This is an excerpt from Ryder E-commerce’s latest ebook “Unleashing the power of creative channel expansion for D2C brands” by Inveterate, high-powered loyalty program software that enhances the brand experience. Check out the full ebook here.
When asked to describe a loyalty program, most customers would likely bring up points-based systems, their local cafe’s punch cards, or Amazon Prime. But what is a loyalty program, and can you use it to build a community of your most loyal customers?
Odds are, you can.
In their most basic form, loyalty programs are an engagement channel designed to reward loyal customers and incentivize them to keep coming back to a brand. They generally come in two tiers: traditional and premium.
Traditional loyalty programs like the points-based systems (or neighborhood cafe punch cards), are free. Brands don’t charge customers any fees to participate.
It is a customer retention strategy that costs the customer nothing but can have varying results… Free loyalty programs are convenient, and customers use them when they remember to use them. They reward routine-based behaviors but don’t necessarily unlock additional margins, behaviors, or purchases the brand wouldn’t otherwise get.
Subscriptions are a type of loyalty reward – this is most often a small discount for opting into a product refill being sent once a month. However, this still focuses on rewarding the customer for what they’re buying anyway.
Premium loyalty programs, like membership programs, require customers to pay a recurring fee in order to access exclusive benefits and privileges.
Unlike traditional loyalty programs where membership is free, premium paid loyalty programs give a higher level of rewards and services in exchange for that payment. They will frequently have options and benefits like exclusive products, ongoing discounts, free shipping, or other perks.
With premium paid loyalty programs, the customer is paying to unlock options they wouldn’t otherwise have. This is different than the free programs where they aren’t getting anything other customers aren’t, and just earn the rewards over time/repetition of purchasing.
Both paid and free loyalty programs have their merits, but paid programs offer certain advantages that can make them more appealing for both the brand and the customers.
Paid loyalty programs often provide more substantial and exclusive benefits compared to free programs. Paid programs can offer premium perks such as free shipping on all orders, member-only pricing, early access to new products, and experiential benefits such as member-only events.
These create a sense of exclusivity and cater to the needs and preferences of the most dedicated customers. It’s a channel more tailored for brand enthusiasts and gives them a bigger incentive to stick with one brand versus another.
A free loyalty program doesn’t have the same pull for decision-making. If the brand is convenient, great, but the rewards typically aren’t so impressive that it’s a deal breaker.
Paid loyalty programs target your most committed customers. Traditional, free loyalty programs are given to everyone and aren’t necessarily going to make advocates out of people.
By paying a recurring fee, members have a higher level of loyalty and are motivated to maximize the value of their investment. They are voting for a deeper connection with the brand in the most meaningful way possible: with their wallet.
According to Deloitte, more than 2 in 3 consumers identified premium services like expedited shipping as important to their program satisfaction.
Not only do membership fees generate direct revenue for the brand, but they can also increase average order value (AOV).
A study by Forrester highlighted one brand with a 12% increase in AOV after launching their premium loyalty program. At Inveterate, a brand that powers premium loyalty for Shopify storefronts, we have noticed an average 15-20% increase in AOV for our live programs.
This additional revenue stream can help to offset the costs associated with running the program and provide the brand with more resources to invest in this engagement channel, including customer rewards, services, and program enhancements. It can also help with recurring revenue, and forecasting future business offerings and decisions.
Well-crafted premium programs provide immediate, obvious value to customers, making it an easy decision to pay for the program.
Traditional loyalty programs are the same for everyone that uses them – paid programs let brands custom-create the things their biggest fans want.
Premium programs acknowledge them as the important buyers they are and give them options and flexibility in benefits. It’s far easier to tailor things for the biggest fans a brand has, because their wants are usually common amongst them, unlike a generic loyalty program that is trying to cater to everyone – and is therefore catering to no one.
Want to learn more? Check out the rest of our ebook on how brands can effectively expand their selling channels and find more opportunities to creatively engage customers: