Following the pandemic, customer behavior shifted significantly. This goes beyond an uptick in eCommerce adoption, though. A huge audience was introduced to a series of features and business models that were previously unknown to them. As a result, customers of today look for convenience and special treatment when aligning themselves with a business, and they’re willing to pay a premium price for it. This trend of privilege-driven customer engagement has led to a renaissance for paid and subscription loyalty programs.
If you’re thinking about launching or revamping your own program and are considering a premium rewards program, this guide goes into everything you need to know.
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What Is a Subscription Loyalty Program?
Known by a variety of names, paid, premium or subscription loyalty programs are a type of reward system that requires customers to make some sort of upfront contribution to become members. In most cases, the contribution is a one-time or recurring fee, but it’s also possible for the paid model to be executed without directly involving money.
The most important characteristic of a subscription loyalty program is that it amps up the reward experience significantly in order to make up for the entry cost. And for a good reason: as a report from Clarus Commerce points out, 81% of free loyalty program members would join a paid loyalty program at their favorite retailer, as long as the benefits were valuable.
Fee based programs have recently emerged in many parts of the world. The popular press has attributed this rise to the “Amazon Prime Effect” and other parallel movements in the world of subscription business models. However, the reality of the situation is that fee-based loyalty programs have always been there, especially during the early days of our industry. This trend was first noted in the 2018 Delphi Report from The Wise Marketer and the technique has always been powerful and effective. The consumer immediately does mental math to figure out if the fee is going to be outstripped by the benefits. The wider the gap, the faster the ROI, the higher the probability to join.
The Main Benefits of Subscription Loyalty Programs
As pointed out by a survey from McKinsey, “members of paid loyalty programs are 60% more likely to spend more on the brand after subscribing”. Mind you, a subscription rewards program is more than just putting a price tag on the membership. It’s a valuable and sophisticated form of customer retention.
- Paid membership programs are geared towards engaging your most valuable customers, instead of nurturing potential and new buyers
- Subscription-based loyalty programs are meant to keep existing members active, and increase their purchase frequency
- Because membership numbers are lower, it’s much easier to learn more about customer preferences and identify potential brand loyalists
- Naturally, having more accurate data makes personalization much easier, too
- Last but not least, fee-based loyalty programs are more likely to have a higher ROI after launch
Is a Subscription Loyalty Program Right for Your Business?
Though paid loyalty programs can be beneficial, they aren’t for every business. Before committing, consider the pros and cons and decide whether it’s worth the undertaking.
We must remember that not all customers are equally profitable and also not all customers have the same cost to service. Premium loyalty programs invite premium customers – sometimes the premium is in value and sometimes the premium is in cost. Either way it is a reflection of the expectation of the customer. Industries like travel and hospitality have proven repeatedly that for the business traveller this is the most sought after quadrant (high frequency with high margin).
A Subscription Loyalty Program Is Right for You If:
1. You can make the reward experience worthwhile
In other words, you need to come up with valuable benefits that justify the price point of the subscription. We’ll discuss the best reward options later in this article, but keep in mind that the benefits should either be very popular — like free shipping or early access — or, if you’re sending out freebies and gift packages, then the contents within should be changed regularly to keep the surprise & delight factor fresh.
2. You’re regularly in contact with your customers
Premium loyalty programs generally work best for online marketplaces, fashion labels, beauty companies, electronics brands, or any industry with a relatively high purchase frequency. The reason is simple: if someone only interacts with your brand once or twice a year, they won’t sign up for a monthly subscription. Of course, there are other ways to keep members close between purchases. Gamified elements, badges and challenges, and social media contests all give customers a reason to engage with your brand — as well as to maintain their membership.
3. You have the time and resources to plan ahead
Launching a loyalty program is never an easy process because you need to oversee plenty of deliverables and mechanics. This is doubly true for subscription loyalty programs. Because their money is on the line, customers have even higher expectations than usual. In this case, changing the fees or removing rewards from the list after the launch isn’t an option. As such, you should carefully calculate the cost of the subscription to avoid overcharging and see whether the high cost of experiential benefits could hurt your profit margin in the long run.
A Subscription Program Might Be Risky For You Because:
1. Customer Churn Hurts More
The downside of the premium loyalty program model is that, if the experience is unsatisfactory, customers unsubscribe almost instantly. This leaves a smaller window of time to identify and engage members who are at risk of churn. And because we’re talking about customers who not only make purchases but also pay a monthly fee, losing them is far more costly than losing members of a free loyalty program.
Subscription programs have their challenges too. It is critical for the model to be designed correctly to ensure the program will be profitable, as the company could make a loss if the program is too generous. Members who pay will have higher expectations of their value and service experience, meaning an increased level of customer service support. For an annual fee membership program, additional administration will be required to ensure the member re-subscribes.
