The Return of the Membership Fee

Oct 14, 2011

As an industry, we can all agree that whether fee-based or free, loyalty programs are a win-win for both the consumer and the business.  Program members reap benefits in return for their patronage. Program sponsors get to keep customers and earn a greater share of spending in exchange for more efficiently allocated marketing expenditures, more in-depth customer knowledge, and improved sales.

This symbiotic relationship is often lacking in other marketing scenarios, and explains why the growth of the loyalty phenomenon has been on an upward trajectory since the early 1980s, while traditional media spend is declining.

The key to a successful loyalty program is driving engagement or participation in a meaningful and measurable way. At the same time, we want to ensure the program is profitable for the member and the business, and that a deeper and more meaningful customer experience results.

This sounds simple, but in today’s environment with changing regulations and economic uncertainty, combined with higher levels of unredeemed points on the books, there is a wave of change on the horizon.

I’d like to introduce you to the return of the annual fee.

The downside of program fees are as obvious as they are many:

  • It’s a barrier to loyalty enrollment
  • Many companies will think “this is not our brand,” or “our customers will not pay a fee for a loyalty program.”
  • Competitive pressures may make it seem impossible to introduce

I view it differently.  The point of a loyalty program is to identify, reward, and drive incremental behavior for your best customers.  The benefits of fee-based programs are twofold.  First, fee-based programs create a revenue stream that allows for richer and deeper benefits that simply can’t be delivered in a free loyalty program. Second, because members are required to pay a fee to join the program, self-selection is at work and the people who do join consciously track the value of the program and are more innately engaged.

Fee-based programs are nothing new and are prevalent in many industries including car rental, credit card, and retail. A good example is the new AMC Stubs program.  With its $12 annual fee, the incremental benefits and value of the program are clearly communicated and delivered as promised. AMC Stubs members earn more than 10% back on spend at the box office, concessions, online and at restaurants. Non-fee programs typically pay 1% back on spend, free upgrades at concession, and waived online ticketing fees.  All of the program value is communicated to the member in real-time at the POS and on the Stubs member site.  Other examples of fee based programs include Rewards Network, American Express Platinum card, Best Buy Reward Zone (until recently), and Barnes and Noble.

At Kobie, we recommend considering these questions for those consumers evaluating whether or not to join a free or fee-based loyalty program:

  • What’s it going to cost you? If it’s free, easy to join, makes it easy to earn rewards, and includes special offers and benefits that you’ll use, why wouldn’t you join? Depending on your spending level and if you like the products or services offered by the business, it makes sense to become a member.
  • Is the fee worth the squeeze? Fee-based programs are typically designed to reward “best customers” (i.e., those who spend more than average, or those who also spend with a competitor but could spend more if they were loyal to one business). Benefits of fee-based programs include special privileges (such as access to a special customer service 800# or Member Only events), or unique levels of service and convenience (such as first class security lines or upgrades).
  • Should you be picky? If you join six different programs within a category, the rate at which you will earn rewards in any one program could be slow and disappointing. Decide which program fits your needs best, then stick to that brand. You’ll be better rewarded as your promotional currency accumulates faster.
  • Have you read the fine print? Be sure to carefully read and review the terms and conditions of the program. Pay special attention to the privacy policies. The reality is, most rewards programs take extreme measures to protect the information they have collected, and the vast majority refuse to sell any information to a 3rd party. The risk is extremely low, while the benefits can be substantial.

We can help you strategize to get your consumers on board with your program, whether it’s free or fee-based. View our News and Insights page to see some of our thought leadership on all things loyalty.