Customers Engaged when Loyalty Standards are High, was compiled from the opinions of 2500 surveyed consumers. Clarus conducted the study to learn about consumers’ feelings toward premium loyalty programs and paying for enhanced benefits, as well as shopping habits and brand interactions.

Clarus has completed the same study three times previously, most recently in 2019, but this year the stakes were at their highest. Consumers were finally finding a new sense of normalcy out of the pandemic, as well as facing new hurdles with inflation and supply chain struggles.

The company conducted the survey to understand consumers’ overall interest in premium loyalty programs like Amazon Prime, Restoration Hardware (RH Members), and Best Buy Totaltech, but it also asked about interest in the metaverse and NFTs. “There’s been a ton of research out there on traditional loyalty programs,” explains Matt Kates, Senior Vice-President of Strategy at Clarus Commerce. “But premium loyalty is a newer and growing area of consumer interest.”

Survey results from 2019 indicated 58% of consumers were involved in a premium loyalty program. Today, 72% of consumers are enrolled in one.

When Clarus originally launched the survey four years ago, premium loyalty was just beginning to gain popularity, and the company was interested to learn about consumer interest and involvement. Today, the survey has been expanded to understand the trends, attitudes and acceptance of premium loyalty programs and consumer relationships with traditional loyalty programs. Other areas of interest included the virtualization of loyalty.

Kates adds, “As consumer participation continues to increase and new premium loyalty programs launch each year, it’s important to track over time to understand consumer and brand attitudes over time.” 

Surprising Survey Results
Results from the study were both expected and surprising. Interests in premium loyalty programs grew in a year of economic challenges. Despite inflation and economic pressures, consumers were eager to join premium loyalty programs. While the growth itself was surprising, even more so was the root of that growth.
Says Kates, “We often think of Millennials and Generation Z as some of our most skeptical consumers. Would those consumers be willing to pay a premium to participate in a loyalty program versus getting things for free?”

Study results indicated overall, 78% of consumers plan to join an additional premium loyalty program in the next 12 months. 87% of Generation Z respondents stated they would join an additional premium loyalty program, up from 70% the previous year. 85% of Millennials stated the same, up from 77%.

Kates is quick to say that this growth may not only be attributed to changing consumer behaviors, but the increase in premium loyalty program offerings available. As the programs expand into more diverse areas, such as DoorDash DashPass, it provides more opportunities for adoption and value.

Premium vs. Traditional Loyalty – It’s Not a Competition
Premium loyalty programs are subscriptions where members pay an annual or monthly fee to receive immediate benefits. Traditional loyalty memberships require no upfront fee, and members earn rewards over time. Both are effective models when executed properly.

Benefits from premium loyalty programs include instant gratification from rewards. Some consumers prefer not to wait to build up points for rewards, but are willing to pay for the immediate benefits.

Premium loyalty programs share some of the same key indicators as traditional programs such as the number of members enrolled, incremental sales and increase in purchase frequency.

In addition to creating additional opportunities to drive incremental behaviors for a brand’s best customers, a premium loyalty program is a revenue source, with some brands adding millions to their bottom line in terms of both ROI and strict revenue.

“Sometimes people talk about one versus the other, like they are in a competition,” says Kates, “but it’s not an either/or situation. Many companies have successfully implemented a two-prong strategy leveraging traditional loyalty as their base program and layering on an optional premium loyalty tier to offer enhanced benefits.”

The research study showed 83% of consumers would invest in a brand’s premium loyalty program if they were already enrolled in the traditional program. Giving customers a choice is important because different customers value different options. Some may prefer to pay for the premium upgrade, while others do not need those services offered. By offering both traditional and premium programs, brands give their consumers a choice, and will better engage with all of their guests in the way the guest prefers.
Best Industries to Benefit from Premium Programs
Most brands can benefit from incorporating a premium loyalty program, but it is better suited for certain industries. When a business asks consumers to spend money to join a program, the program needs to offer an immediate value at a higher rate. Brands must explore if they can drive that value before launching a premium program.

Retail, entertainment and the restaurant industry benefit well from premium loyalty programs. In a competitive space, it can create a stronger connection and value proposition with members. When a consumer participates in a premium loyalty program, it creates an inherent competitive advantage through enhanced benefits that competing brands can’t match.

Says Kates, “The key litmus test is providing relevant, easily understood value to the consumer. If a brand can’t show them that value easily, it won’t be successful.”

Engaging in the Metaverse
According to Clarus’ study, 65% of consumers are interested in engaging with brands in metaverse to unlock rewards.

The metaverse opens up a myriad of valuable opportunities to marketers. One key area is customer engagement, delivering a higher-touch brand experience. This is especially important as more and more consumers shop from home. Many brands lose that high-touch in-store experience. The metaverse offers immersive experiences that evolve the at home shopping experience beyond sterile aspects such as price and features which translates into hard dollar sales, not just fun.

A second benefit is money. One of the biggest challenges brands face is how to manage the rewards budget of the loyalty program. Growing the program can be expensive, but digital assets and virtual experiences are much more easily scale. A one-time investment in a digital asset can be scaled across millions of members and doesn’t require fulfillment costs or the complexity of inventory management.

When a company offers a digital reward such as an NFT, it gives scalable access to all members. For example, instead of a movie theater rewards program paying for each physical reward, such as a free drink or commemorative cup, brands pay a one-time fee for the NFT that is given to all members.
Adds Kates, “It’s an exciting way to engage customers and deliver immediate value.”

Successful Brands Provide Personalized Experiences
One of the biggest challenges brands face in personalizing and segmenting offers is it hinges on the ability to collect personal data and the consumer’s willingness to provide it. What makes a brand successful is its ability to create frictionless data collection and connect to the consumer both online and in the store.

Surveys and questionnaires provide valuable data, but can make the consumer feel like they have to do work. If a brand can seamlessly collect data throughout the customer journey and provide a personal experience along the way, it provides value to both the brand and the consumer.

For example, if brands can add incentive offers – layering promotions like chance-to-win or gamification into their loyalty programs – they can make it fun and engaging for members to provide valuable zero-party data. It is key for a brand to use the data given to make the experience more personalized for its members.

The Added Value of Premium Loyalty Programs
Premium loyalty programs will continue to grow because they provide immediate benefits and value to members. In addition, it allows brands to give value immediately back to consumers and solves the challenge of how to manage the economics of the program.

“Most brands want a loyalty program, but not every brand can afford one,” Kates explains.

Premium loyalty programs offer a solution to these brands by flipping the equation. Instead of costing the brand, these programs generate a revenue stream and add to the bottom line. Clarus predicts the continued growth of premium loyalty programs, as long as brands can solve the value equation.

Adds Kates, “What I really like is the creative strategies some brands are executing to offer premium loyalty programs and the unique benefits they bring – whether part of a standalone offering or as a complementary, enhanced program to their already existing traditional loyalty program. The adoption and interest continue to grow.”

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