Loyalty programs are like the ultimate wingperson for your brand—they help to incentivize your customers to shop with you more frequently, and over a longer period. 

The default we see today are points-based programs, which ultimately reward for routine behaviors. Although points-based loyalty programs may seem attractive, they often fail to deliver meaningful results. Basically, it’s all smoke and mirrors. 

While many customers may participate in these programs, the brands cannot show a positive impact on contribution margin—leaving your loyalty program to slowly bleed out.

Fortunately, there’s another way: paid memberships.

But first, let’s talk about the shift and how it’s happening.

The shift from traditional points-based programs to experiential loyalty

When it comes to airlines, hotels, and other travel companies, a points-based rewards system can be highly effective. They can dish out perks that make their customers feel like a baller— upgrades, lounge access, extra luggage allowance, concierge services, speedy security clearance, and even discounts on hotels. The list goes on. 

But without providing the experience and emotional piece, points-based programs fail to generate true loyalty. 

Leading brands like Starbucks, Nike, and Lululemon know this and have shifted their approach to loyalty programs, now offering experiences plus rewards. 

The Starbucks Odyssey Experience

Starbucks next big innovation in loyalty—Starbucks Odyssey (in beta). This new addition to their already-successful rewards program leverages new technology to reward their most devoted coffee lovers with exclusive drinks, bespoke merch, event access and immersive coffee experiences. It has been referred to as “Pokémon GO for coffee.” Not because it’s a perfect comparison, but to acknowledge the similarities in the way Odyssey blends and bridges the physical and virtual worlds.

lululemon Studio

Lululemon has introduced a paid membership tier, called the "lululemon Studio Membership," in addition to its free-to-join "Lululemon Essential" membership. According to Lululemon's CEO, Michael Aragon, the paid tier is becoming a "growth engine" for the brand overall.

This move is part of Lululemon's strategy to position itself as a lifestyle brand that offers more than just clothing and instead provides a unique and immersive experience to its customers. By doing so, Lululemon hopes to reduce the cost of acquiring new customers, which will lead to an increase in their contribution margin. This shift towards a membership-based model is a sign of the times in the retail industry—lululemon gets it.

Nike Membership

Nike has achieved 34% digital growth annually with their membership program, which boasts over 160 million active members worldwide. The secret sauce to the program’s success is due to a combination of factors including a strong community with access to complimentary workout classes, personalized gifts, and expert advice, exclusive member-only products, and an omnichannel experience that recognizes loyalty across all mediums. They’ve introduced differentiated ways to experience exclusivity and created moments of recognition for their customers’ continued loyalty. 

The takeaway: When it comes to loyalty strategy in eCommerce, it's common to focus solely on rewards. But rewards are just a small aspect of loyalty. Experiences create brand affinity. 

The bigger piece of loyalty

As Inveterate Co-Founder and CEO Dylan points out:

👉 Personalized experiences should be the focus of your loyalty program, rather than just offering rewards. 

👉 Loyalty programs should aim to drive an increase in brand purchase decisions from all members, regardless of their unique attributes. 

👉 A loyalty program can be designed for any type of brand or industry, and can offer benefits that are tailored to the needs and interests of different customer segments.

👉 The ultimate goal should be to increase customer lifetime contribution margin. In other words, calculating the amount of profit a brand can expect to generate from a customer over the long-term, as a result of their loyalty. 

Entering the era of paid memberships

Paid membership is a timeless business model that has proven to increase a customer’s lifetime value, provided that the program offers meaningful benefits and experiences for the customer. 

Charging a membership fee allows for the provision of valuable perks and encourages customers to spend more, resulting in increased profits.

The numbers don’t lie.

McKinsey research found that 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%.

But to get to this point, you need to understand what defines success and what type of loyalty you’re driving.  

McKinsey notes three primary factors on which paid loyalty programs need to deliver:

• The benefits offered need to outweigh the fee: According to their 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. 

• Offering experiential benefits over value-driven program benefits: Brands need to invest in more emotional and experiential offerings that go beyond hard-value benefits (i.e discounts and free products). Instead, think of access to personalized experiences, access to exclusive products and events, or member-only content.

• Stay top-of-mind with immediate and frequent benefits: To maintain engagement and retention in paid loyalty programs, brands need to adopt nimble and everyday means of rewarding their members. 

The cherry on top of all of this is that fees from loyalty programs can provide the budget to reinvest back into improving your loyalty program.

Be your own loyalty success story

Convinced but don’t know where to start? Neither did Flamingo Estate, but here we are…

Flamingo Estate’s paid membership program, powered by Inveterate, wildly exceeded the annual sign-up goal in just 72 hours. Members accounted for 15% of all customers compared to their goal of 5% and their LTV is 2X that of nonmembers. Additionally, members spend 16% more per order and order nearly 2X as often as nonmembers.

How’s that for proof (in the paid membership) pudding?

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.

Book a demo to learn more about how we can help you quickly and easily set up a premium, fee-based loyalty program that gives your most valued customers the proper VIP treatment. Did we mention no coding required?