I think we’ve all heard the saying, “Rome wasn’t built in a day” and consumer loyalty is no different. With all the buzz in the market about paid subscription loyalty programs being on trend right now, the lines between a loyalty program charging a fee and a subscription service have begun to blur. Consumer desire for convenience and time savings as well as the traditional pricing incentives offered by subscription has created new demands. As brands consider jumping on the paid subscription bandwagon in search of opportunities to monetize brand loyalty and membership, it’s worth considering how the programs that currently enjoy loyalty program fame created a value proposition so compelling that members are willing to pay to join.
Amazon Prime: Turning a Customer Challenge into a Customer Benefit
Since Amazon seems to be the first mentioned in any paid subscription loyalty discussion, let’s start with Amazon Prime. Amazing program, right? Over 100 million subscribers, $119/year annual fee and members willingly pay without hesitation. It’s the kind of thing that makes other companies want their own $11.9 billion cash stream. Entertainment, virtual personal assistant, grocery, fashion, delivery, even their own co-brand and store cards with rewards—you name it, and Amazon does it.
Funny thing is, Amazon Prime didn’t become the booming success it is now overnight. Jeff & Mackenzie Bezos didn’t launch their little pay for free 2-day shipping program and wake up the next morning or even a year later to have every household in America clamoring to join. Actually, Amazon Prime launched just under 15 years ago, in 2005! When it debuted, the service was $79/year for free 2-day shipping. No one really wanted to pay for shipping, but as an e-commerce platform, shipping is a given and many customers don’t want to wait to receive purchases. Amazon Prime allowed Amazon to shift the emphasis from “I’m paying for shipping and I don’t want to pay for shipping.” to “I can get whatever I order, regardless of price in only two days!” Customers were no longer paying for shipping and instead they were willing to buy convenience and expediency and as a result bought more. It’s easy to forget, that Amazon Prime was just faster shipping for six years. That’s right, it was six years before they added access to digital streaming movies and television shows. With Prime members reportedly spending an average of $1,300 a year on Amazon compared to only $700 by non-members, Amazon has definitely found a formula that works. Amazon used a paid subscription loyalty model to overcome their customers’ resistance to shipping fees and over time it’s morphed into a membership that has become a household necessity.
So just to be clear, Amazon is definitely a big deal when it comes to loyalty and the paid subscription model, but they’re not the only ones who’ve made a splash in this space. A pay to play program isn’t one size fits all. There are several brick and mortar retailers who have found ways to entice their customers to pay for privilege and spend more. Sephora, Gamestop, GNC and RH (formerly Restoration Hardware) have all incorporated paid subscription loyalty in a way that resonates with their brand and their customers.
Sephora: Trailblazing the Beauty Frontier
Sephora has a beauty trailblazer reputation and originally launched their free Beauty Insider loyalty program in 2007. Two years later, in 2009, they added their VIB (Very Important Beauty Insider) tier for members who spent over $350 a year and in 2013, they rolled out VIP Rouge for members who spend over $1,000 a year. In addition to more rewards, VIP Rouge includes free shipping, which is otherwise $5.95 or $10.95 depending on speed of service selected. Recognizing that not all members are going to spend $1,000 a year, Sephora decided to pilot Flash Shipping, a paid 2-day free shipping program in 2015, similar to Amazon Prime, but at a fraction of the price. The membership is $10 a year, and pays for itself after just two shipments. The pilot showed Flash Shipping members spent twice as much as their comparable non-Flash counterpart, making the nationwide roll-out the following year a no-brainer.
According to Bridget Dolan, SVP of Omni Experience and Innovation at Sephora, “We found that when women hear about a product they want, they just want to buy it, they don’t want to amass a basket, or put it on a list to think about later. So this is how we are fulfilling that need for instant gratification”. Sephora has continued to grow their business, adding more rewards and benefits to its free Beauty Insider loyalty program, as well as Play! By Sephora, a monthly beauty box subscription, like Birchbox for $10 a month. Allegra Stanley, Vice President of Loyalty for Sephora, seems to have captured their message perfectly, “Our aim is to continuously adapt and grow our Beauty Insider program as clients’ needs and wants evolve. We are on a multi-year journey focused on raising the bar on client excitement and engagement in a prestige beauty loyalty program.”
