What benefits do premium loyalty program members value?

Discussion
Sources: Macy’s; Gap; Target
Aug 09, 2021

Through a special arrangement, presented here for discussion is a summary of articles from MarketingCharts, which provides up-to-the-minute data and research to marketers.

Seventy-one percent of U.S. consumers belong to a traditional customer loyalty program, with four in 10 belonging to three or four of them. Despite their popularity, consumers aren’t satisfied with them. Indeed, 81 percent are considering upgrading to premium programs, per a survey from Clarus Commerce.

Even though 77 percent of Millennials and 78 percent of Gen X are already members of premium loyalty programs, the report contends that members of Gen Z are more likely than other age groups to be part of premium loyalty programs (70 percent) as opposed to traditional ones (63 percent). That said, Millennials are the most likely to upgrade, with 92 percent saying they are likely to invest in a retailer’s premium loyalty program if they already belong to that retailer’s traditional loyalty program.

Those interested in paying for premium loyalty memberships are most interested in groceries (58 percent), clothes and accessories (49 percent) and health and beauty (36 percent).

So, what are consumers looking for in a premium loyalty program? Sixty-four percent say free shipping. Alongside free shipping, 51 percent would be motivated to invest in or renew their premium loyalty program by faster shipping. Indeed, faster, free shipping is the top reason for joining Amazon Prime for three-quarters of respondents. It is also why more than half (58 percent) say they renew their membership.

Other top motivators for premium loyalty programs include instant discounts (53 percent), giveaways (47 percent) and surprise rewards (35 percent).

Bond’s 2020 Loyalty Report showed experience factors account for 76 percent of what drives loyalty program engagement. These factors included recognition and support (12 percent share), personal relevance (12 percent), ease and enjoyment (12 percent) and brand alignment (10 percent) among others. Programs offering personalized experiences were also shown to be experiencing 47 percent higher engagement, despite only one in four strongly agreeing they currently feel special and recognized by their loyalty programs.

DISCUSSION QUESTIONS: What incentives should marketers use in their efforts to upgrade consumers to premium loyalty programs? What typical premium perks are the biggest margin killers for retailers that can and should be downplayed?

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Braintrust
"If a loyalty program isn’t simple to understand, and points aren’t easy to accumulate and redeem, why bother?"

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18 Comments on "What benefits do premium loyalty program members value?"


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Neil Saunders
BrainTrust

In surveys, people say they’re willing to pay for things like premium loyalty programs. The reality is often different. What makes people part with their money are very clear and tangible benefits which they perceive outweigh the cost. That’s why Amazon Prime does so well – it provides shipping advantages plus a whole host of other things such as content. And, of course, usage of Amazon is very frequent so the shipping benefits are very tangible. For a less frequently used retailer with no real points of differentiation, getting people to pay for a loyalty scheme and stick with it is much, much harder.

Christine Russo
BrainTrust

Loyalty programs are most certainly a MAJOR revenue driver. However loyalty program offers vary widely by vertical. For example, points are a major driver in the beauty sector. Free, fast shipping and special pricing are major factors for more commoditized retailers like Amazon and Walmart. Gamification, points, discounts and recognition drive major loyalty engagement in the food space like at Chipotle, Domino’s and more.

Bob Amster
BrainTrust

Offers unique to premium members, free shipping (because shipping won’t be free or very low priced forever), a feeling that the premium member is special. High-ticket items that retailers can entice members to buy with some discounts, because consumers do not purchase high-ticket items so often that the retailers will lose money.

Gary Sankary
BrainTrust

Perceived value is key. Just offering a discount really isn’t that interesting, unless the discounts are really significant. Loyalty programs have to deliver something exceptional for the membership. That can be VIP experience, like skipping the line at Starbucks, or early enrollment in classes at Orvis. Or frictionless commerce – pay via the app – at Target. Research into what your customers value is critical to developing a program that will keep customers engaged and feeling valued.

Georganne Bender
BrainTrust

How many times have you been asked at checkout if you belong to the store’s loyalty program and you can’t remember if you do or not? If it had value you would remember. The problem is many loyalty programs take too long to accumulate rewards and consumers tend to lose interest.

If a loyalty program isn’t simple to understand, and points aren’t easy to accumulate and redeem, why bother? DSW get it: Points for everything, free shipping, birthday perks and more. There’s value there shoppers can immediately see.

Mohamed Amer
BrainTrust

Premium suggests the opposite of mass and rather pursuit of a brand’s most valuable customer segment. The benefits must be tangible and exclusive: available 24/7, special pricing, reduced or no-fee transactions, exclusive events, unexpected and meaningful perks.

Amazon Prime is an excellent example of a premium loyalty program that accrues many benefits to members who pay up front for inclusion. For the company, it gets a highly predictable recurring revenue stream, higher frequency of ordering, and a vast amount of customer data that can further tailor future benefits and programs.

Melissa Minkow
BrainTrust

Brands have been focusing on personalization within loyalty incentives for a long time, so it’s interesting to see consumers less interested in that. The free and fast shipping is certainly a manifestation of the “Amazon Effect,” where the retailer has created a gold standard and expectation that other brands still struggle to get to. Free and easier returns should be a premium loyalty perk, as online ordering still has a major obstacle there for shoppers. Any incentives centered on convenience will leverage the mindset shift initiated by Amazon that consumers now seek. For example, in addition to a more seamless returns experience, some retailers are reserving specific offerings to loyalty members only, such as curbside pickup. Consumers clearly are motivated by discounts, but that’s a margin-killing, unsustainable strategy in the long-term.

Phil Rubin
BrainTrust
2 months 10 days ago

Part of the challenge with loyalty programs in general is a lack of differentiation. Some of that can be addressed through “premium” loyalty programs but ultimately, as Neil Saunders aptly points out, there needs to be tangible value. Part of that is a function of a better experience, which The Loyalty Report quantified in 2020.

