Loyalty programs have been around since 1793, when retailers gave customers copper tokens to bring them back into the store. Loyalty programs have evolved since then, but the intent is always the same: To keep customers loyal.
But the loyalty stakes are steadily rising, and the game is changing.
Paid loyalty programs
Enter a new model: Paid loyalty programs, where, in a twist, consumers pay the merchant to join. These programs have elevated rewards structures and special perks like limited editions and early access, (hopefully) making them attractive to consumers.
Far from being unpopular, 76 percent of consumers are willing to pay for a loyalty program, benefits like free, faster shipping, instant discounts, and giveaways are the draw. It’s no longer an oddity arising from a crazy idea. Paid loyalty acceptance was ushered in by Amazon Prime, where 75 percent of Amazon shoppers are Prime members. If customers see value in the paid loyalty program, they’ll literally buy in. This reflects the value they perceive in the exclusive benefits and rewards offered by such memberships.
These programs also tap into psychological principles, far beyond points and discounts. To better understand why consumers are motivated to join a loyalty program, let’s explore why this strategy works.
The science behind why paid loyalty programs work
Sunk cost
When customers pay for something upfront, they feel compelled to make use of it to justify their investment. When faced with competitive choices, the idea to “get their money’s worth” prevails on decision-making, even if alternatives are a better fit or less expensive.
Perceived exclusivity
Paid programs often create a sense of exclusivity, making members feel they’re part of a select group with special access or benefits. They feel rewarded for their business vs. being treated like any other consumer. Personalized offers are expected.
Reciprocity
Customers who receive tangible benefits (e.g., free shipping, discounts) after paying for a program feel a sense of reciprocity and are more likely to continue engaging with the brand. They perceive the benefits as a “great deal.”
Confirmation bias
Purchasing from a brand where a consumer has made an investment confirms the logic for that decision. For example, a Walmart+ subscriber may prioritize shopping at Walmart to reinforce their decision to join the program.
How does this apply to non-paid programs?
These same motivators apply to all loyalty programs. Customers want to feel special, earn rewards quickly, and secure the benefits they deem most valuable. This can often vary by company. For example, offering early access to concert ticket holders is attractive, but doesn’t apply to QSRs. Alternatively, being able to send a P2P transfer to buy a colleague’s lunch (at a discount) is appealing for Chipotle fans.
Offering more to paid-for loyalty members can — and should — be differentiating. But that doesn’t always have to mean giving more discounts or inventing an all-new program. Loyalty Wallets can give loyalists meaningful rewards without shrinking margins or adding more teams. Top-tier loyalty programs can add a wallet option to give members an incentive to interact.
Loyalty Wallets have the same appeal
Accelerated earning
Program members reap the benefits of higher tiers without excessive limitations. By simply holding an average balance to pre-fund their next purchase, members can accumulate more points, more quickly.
Card-free payments
Paying with a Loyalty Wallet removes card networks from the equation, reducing merchant fees to near-zero. When members add funds to their wallet using ACH, direct deposit, or mobile check deposit, there are no fees for those future purchases. When it comes to payments, consumer convenience is the primary driver. Wallets make purchases fast and easy. Points and rewards can be funded entirely through network savings.
Better app experience
Top-of-wallet = top-of-mind. With a singular, branded app, members immediately see their earnings balance, steps to the next rewards tier, and special offers. The app can be tailored to each customer based on stated preferences or purchase patterns. Initial splash screens reaffirm rewards status and immediately available benefits. Adding financial services encourages more frequent app use, as customers can add open-loop cards for everyday purchases, boosting their points and status. Companies can also gamify the experience, driving even more interaction and transactions.
Choose the right loyalty program, and add a Wallet
A paid loyalty program is not right for every company, but rewarding loyal customers is. Regardless of structure, members need to feel special. Building a loyalty wallet taps into the psychological motivators, rewarding members by boosting value, reinforcing their decision to choose your brand, and offering meaningful benefits. All without massive disruption to your existing loyalty program.
