Spicy take: Most eCommerce brands don’t have loyalty figured out yet.

While it’s evolving, everybody thinks of loyalty programs as one thing: the basic rewards program structure (i.e. Spend & earn, points-based or subscription-based) 

But here’s the problem: Loyalty programs based purely on transactions often fail to turn your brand into a habitual choice for customers, leaving them to be easily swayed by competitors’ offers. Not to mention, they can feel a bit copy-paste and lack any true personalization.

Instead, your loyalty program should be the core of a holistic retention strategy for your brand. 

But what does that look like?

The New Face of Membership

Previously, the cost of customer acquisition (CAC) was less, due to manageable media and advertising costs, and less competition. This created an illusion of continuous growth and success, inflating the perceived value of, well, average products. 

Brands mistakenly believed they were achieving substantial growth due to the influx of one-time customers. It didn’t matter if you never saw them again, because you’d have another acquired customer spending with you at that nice, lower CAC. Rinse and repeat. 

However, as customer acquisition has become more costly, the importance of building a differentiated product and a genuine, recurring customer relationship has resurfaced.

In this changing landscape, brands can no longer rely on superficial strategies to attract customers; instead, they must focus on providing valued products and services, differentiating from competitors, fostering strong relationships, and maintaining the trust of their customers.

And let's get clear on something: Membership IS a type of loyalty program alongside subscriptions and points.

A loyalty program is defined as any strategic approach designed to incentivize customers to choose your brand, not just once or twice, but every single time they're looking to buy in your category. Not just that, it’s when you are looking to encourage your existing loyal customers to spend more, so your brand can have a deeper share of wallet.

Here are the various loyalty approaches in today's landscape:

Key takeaways:

1. Paid membership programs offer immediate, recurring revenue from membership fees with valuable benefits that are shown to increase AOV and frequency, ultimately increasing customer lifetime value and contribution margin.

2. While subscriptions can contribute to customer convenience and loyalty, it's not suitable for everyone or every business. Tying all benefits to autoshipment can limit customers to single-product loyalty, which may not be ideal for brands seeking to boost sales across their product range or with categories where consumption isn’t guaranteed. In other words, don't force a recurring subscription as the tool to retain your best customers.

3. Transactional/Points-based programs make your best customers work for the reward. They reward for routine behaviors and fail to deliver meaningful retention, incremental revenue, and increased margin.

The secret to loyalty is to reward your customers upfront with membership. Don’t make them earn it or wait it out. 

Memberships allow your best customers to receive valuable perks right away— there's no waiting to prove their loyalty. 

Deloitte sheds some light on the frequency of usage and attitudes towards loyalty schemes: While 54% claim to like points-based loyalty schemes, a similar share of consumers do not always redeem all their points (53%). When asked about their attitude to loyalty schemes, 42% indicated they needed more than points to shop with a brand.

The Bottom Line: Why Brands Should Bet on Memberships

Though loyalty programs aren’t a new thing, they are taking on new forms. 

A subscription approach ensures customers never run out of their favorite items—a membership model does something even more powerful. It provides connection and community that infuses deeper meaning into a customer's relationship with a brand, extending far beyond just the products or services on offer. 

And here's the kicker: memberships don't just enhance customer relationships, they also boost your brand's profitability. It's a potent strategy that fuels both brand loyalty and revenue growth.

Increased Lifetime Value & Contribution Margin

A well-executed paid membership program can increase the average order value and the purchase frequency.

Providing immediate value to customers with discounts or special privileges encourages more spending from customers you’ve already invested in acquiring. This increases the contribution margin, giving you more in return for your original investment in that customer.

McKinsey research found people who sign up for paid loyalty programs are 60% more likely to spend more money on a brand, while free loyalty programs only bump up that likelihood by 30%.

• The paid membership program at Flamingo Estate has led to a customer Lifetime Value (LTV) that is twice as much as that of non-members.

• Flamingo Estate’s Members spend 16% more per order and order nearly 2X as often as nonmembers.
  
  

Data Insights

Paid memberships can also gather valuable data about customer preferences and behaviors. This can be leveraged to personalize the customer experience further, further promoting loyalty and profitability.

• Flamingo Estate members are treated to seasonal gifts and member-only products, which delight members and provide the brand with valuable feedback on small-batch productions.