2. Membership Rates Are Lower
Due to the paid nature of the program, expect lower enrollment rates than in a free loyalty program. A smaller community might be easier to manage and cater to, but at the same time, they won’t be able to generate as much word-of-mouth. Also, freshly established businesses may struggle to entice people to join a premium program, compared to brands that have an established and engaged audience.
3. Personalization Capabilities Are Non-Negotiable
Last but not least, you need to be on top of your game in terms of personalization. This requires integration with a variety of platforms, including a CDP and marketing automation software. The former can help you collect and analyze data, as well as give you AI-driven churn prediction. And the latter is responsible for acting on the insight, sending out custom-tailored newsletters and emails.
The Most Popular Subscription Loyalty Program Types
Here’s a list of possible paid rewards program models. Each of them delivers a different kind of experience.
1. Fee-Based Programs
Taking a page from Amazon Prime’s book, fee-based loyalty programs require a monthly subscription from members. Brands with a fee-based program generally do not offer a free version, but to entice customers to give the paid program a chance, they can offer a limited-time trial. Fee-based programs usually have a smaller but highly dedicated audience. This approach also ensures that the overall program has a high ROI.
2. Premium Memberships
Premium membership makes a great addition to an existing, free loyalty program. Customers can enroll and enjoy all the features the basic program has to offer, but if they wish to maximize their benefits, they can subscribe to the premium or annual membership. Introducing a premium membership guarantees that you have the largest audience without alienating members who don’t want to pay. At the same time, you’ll increase the profit margin of your program.
3. Lifetime Programs
Lifetime programs resemble regular, free loyalty programs but with a pay-to-play spin. Unlike in other subscription loyalty programs, here, members only need to pay the fee once. This keeps the reward program accessible to a larger community, while ensuring that the program remains profitable. In this case, it’s highly recommended to give members a generous welcome reward, to instantly validate their investment in membership.
4. VIP Clubs
VIP clubs are exclusive clubs within an existing loyalty program, with a points-based entry. They are similar to premium memberships, but customers have to spend a specified amount of loyalty points in order to join. VIP clubs still require people to make an investment by sacrificing their points to gain entry, which means they need to purchase multiple times in order to accumulate enough points. This means members have to wait a while to join (or speed things up and make one, huge purchase), but in exchange, this feature doesn’t feel intrusive at all.
Reward Ideas for Paid Subscription Loyalty Programs
Because there’s such a heavy emphasis on the benefits of paid loyalty programs, here’s a list of reward ideas that are generally popular among members:
- Mystery gifts – Surprise & delight plays a key role in keeping the program relevant. Send subscribed members a box of mystery goodies (like product samples) on a monthly or annual basis
- Free products – Allow paying members to select a product of their choice (up to a certain value) for free every so often to make their subscription feel worthwhile
- Free shipping – This is the most sought-after benefit a rewards program can have, and it can be the winning argument that convinces customers to join your premium loyalty program
- Early access – Another fan favorite, early access to new product drops or sales not only makes members feel privileged, but the feature itself costs nothing on your end
- Exclusive events – Generate a sense of belonging and community among paying members by inviting them to special events, like a brand anniversary party where they can network and meet influencers
- Large discounts – Customers love discounts. By limiting larger discounts to subscribed members only, you can ensure that you stay within your profit margin
- Upgrade to existing benefits – If you’re running a premium membership where subscription is optional, then the paid benefits can be upgrades of the rewards or perks available for standard members (such as triple points on sales events instead of double)
10 Inspiring Subscription Loyalty Programs From Successful Brands
When customers have memorable experiences with your brand, they are more likely to sign up for paid loyalty programs. The strong emotional connection they form with your company solidifies their brand affinity, even when competitors are offering lower prices.
1. CVS CarePass – Making Health Easier
CVS Pharmacy, one of the largest pharmacy chains in the US, not only has a free loyalty program, but they also offer a subscription loyalty program called CVS CarePass. The fee-based loyalty program is centered around providing simplicity and convenience.
- Customers enjoy free 1-2 day delivery on qualifying prescriptions
- Members receive 24-hour access to the CVS pharmacist helpline
- The company provides 20% discounts on certain CVS Health brand products
- A promotional reward worth $10 is issued on a monthly basis for a $5/month or $48/year membership fee
2. Emirates – Flying With Style
- Members can boost the number of Miles they earn during flights
- Members receive discounts on tickets purchased with Miles
- Increased airport lounge access and check-in baggage allowance is included in the membership
- The company offers members a 20% discount on classic and upgrade rewards
3. REI – A Lifetime of Perks
REI, the American retail and outdoor recreation services corporation, besides selling sporting goods, camping gear, travel equipment, also offers services such as outdoor-oriented vacations and courses. The company created the Co-op Member Reward to thank members for helping them weather tough times in 2020. With a $20 lifetime membership subscription, members receive:
- Members can trade in their gently used gear for REI gift cards and feel good about joining the circular economy
- Customers get insider tips, they can share information, inspiration, jokes with each other
- Bike & ski shop services are available, where members even get 10% off
- A 33% discount on camping gear and more, so customers can try something new for less
4. Sephora Flash – Delivering Products in a Flash
One of the most valuable perks for being a Sephora Beauty Insider Rouge member is the free standard shipping. Getting to the Rouge tier of their loyalty program requires customers to spend at least $1,000 and then they have to maintain that level of spend every year to keep their status. As an alternative, the company created Sephora Flash, the annual shipping subscription. This fee-based loyalty program acts as an addition to their existing rewards program.