GameStop: Making the Most Loyalty Customers the Key to Success
When it comes to other retailers doing it right, GameStop has proven itself a major player with over 55 million PowerUp members worldwide since its launch in 2010. Like Sephora, GameStop offers both a free and paid subscription option. PowerUp Rewards members get a number of benefits just for joining, but serious gamers looking to maximize their membership can pay $14.99 annually for the GameStop Pro, earn more points, bonuses and get access to exclusive reward offerings, additional discounts, and special promotions. They also amped up their personalization strategies which keeps the Gamestop experience relevant for members.
In the 2017 second quarter earnings call, GameStop CEO, Paul Raines, reported PowerUp Pro had added 1.5 million members in 12 months in the United States; noting the paid tier “provides significant value to its most loyal customers and is key to their success in driving pre-owned business, omnichannel businesses, and growth in Collectibles as its members represent over 70 percent of our sales volume. So, we know it’s working. Our omnichannel sales almost doubled year-over-year, and we’re using it to drive cross-platform connections…”
GNC: Using Loyalty to Help Bring your Brand Back to Life
In late 2016, GNC, one of the largest nutrition and supplements businesses in the country was failing miserably. Giants like Vitamin Shoppe and Wal-Mart were cutting into its profit margins and it was destined for disaster. As part of their company reboot, it got rid of its outdated Gold Card rewards program with multiple layers of member pricing and introduced a new, simplified and free loyalty program called myGNC Rewards, all of which was part of a larger initiative to improve the customer experience, promote customer loyalty, advocacy and grow frequency and basket size. Several months later GNC quietly launched myGNC Pro Access, its premium loyalty program for $39.99 per year, offering members additional perks, like free shipping, customized PRO boxes (with new products, samples and coupons based on the member’s lifestyle and goals), quarterly sale days and more. Even without a major roll-out, the program managed to enroll 325,000 members in four months and found that PRO members visited stores two times more than non-members; and purchased twice as much and spent significantly more than a regular non-PRO customer. They also post unboxing videos of their experiences with the customized PRO boxes—after you watch several, you’ll see that GNC really is delivering on the promise of a customized box based on a member’s past purchases. The program is now entering its second year and GNC continues to boost the myGNC Pro Access program, maintaining the annual fee and investing in enhanced member benefits.
There are those who dismiss the differences in member vs. non-member spend as self-selection – the customers who would have spent more anyway are the ones who become members. Self-selection bias is a frequent argument used against the value of loyalty programs. However, that argument breaks down when already high value customers also self-select to pay a subscription fee and the loyalty program becomes the hero for creating a new revenue stream.
RH: Paid Instead of Promotions
Unlike the majority of the brands noted above, RH only offers a paid subscription loyalty program in 2016—for $100/year. Initially many balked at the price, however with RH reporting 95% of its core RH business is driven by members, it’s hard to argue with its model. Per CEO, Gary Friedman, “Our lives are filled with complexity—and we long to break through the clutter to find simplicity. We want to shop for what we want, when we want and receive the greatest value. So rather than navigating countless promotions, we’re changing things… because time is the ultimate luxury.” RH eliminated traditional sales and promotions and instead RH members pay a flat fee to receive 25% savings on all full priced items, 20% percent savings on all sale items, complimentary interior design services, concierge service to manage your orders, early access to clearance events and preferred financing with the RH credit card. After just $400 of full-price merchandise, the membership discount is paid—and who spends less than $400 at RH? Certainly renewal could be a concern since most people don’t buy new furniture every year, but to date, RH is reporting the program continues to thrive and members value the benefits.
According to Matt Schulz, senior industry analyst at credit card comparison and information site CreditCards.com, “These programs are designed to get loyal customers into these stores more often, and they often work. Plus, if people are loyal customers of a store, they’ll be willing to pay for these types of programs—as long as they feel like they’re getting value. That’s the whole key: Offering them something of value, something that is unique to your store and that targets the customers’ wants or needs.” At the end of the day, brands want a greater share of customer wallet and a paid subscription program can create added value for both members and the bottom-line. Again, “Rome, wasn’t built in a day”, not every program can be Amazon Prime, but knowing your audience and building a program that solves or addresses their needs is something you may be able to put a price tag on.