Are Paid Loyalty Programs More Effective Than Free Ones?

Showing your loyal customers how important their business is to you is key. It not only benefits customers, but also your company. Customers tend to spend more money where they feel appreciated and important and where they receive the attention they desire. The only question is, would you like to put a price tag on this, in the form of paid loyalty programs, or make the experience free for everyone? Let us provide a few guidelines on the subject.

Free Loyalty Programs: Maximize Your Audience & Generate Goodwill

Engaging customers nowadays with a traditional loyalty program can be cumbersome. Giving them a membership card to collect points no longer suffices. Your customers already have a wallet full of loyalty cards. The key to making existing customers loyal to your brand lies in satisfaction and constant engagement on a long-term basis.

Companies need to move beyond rewarding customers for spending money, because people want to be engaged outside of the buying cycle as well. They desire richer experiences and more valuable rewards, so the goal should be to develop an emotional bond with customers. Only then will they choose your brand even when your competitors are offering a better deal. Show your loyalty program members appreciation by recognizing them for non-transactional activities, for example writing a review, posting a picture of your product on social media, or taking a quiz.

Generally, since many people enroll in free loyalty programs, the wider audience provides a great basis for evaluating which rewards or gamification elements are most used and loved by customers.

Here’s how the free, experience-led loyalty program by Love, Bonito managed to enthrall its audience.

One great example of a free loyalty program: H&M

The multinational clothing retail company H&M not only gives their club members points when they shop or invite their friends, they also have a 10% discount welcome offer for newcomers. Other benefits include free delivery for orders over a certain amount—an incentive that fashion-minded customers simply cannot resist. Moreover, Plus Club Members enjoy perks like exclusive offers, discounts and shopping events.

Customers can also earn points for recycling their clothes or bringing their own bags to the store. The points will be converted into bonus vouchers that can be redeemed at their next purchase.

Paid Loyalty Programs: Drive a High ROI by Focusing on the Most Valuable Members

In paid loyalty programs, members pay a recurring membership fee to receive great benefits they can start using immediately. By identifying your most valuable customer you will be able to provide them more special rewards to express how much you appreciate them. To strengthen the bond with these clients you need to provide them with benefits valuable enough—something that will make their lives better, such as free express delivery, access to a 24/7 helpline, an invitation to a product launch, etc.

A survey by McKinsey found that members of paid loyalty programs are 60% more likely to spend more on the brand after subscribing. This is because the feeling of being recognized connects them at an emotional level. Since they have paid for membership, they are more likely to shop and want to enjoy the advantages of being a member. This also ensures active shoppers for your business, resulting in higher purchase frequency, basket size and brand affinity.

Paid loyalty programs offer an attractive option both to acquire new customers and to establish a stronger relationship with your long-term customers.

What makes fee-based loyalty programs even better is that the initial investment that members make fund these programs. It can add up to a significant amount of revenue in a relatively short time.

One great example of a paid loyalty program: Barnes & Noble

Barnes & Noble, the bookseller with the largest number of retail outlets in the United States, offers their members exclusive benefits, including free shipping, exceptional coupons and special in-store pricing. Members even receive early access to special sales, sign up for events, birthday offers and many more.

Barnes & Noble offers their members great savings all year round. Everyone in the family can enjoy the benefits.

Free or Paid Loyalty Programs?

Free loyalty programs attract a much broader range of customers. Any customer can participate without cost, so there is no risk in signing up. However, because there is a wider member base, it becomes more difficult to personalize communication. And while free loyalty programs can be easier to implement and manage, they also carry the risk of training your clients to wait for discounts.

Meanwhile, paid loyalty programs require a payment to join and with monthly or annual membership fees, you can keep customers active. Furthermore, the quality of customers in paid loyalty programs is much higher, because they are much more committed. Plus, by narrowing down the audience in your loyalty program, you can provide them more personalized experiences and give members the most value.

You can also collect more data about member preferences. Naturally, if customers pay for something, they wish to exploit its possibilities. They do not want to throw money out the window. Fee-based loyalty programs might seem more cumbersome to realize, but in the long run, the rewards can be greater as well. One thing you should keep in mind is that determining the right price of membership and making sure members receive real value in return for the price they pay is a great responsibility.

Both free and paid loyalty programs have their benefits. Depending on your business goal you can decide which one suits your company better.

It’s Time to Decide

When determining which option is better for your company, you have to make sure that the program aligns with your marketing strategy. Either way, bear in mind that to attract customers you need the perfect balance of transactional and experiential benefits. If your goal is to engage with a wider audience, a free loyalty program will be perfect. But if you wish to identify your top-tier customers, a paid loyalty program may be a better choice.

In the meantime, here is a useful worksheet to help inspire your rewards program’s concept design.