5 Questions You Need Answered Before Launching a Premium Loyalty Program

It’s harder than ever to maintain brand loyalty, even with loyalty programs in place. Online shopping has made it easy for consumers to find what they want at the best price, fueling brand switching. But one strategy is succeeding at keeping consumers loyal — premium loyalty programs.

5 Questions You Need Answered Before Launching a Premium Loyalty Program

81% of traditional loyalty members say they would join a premium loyalty program at their favorite retailer if the benefits were valuable. Premium loyalty programs provide customers with immediate value, like shipping discounts or experiential benefits. But once you decide to offer premium benefits, how do you position the program for overall success?

Read this article for the answers to these five questions to consider before launching a premium loyalty program:

  • What are the right benefits to offer?
  • How do you price your program?
  • How can you maintain long-term success?
  • What infrastructure support do you need?
  • Can your existing program and a premium program work together?

Content Summary

QUESTION 1: What are the right benefits for your premium loyalty program members?
QUESTION 2: What is the sweet spot to price your program?
QUESTION 3: How do you successfully maintain the program over the long term?
QUESTION 4: What infrastructure and resources considerations do you need to think about?
QUESTION 5: What are the right benefits for your premium loyalty program members?
You’ve got the answers. Now it’s time to get started.

The purpose of loyalty programs is to build brand loyalty. But online shopping (which escalated even further with COVID-19) has made it too easy for consumers to find what they’re looking for at the best price— making brand switching more common. Nearly 70% of consumers agree that their loyalty is more difficult to maintain than ever before.

But there is one category of loyalty programs that are keeping consumers loyal — premium loyalty. The biggest differentiation factor from traditional loyalty programs is that in premium loyalty programs, members pay a fee in instant exchange, enhanced benefits. Some of the biggest retailers like Amazon, Walmart, and CVS have already successfully created premium loyalty programs. Given their positive results, and the need to find new ways to build customer loyalty, most other retailers (95%) are now also considering premium loyalty programs.

If this includes you — this playbook will help you answer the five most important questions you need to ask before launching your successful program:

  • What are the right benefits for your premium loyalty program?
  • What is the sweet spot to price your program?
  • How do you successfully maintain the program over the long-term?
  • What infrastructure and resources considerations do you need to think about?
  • How can your existing free program and a premium program work together?

Let’s dive in!

81% of traditional loyalty members say they would join a premium loyalty program at their favorite retailer, assuming that the benefits were valuable.

88% of premium loyalty members say they’re likely to recommend a retailer with valuable premium loyalty benefits to a family member or friend.

90% of consumers say they’re likely to choose a retailer where they’re a premium loyalty member over another one offering a lower price.

Traditional loyalty programs typically offer points-based benefits like a buy-one-get-one-free card. However, these types of benefits are growing stale with customers. 79% of consumers say they don’t want to accumulate points anymore, and retailers’ loyalty programs should provide immediate benefits to maintain their loyalty.

What are the right benefits for your premium loyalty program members?

The value (and differentiator) with a premium loyalty program is that at least some of the benefits it provides to customers should be immediate, like instant discounts or free/faster shipping. Another big differentiator is offering experiential benefits like free onsite tech support or personal stylist consultations in addition to premium discounts and products.

While some traditional programs have also begun to offer experiential benefits, such as member-only experiences, premium loyalty programs take these kinds of benefits to another level. For example, Best Buy recently launched a premium loyalty program with a bundle of high value transactional and experiential benefits, including:

  • Concierge support
  • Unlimited technical support on all technology in your home (even if it wasn’t purchased from Best Buy)
  • Free shipping with no minimum
  • Free delivery and installation
  • 2-year extended warranty protection
  • Extended returns
  • Special member pricing

What makes Best Buy’s program so appealing is that it makes buying and managing tech easier and more affordable for the customer. Members are happy to pay for the program because it packs so much value.

Another aspect of selecting the right benefits for your program is ensuring that your benefits bundle includes three key types of benefits:

  • Instant benefits that make the value proposition easy for customers to understand, such as instant discounts and free shipping
  • Everyday value to your customers such as extended returns or warranties or consultative support
  • Unique benefits that they can’t get just anywhere such as exclusive content or experiences, members-only access, or VIP treatment

When you combine all these benefits in one bundle, you’ll be able to offer your consumers a higher value proposition while simultaneously building deeper connections with your customers.