Competitive Advantage

Having a compelling paid membership program can differentiate your brand from competitors, making your brand more attractive to current and potential customers.

• According to Deloitte, 67% of consumers would join a paid loyalty program that provides substantial benefits, almost double the 33% who would join a free points-based program. This highlights the substantial impact value-packed paid membership programs can have on customer loyalty.
  
  

Creating Loyalty: Secrets to a Thriving Paid Membership Program

Paid loyalty programs need to deliver:

The importance of value: How it should outweigh the cost

• According to McKinsey consumer research on paid loyalty, consumers expect to receive at least a 150% return on their sign-up fee in the form of new offerings. 

Transactional vs experiential benefits in membership programs

• While hard-value benefits like discounts/rewards are the preferred part of a personalized experience 48% (Source: PwC Customer Loyalty Survey 2022: base of 4,036), the next 43% value a loyalty program that has flexibility in rewards.

• Consumers prize flexibility in personalization, with one of the top preferences being “rewards my way” in a loyalty program. That priority offers businesses an opportunity to experiment more with experiential loyalty to improve customer retention. 

Balancing customer benefits and program costs 

• Membership program pricing is part art and part science. The price has to make financial sense for the brand based on the benefits offered and expected lift in lifetime value, while also fitting the brand's DNA.

• Bonus: Fees from loyalty programs can provide the budget to reinvest back into improving your loyalty program.

Combining Subscriptions with Membership

While both can work independently from each other, brands can unlock even more value by combining the two. 

Relying solely on a subscription model comes with two big caveats: (1) It's easy to cancel subscriptions when times are tight and (2) You generally lock a customer into a single-product subscription.

Subscriptions can be a great fit for specific products and customers, but they may not fit everyone's preferences or align with all of your product offerings. That's why a balanced approach that combines the power of both subscriptions and memberships can be the ideal solution.

When combining the two, you incentivize customers to buy more across the brand's range, instead of just single products. For those who want to explore the entire catalog and enjoy the same benefits, a paid membership makes perfect sense.

Take Wandering Bear as an example. They offer a subscription service that provides a discount and free shipping on recurring orders. However, with the goal to provide their customers with more choice, they wanted to offer two loyalty options, independent from each other.

So they introduced The Pack Membership, a paid membership program with exclusive perks that go beyond just the subscription. It includes things like subscription pricing on all orders (without committing to auto-ship), exclusive flash sales, secret menu items, and early access to limited-edition flavor drops. This approach not only provides a way to build loyalty, but strategically balances out potential setbacks with only offering subscriptions. 

And since launching The Pack Membership, Wandering Bear has found:

• Member net sales per month have increased 48%, even with the subscription discount being automatically applied to every order.

• 25% of customers in the program were subscribers at some point. 

Your most loyal customers are also the most important ones. Loyalty programs alone will not turn a casual customer into a loyal one, but they can help a customer that likes your brand or products become even more invested in your brand. 

Membership Is Your Loyalty Anchor

The truth is, customers will either love a brand or they won't. A few accumulated loyalty points are unlikely to transform a casual shopper into a frequent one. However, the immediate tangible value of membership benefits can encourage loyal customers to engage even more with your brand.

For instance, if customers are part of a membership program where they consistently get a 20% discount and immediate store credit on purchases, they are more likely to try new products or categories from your brand, rather than going to a competitor. 

The perceived value they get from the membership makes them less likely to switch brands, enhancing customer retention.

In Wandering Bear’s case, if a customer has a paid membership with them and enjoys a discount on every order, they’re less inclined to try a rival coffee brand or stock up on cold brew at the grocery store because they are invested in Wandering Bear through the membership. The membership acts as a loyalty anchor, making them think, "I already have a membership, so I'll just stick with this brand." 

Inveterate™ is disrupting the loyalty space by unlocking the ability to easily implement paid membership programs. With Inveterate™, you have the power to easily run a membership program directly on your Shopify storefront. Inveterate’s team of experts will help you strategize, validate, and launch your membership program. The Inveterate app, downloaded from the Shopify app store, makes the technical integration a piece of cake.

Book a demo to learn more about how we can help you quickly and easily set up a premium loyalty program that gives your most valued customers the proper VIP treatment.