The Loyalty Report 2021 expands on that and again validates that, as we have all heard and experienced, customers are willing to pay a premium for a better experience. The question is whether they will pay a premium for a better loyalty program experience.

Some segments, like Millennials and Gen Z, might do so, but only for a very small number of brands. Part of the high renewal rates are a function of auto-renewal and remember, there are Goliaths like Amazon and Costco, and now Walmart+, that dominate the category.

Ultimately, the premium should be in the form of higher margins, which only a strong brand coupled with better customer (and member) experience will drive.

Chuck Ehredt
BrainTrust

The article has most of the answers because consumers have been clear that they don´t want to be nickeled and dimed on shipping, returns, etc. – and that they want to be treated special.

Treating customers like people is hard for the cultures at many brands, or their CRM does not put useful customer insight in the hands of front-line workers. I believe the next wave of innovation will largely be going back to basics while being supported by modern technology that allows brands to deliver more customized experiences. No two customers are identical, but thousands of people in one segment are likely to appreciate common benefits – so it is possible for brands to deliver at scale – if they just get to work and stop bickering internally about how to execute.

Martin Whitmore
Guest

I think you’ve hit on the biggest incentive, free delivery. Amazon has set the bar for this with Amazon Prime and fast, free delivery. Today’s consumer is overwhelmed with loyalty offers and they are extremely conscious of with whom they share their information. In order for loyalty programs to be successful today something meaningful that won’t erode margins needs to be offered. The concept of early opportunity to purchase on merchandise that is on promotion could be a driver for increased loyalty participation.

Katie Thomas
BrainTrust

I’d argue that a lot of loyalty programs aren’t really consumer first, and that’s where they struggle. When you dig into the real rationale for companies launching them, it’s often to gain data, not serve consumers. Otherwise, you wouldn’t see some of the complexity and silly rules. On a personal note, it really bums me out when points expire. If I spent the money to earn the points, why can’t I keep them…?

Shep Hyken
BrainTrust

These loyalty programs are actually marketing programs. Take away the perks, and we’ll see if the customers are still loyal. Just last week Amazon announced that Whole Foods was ending free delivery that was part of the Prime program. Without the free delivery, will a Whole Foods customer be willing to continue to do business with them?

Once you recognize that many loyalty programs are more marketing- and incentive-based, you begin to understand the customers’ behaviors. You can look at costs of points, free shipping, upgrades, etc. You can understand the costs of customer retention.

No doubt, the customer who shops more or spends more should get something for their choice to do business with you, but don’t confuse repeat business with true customer loyalty.

Ricardo Belmar
BrainTrust
Free delivery and quick, instant discounts are powerful motivators for consumers. However surveys can be misleading. What consumer when asked if you’d like free shipping and instant discounts are going to say no? What is clear is that consumers want to understand and clearly see the value of a premium loyalty program. As Georganne points out, too many shoppers can’t even remember if they’re part of a loyalty program at checkout! Unfortunately for retailers, Amazon has set the bar with free shipping and there may not be a way out of that one, no matter the margin cost. It’s a simple to understand value consumers count on. Retailers that want to avoid too many discounts at the expense of margin need to focus on other perceived value – unique experiences and access to products and services non-loyalty customers either can’t get or have to pay extra for them. How about a dedicated customer service number that’s only available to premium loyalty members? Premium members might earn points at a faster rate, maybe at 1.5X, the… Read more »
Bill Hanifin
BrainTrust
Premium loyalty programs are one approach among many to engage with a customer base. To me, this is one of several tacks a brand can pursue in a tiered approach to marketing. Paid programs can bring great value to a small percentage of the customer base, but expectations have to be kept in check as very few retailers have the multiplicity of assets to combine into a program like Amazon Prime, the inspiration for many premium programs. No matter your approach, paid or otherwise, it’s time to embrace your customer base as your most important asset and adopt a clear vision of how you plan to build trusted relationships with them over the long run. Investors and shareholders are rewarding this approach with higher market valuations. Realize as you go forward that a formally defined loyalty “program” is not a prerequisite to achieving the big goal. Next-level marketers realize that absolute conquest of customer allegiance is not always a practical goal. Building trust, reinforcing brand affinity, and growing value is attainable and when you redefine… Read more »
Kenneth Leung
BrainTrust

It is very hard for most retailers to duplicate amazon prime because it is a broad shopping plus media consumption program. I just don’t see regular retailers being able to replicate that. I think waiving shipping (I hate the word free shipping — nothing is free) is the minimal, and the addition of exclusive/priority merchandise selection and experiences is the best approach for companies that aren’t Amazon.

Bob Andersen
Guest

Loyalty programs need to reward long-term customers, but seldom do. Customers who have been around for 5, 10, 20+ years are the most loyal, but are often taken for granted. Frequency programs need to focus on rewarding the 20% of customers that account for 80% of sales.

Mark Price
BrainTrust

Essentially, the key rewards that consumers desire from their loyalty programs are the benefits offered by Amazon Prime. Free shipping and faster shipping. The lower demand for brand engagement benefits represent the fact that retailers have not yet cracked the code on how to connect with consumers in a way brand-related way that changes behavior. I also notice the lack of charitable benefits in the list.

Matt Krepsik
Guest

For premium programs, the goal is to offer “prestige” and create the feeling that the customer is unique with “only for me” perks that cater to their taste and preferences. If they want to convince shoppers to upgrade, retailers should avoid things like blanket TPRs and instead focus on things like special items, personal discounts, gas perks, travel packages, etc.

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Braintrust
"If a loyalty program isn’t simple to understand, and points aren’t easy to accumulate and redeem, why bother?"

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