- Customers receive free 1-2 day shipping on every single order
- No minimum purchase is required
- Applies to every order for an entire year
- The company guarantees a 1-business-day shipping rate of $5.95
5. LuisaViaRoma – These Shoes Are Made for Showing off
LuisaViaRoma, the Italian luxury fashion retailer, launched a VIP club called the Sneakers Club. The customers paying the 2,000-point membership fee receive early access to high-end sneakers.
- When members enroll in LVR Privilege, they earn 1,000 LVR points, which can used toward access to the Sneakers Club
- Customers can take part in raffles for the chance to purchase the most exclusive sneakers
- Highly desired products are only available for a limited time, and only members enjoy the privilege of being able to buy them in advance
6. Naked Wines – Membership Never Tasted So Good
Naked Wines is an online wine retailer, launched in the UK. The company has a unique business model, where winemakers pitch an idea for a wine at the company. If its in-house winemakers like the idea, they pay the winemakers a stipend. Naked Wines then fronts the winemaker money to buy (or grow) the grapes and gives them access to winemaking and bottling facilities. But making wine isn’t cheap. So where does the money come from? Naked Wines sells a recurring wine club membership for $40 per month, to their members, whom they calls “angels.”
- Members receive discounts on wines (up to 60%)
- A gift bottle every month is a nice addition to the loyalty program
- Customers also receive access to a member community
7. Rotana – The Privileges of Life
Rotana, the Abu Dhabi-based hotel management company, adopted a paid loyalty program to retain their VIP customers. They created an Exclusive Rewards program that offers the following benefits in exchange for a Dh 1050 membership fee:
- Upon enrollment in the loyalty program, customers receive a Dh 250 dining certificate
- They also receive 50% off when dining with up to four guests
- Members get 20% off beverages and room rates
- 6 PM check-out is also included in the program, so members don’t have to worry about getting up early
8. Best Buy – Loyalty Program on the Leading Edge
Best Buy is extending its paid membership program. The retailer is including a perk that may nudge more people to sign up: access to hard-to-find items during the holiday season. Totaltech members pay $199.99 per year to be able to enjoy the benefits of the program.
- Members receive unlimited, round-the-clock tech support
- Best Buy offers exclusive member prices on merchandise and up to two years of product protection on most purchases
- Free 2-day shipping and installation is also included in the program
- There is an extended 60-day window for returns and exchanges
- Members gain VIP access to dedicated phone and chat teams
9. Restoration Hardware – Bringing Loyalty to the Table
Restoration Hardware’s premium loyalty program, RH Grey Card, is a shining example of loyalty success. Finding that alignment with its customers’ needs and desires has paved the way for sustainable engagement and brand loyalty at Restoration Hardware. The company charges customers a $100 annual fee in exchange for membership benefits.
- Members get 25 percent savings on RH, RH Modern, RH Baby & Child, RH TEEN, and RH Contemporary Art and 10 percent savings on all sale items
- Complimentary interior design services come with the membership
- Members receive access to concierge service to manage their orders
- RH Grey Card members also get early access to clearance events and lower interest rates on the RH credit card
10. DoorDash – A Paid Loyalty Program as Sweet as Pie
DoorDash, the online food ordering and food delivery platform, has a paid loyalty program called DashPass. Customers can become DashPass members for a small monthly fee. In addition, depending on what kind of credit card members use, members receive different special benefits. For example, World Elite Mastercard cardholders receive three months of DashPass for free.
- DashPass members save an average of $4-5 per order
- Customers that use the app often ultimately save on orders
- Members enjoy zero delivery fees and 10% off on restaurant orders over $12 & grocery orders over $25
- DoorDash offers exclusive members-only menu items and weekly offers
- Customers receive 5% credit back on their eligible pickup orders
- VIP customer support, plus no commitment – cancel anytime
Get Ready to Build a Premium Loyalty Experience
Subscription and fee-based loyalty programs can be an excellent choice if you’re seeking to maintain a high ROI while focusing on your most valuable customers. However, it might not be the best option if you’re looking to generate customer gratitude or if your aim is to engage a large audience.
Meanwhile, to get inspiration, download our handy concept worksheet, which will help you explore the elements of the different programs.