Pay to Be Loyal

Who should be loyal to whom? The consumer to the brand? Or the brand to the consumer? A pretty heavy question to explore, isn't it? With many marketers pondering this question, I wonder why so many brands are changing their loyalty program strategy to include a "pay to play" component for their best customers. 

AMC Theaters just re-launched a program deemed a "loyalty program" where customers must pay an annual fee to be considered loyal to the brand and receive loyal customer benefits. A $12 annual fee buys any AMC customer benefits such as: free upgrades on beverages and popcorn, waived online ticket purchase fees, and a $10 reward for every $100 spent at AMC theaters.

AMC isn't alone:

  • Barnes and Noble charges its best customers $25 per year to get greater discounts on books.
  • Overstock.com's O Club gives shoppers 5 percent off on every purchase plus free shipping for a mere $19.95 annually.
  • Restaurants have used this strategy for years. With Lettuce Entertain You, the restaurants pay $25 up front to become a member of the restaurant consumer's loyalty program. Then, after the first visit, members get $25 back in a gift certificate.

This concept goes against everything fundamental to building loyalty, but yet those that employ these tactics will tell you that the core group of participants are extremely loyal: Higher average transaction by more than 30 percent, and more frequent purchases averaging 15 percent or more purchases (than those not in the program).

While the statistics for those who choose to pay are stronger than the average, what do we know about those who would be (and maybe are) strong, loyal customers who haven't paid or don't want to "pay to play?" What has happened to them? What was their potential? And, what do these programs do? They condition customers to expect a discount. Would these people purchase with you without the discount? What happens when they don't "re-up" their membership? Will they ever shop again? Additionally, do your loyal customers who choose not to pay, now feel that they are being taken, paying too much for a product that you can otherwise afford to discount?

Your BEST customers, you know them (or you should), are your top buyers and potentially your best advocates. Today's consumers recognize their value to you, and are smart enough to know that they deserve something for the loyalty they demonstrate. While it's true that a pay to play program will have very loyal members, outside of that membership base, a key group of valuable customers, who have truly earned their way to perks and privileges, is being ignored.

Some programs may be getting close in finding a successful way to integrate the two strategies. They have a free loyalty program and they have a pay to play program for VIP perks. But, what's so VIP if ANYONE can buy their way in? To blend the two together, your most loyal customers, at some point, have to have earned access to the pay to play perks (or better) without having to pay.

It may sound a bit semantic, but these strategies are not really "loyalty programs." They're buyers' clubs. There is a big difference! When done right, loyalty programs and initiatives add a surprise and delight factor to the customer experience--like receiving flowers after a great date. You can't create a buyers' club or VIP program without a core loyalty strategy. Without it, you miss your best customers, you miss building the relationship. Yes, you've created a repeat purchase, but it's not based on your product, loyalty, commitment, or service; it's based on obligation. As soon as your competitor creates a better club, one with more value and more discounts, you'll lose this customer.

This is not to say that buyers' clubs don't have a place in an overall loyalty strategy. They do. Once you have that core, you can add buyers' clubs or paid VIP programs, but only as an overlay to a core loyalty strategyone that is developed by exploring a few key issues such as: what will make your customers happy, their experiences better, and their lives easier? The answers unearthed by exploring these issues will arm you with the insights you need to create and implement programs that effectively build relationships with your best customers.

Caitlin Schar is vice president of account management at Loyalty 360, a marketing strategy clearinghouse and think-tank.

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