Free and Premium Loyalty Programs Can and Should Coexist

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Brands like Lululemon and Restoration Hardware have strong, headline-making loyalty programs with annual fees upwards of $100. But thousands of brands also have free, points-based loyalty programs — can the two coexist in a single brand? 

The short answer: Yes. With shoppers’ desire for richer experiences and more valuable rewards and retailers’ need to gather data to support these desires, a blend of both premium and free loyalty is an advantageous route. 

Customers have come to expect that retailers offer some form of membership or rewards, whether that’s a free traditional program where they rack up points as they shop or a premium loyalty program with instant transactional benefits and exclusive experiential benefits. If the value is there, customers will be inclined to sign up and pay for membership to the latter.

To take advantage of this expectation and further attract and retain customers amid heavy competition, retailers should start considering offering both free and premium loyalty programs. With a tiered strategy, retailers can ensure that a greater percentage of their customers are not only consistent but also loyal.

Transforming sporadic shoppers into loyal customers with tiered loyalty 

A free loyalty program is a smart strategy for creating occasional shoppers out of sporadic shoppers. When sporadic customers are required to only give their email address or phone number, the barrier to entry for the loyalty program is low — so even if they don’t take advantage of the benefits, they aren’t committing to an annual fee. 

While it doesn’t provide the deeper value of a premium loyalty program, the free, easy-to-enter tier is essential in gathering the critical customer data that allows retailers to sell those highly personalized premium loyalty benefits. Data from the free programs can reveal what benefits and experiences customers take advantage of and enjoy most. With this data in mind, retailers can tailor the premium loyalty tier to offer the most popular benefits to customers most likely to engage further with the brand. 

Once these shoppers are a part of your ecosystem, it’s much simpler to move them into a premium loyalty program. Unlike free programs that require an exchange of basic information in return for rewards, premium programs require some upselling efforts on the retailer’s end. However, demonstrating the value of higher tiers of loyalty to members on the lowest tier using the insights gathered from the free program is much easier than selling benefits to customers who are not members in any capacity. 

Selling existing members on a premium program comes down to communicating the value

To upgrade lower-tier members toward the next level of loyalty, show them that these paid benefits justify their cost. To entice customers, you need to perfect a balance of both transactional and experiential benefits. Transactional benefits are common, and most retailers offer their loyalty members some form of discounts. A premium program should offer more immediate transactional benefits, like a certain percentage off each purchase or free shipping. However, experiential benefits make members feel valued and special: things like VIP experiences, concierge service, and access to tailored events. 

Cinemark, for example, does a great job of offering a two-tiered program that clearly outlines the benefits of its paid options. With the free tier of Cinemark Movie Rewards, members earn points on their purchase that they can redeem later for tickets, snacks, or movie swag. Members also receive exclusive access to specialty screenings. At the premium level (fluctuating just under $10 a month depending on location), members receive all of the free tier’s benefits as well as one movie ticket per month, special member prices on additional tickets, a 20% discount on concessions, and free seat reservations — and any unused tickets roll over with no expiration.  

Cinemark’s premium loyalty tier perfectly complements its free program. Customers receive the same benefits as the free tier along with clear and valuable benefits. In this specific example, any movie-goer who sees at least one movie a month would be doing themselves a disservice by not joining. What’s more, upgrading is easy since free members are already a part of the Cinemark loyalty ecosystem. Retailers can mimic this strategy with their own loyalty pursuits just by offering valuable free benefits with clear visibility into the top tiers that offer further perks and experiences. 

Offering multiple levels of loyalty ensures value for every customer — even those that are just occasional shoppers. We’ve found that nearly 90% of consumers who are satisfied with the special benefits offered by a retailer’s premium loyalty program will stick with that retailer over a competitor that is offering a lower price. When both the transactional and experiential benefits are desirable, more and more customers will take the leap and become premium members, further engaging with and staying loyal to your brand.

Tom Caporaso is CEO of Clarus Commerce.