Top 3 benefits that motivate people to sign up for premium loyalty programs:

  • Free shipping: 64%
  • Instant discounts: 53%
  • Faster shipping: 51%

Benefits brainstorming tips

Need a little help getting your creative juices flowing about what benefits might appeal to your customers? Try these suggestions to drum up some good ideas:

  • Use customer surveys or interviews to find out what your customers want most
  • Determine what benefits customers in your existing program use the most
  • Look at the benefits your competitors are offering and think about how you can add even more value
  • Consider other loyalty tactics you’ve seen that might be of interest and align with your brand

QUESTION 2: What is the sweet spot to price your program?

Before you determine to price, you have to think about what your goals are for the program. For some brands, the goal is to use the fee to get more buy-in from customers. For others, the goal may be to cover the cost of the benefits or even generate revenue from the fee.

What is the sweet spot to price your program?

“We have one retail partner whose monthly fee is $1.99. It’s the lowest fee we have. But they’re not trying to use that fee as a barrier, but as a catalyst to drive consumer behavior, because consumers tend to be more apt to participate in something they paid for.” says Carlos DunlapBeard, VP of Business Development and Loyalty Strategy at Clarus Commerce.

Whatever your specific goals are, Dunlap-Beard points out that it’s important to keep in mind that “there should be an investment that delivers a positive return at some point in time. With a premium loyalty program, that positive return is almost immediate. With a free program that could be a year and a half to two years.”

Keeping the ROI in mind, when it comes to pricing, there are three variables you must get right:

  1. The right benefits for your customers
  2. The right cost for the benefits
  3. The right cost for your customers

We’ve already discussed how to get the right benefits (see Question 1), so let’s look at how to determine the right cost for the benefits and your customers.

The right cost for the benefits

In a premium loyalty program, people are paying for the benefits — and they need to feel they are getting the value that is equal or greater than what they are paying. As a rule of thumb, there should be a 10-15% value proposition for the customer in a premium loyalty program.

One way to determine the right price point is to test different price points. You can do this at the start of your program and keep the fee static or continually test and raise fees throughout the program’s life — especially as you add more benefits and services to make the program more valuable to your customers. You can also look at other premium loyalty programs, their fees, and what types of benefits they offer to compare how your offering stacks up.

CASE STUDY: CVS CarePass offers members savings and peace of mind

CVS’s best customers, value not only the discounts and free shipping that come with CarePass, but also the extra level of service they receive. For a $5 month/$ 48-year membership fee, customers get access to a 24/7 pharmacist line and same-day Rx delivery. Knowing that they can always get answers to their questions and get medications as soon as they need them, saves members significant time and stress — and makes the fee a good value.

The right cost for your customers

Just because your premium loyalty fee might match the value of the benefits you’re offering customers (or even offer more value than the fee) doesn’t mean your customers will be willing to pay it. When pricing your program, you need to understand who your customers are, especially your brand.

For instance, if you’re an apparel retailer that regularly sells pants for over $100, a $160 annual membership fee will likely make sense to your customers if it has the right benefits. But if you sell apparel typically under $20, a $160 annual fee would be a mismatch with what your customers are willing to pay.

Monthly vs. annual membership fees

Monthly fees:

  • Pro: Lower monthly fee vs. an annual fee may appeal more to consumers
  • Pro: Better renewal rate than annual programs
  • Con: Must show value quickly or risk losing the customer by the next month
  • Con: Consumers can opt-out every month, so there’s more potential to lose customers over a shorter period

Annual fees:

  • Pro: Customers are locked into the program for an entire year
  • Pro: Longer period to show value and build the relationship
  • Con: Higher annual costs may deter some people from signing up
  • Con: Renewal rate tends to be lower than monthly programs

QUESTION 3: How do you successfully maintain the program over the long term?

As you know, you can’t just “set and forget” your premium loyalty program. To keep engagement and retention high, you need to continually think of new ways to add value. By surveying your members and utilizing user testing tools, you can glean new insights from your members about what they like and don’t like.

