What is a Premium Loyalty Program, and are They Right for You?
Does it seem like more brands are wanting to have a DTR conversation with you?
In case you’re not familiar with the acronym, DTR means “define the relationship.” It’s a common terror in dating, and is usually initiated with a stern, “We need to talk.”
It means you’re going to have a discussion with your beloved about where the relationship is going. You emerge understanding you’re both on the same path, or you discover unreconcilable differences and agree to part ways.
In customer loyalty terms, the DTR is usually an internal monologue in which the customer decides if they want to continue to do business with you after a purchase.
Loyalty programs are designed to sway the conversation toward a long-term commitment. Or at least ongoing hookups. Whatever it takes to earn that next date.
Today, many businesses are initiating a serious, stern version of the DTR through premium loyalty programs.
As Jason Ankeny breaks down in this Retail Dive article, there’s a wave of these programs hitting the marketplace. Around 50% of the US population are members of Amazon Prime, and others are jumping in. Restoration Hardware, Barnes & Noble, Neiman Marcus, and many others have their own premium loyalty programs now.
These programs are flipping the traditional loyalty program model around. The traditional model is transaction first, benefits later.
With premium loyalty programs, members pay for the benefits up front, then make their purchases. They’re declaring their intentions from the outset by making a commitment.
It’s clearly worked for Prime and others. Will others succeed?
Membership Model Mania
We wrote last year about the influx of membership models. People are willing to pay regular fees to get the latest and greatest, on-demand. From Netflix to your local car wash, lots of industries have recognized the value of subscriptions: predictable revenue, frequent engagement, captive audience eager to find their own ROI, and so on.
Premium loyalty programs fit within this model, and they’re beholden to the same burdens: make sure people get enough value from their membership to keep them coming back.
For people to rejoin, they must receive relevant value and preferential treatment over non-members. Otherwise, they’ll churn after one term and the business is no better off than it was in the beginning.
The great thing about membership models is they lend themselves to self-promotion. Prove your value to enough subscribers and soon they’ll turn into your marketing machine.
Is a Premium Loyalty Program Right for You?
It depends on what you’re willing to offer. In the case of an online retailer, consumers expect free shipping. Prime set the bar high with free two-day shipping. They’re even playing with free same-day shipping for Prime members in certain markets.
That core offer then needs to be fleshed out with deeper member benefits. Prime offers up music and videos. The RH Grey Card program provides interior design consultations. Newegg Premier takes more of a no-frills approach, offering dedicated service and easy returns. (Premier is also half the price of Prime.)
Think of the opportunity this way: if you could create a members-only club consisting of your top 10% of customers, would you? What would you want them to have?
The more attractive your offering, the more that top 10% will grow.
But it’s important to begin with that core base of currently-engaged customers. If someone isn’t already interested in your services, a lengthy commitment probably won’t sway them.
Our suggestion is to revisit a core principle of subscription-based services: tiers.
Offer a free tier with basic rewards for customers who aren’t ready for a long-term relationship. Once you prove yourself (the DTR “discussion”) then bring them into the premium program.
Regardless, the basics of keeping a customer in the fold, whether they’re in a premium program or not, still apply. From the Retail Dive article, this quote from LoyaltyOne’s Melissa Freund:
“It’s all about how you treat [customers], and it’s about digging in and knowing them, working with them and delivering a better experience.
“For example, if you’re a specialty retailer for young men, they really value someone working with them in the store and helping them pick out certain clothing. Don’t do loyalty to them; do it with them.”
Topics: customer loyalty
Written by: Brandon Carter