You should also use data and measurement tools to help you determine what’s working in your program and where you can make improvements. Look at key performance indicators like:

  • New member acquisition
  • Conversion rates
  • Member retention
  • Churn rate
  • Member engagement
  • Purchase frequency
  • Average order value
  • Incremental gross merchandise value and margin
  • Customer lifetime value

Finally, remember that acquiring new members is just the beginning. It’s critical to keep them around as well. “Since you’re asking consumers to pay versus just asking for an email address in exchange for a coupon, marketing, and program communications is much more important with a premium loyalty program than a free program,” notes Dunlap-Beard. “You must constantly demonstrate the value of the program at the right times. These functions are essential not only for member acquisition but also retention. That’s why we’re always testing and always upgrading these programs over time.”

51% of retailers with premium loyalty programs consider program members to be at least 4x as valuable as non-members.

QUESTION 4: What infrastructure and resources considerations do you need to think about?

A premium loyalty program has a lot of moving parts to it. As part of the program’s lifecycle, you will need to manage customer acquisition, retention, customer service, subscription billing, customer data, and security. This will require both the right technology infrastructure and resources.

Not surprisingly, one of the biggest hurdles to launching a premium loyalty program is not having the internal resources or IT support to build and manage a program. In one recent survey, competing priorities (37%), a lack of internal resources to build and manage a program (24%), and a lack of IT support (19%) were listed as the most significant barriers to being able to launch a premium loyalty program.

Top barriers to launching a successful loyalty program:

  • Competing priorities: 37%
  • Lack of internal resources to build and manage a program: 24%
  • Lack of IT support: 19%

When determining if you want to launch your program in-house or use a vendor, evaluating whether you have the resources and IT support should be a key consideration. Another consideration is whether supporting an in-house program would enhance your core competencies or whether it would take focus away from other key priorities.

A few of the core competencies you’ll need are the ability to manage PCI-DSS compliance and a more in-depth member acquisition and retention strategy. In free programs, where members aren’t billed regularly, neither of these competencies is necessary. But, in a premium loyalty program, you not only need to ensure PCI-DSS compliance, but you also need to convince people of the value of your program so they’ll sign up and stay in the program.

Finally, there’s a lot of complexity involved in launching a premium loyalty program. If you don’t have the internal knowledge and resources to do it effectively, you may be significantly slowing down the ROI you can get from your program. In one survey, 51% of retailers who worked with a vendor said they experienced ROI within the first six months. For those that managed their programs in-house, the number dropped to 41%.

QUESTION 5: What are the right benefits for your premium loyalty program members?

Both free and premium loyalty programs have their place in your overall loyalty strategy. “It can be a combination of offering both a free and premium program,” says Dunlap-Beard. “This gives consumers a choice on what type of relationship they want with your brand.”

Traditional loyalty programs, for instance, are great at collecting customer data. Since they’re free, customers are willing to give up their data for benefits. With the demise of third-party cookies coming, traditional programs will play an even more important role in aiding in the collection of first-party data for brands. They also offer a great entry point into your larger loyalty ecosystem.

Premium loyalty programs, on the other hand, are designed for your top-tier customers. “It’s a different type of relationship that your customers can opt into,” says Dunlap-Beard. “It’s the best of your brand.”

Premium loyalty programs have been proven to increase customer order frequency, average order value (AVO), and lifetime value. And, even more importantly, build more loyalty. One Clarus customer saw a 51% AVO increase in the first 130 days from program members.

Ideally, your free and premium loyalty programs should work together to keep customers engaged. Make it easy for customers in your free program to upgrade, and at the same time, if they choose to opt-out of the premium tier, they can remain connected to your brand via your traditional free program.

81% of consumers are likely to join a premium loyalty program if they already belong to that retailer’s free loyalty program.

You’ve got the answers. Now it’s time to get started.

Premium loyalty programs offer numerous benefits — not only do members shop more often and spend more, but they’re also more likely to recommend friends and family to shop with you. Also, because these programs are fee-based, many of the costs are covered, and revenue can be generated quickly.

So, figure out what unique benefits you can offer consumers and how you want to price them. Then, seek out a loyalty program partner who can help you develop a strong program with the resources and technology to support not just its launch but its long-term viability. And finally, enjoy watching your program build stronger engagement and relationships with your most loyal customers.