Why it Pays to Belong: Fee-Based Loyalty Programs Work

Jan 3, 2014

Of all the loyalty programs reviewed and assessed over the year, those with an annual or one-time fee get very little attention. So I was surprised to read an opinion piece that focuses on the benefits of loyalty and rewards programs that charge members to join.

At the outset, charging customers to join your loyalty program may seem counter-intuitive. When almost every brand across every vertical is encouraging consumers to sign up for their free program, charging for this privilege sounds crazy. This model, however, can be a very sound one for some brands, including one in particular, AMC.

Is “Pay to Play” Right For Your Loyalty Program Members?

AMC Theatres, the movie theater chain referenced in the above opinion piece, is actually a Kobie client and a great example of a successful loyalty program that charges their members an annual fee.

AMC Stubs members pay $12 a year. For that outlay – a little more than the average cost of one movie ticket – AMC eliminates online ticket fees, credits customers $10 for every $100 spent and offers free upgrades for popcorn and drinks. For many movie-goers who visit the movies several times a year, the program easily pays for itself.

In addition to cost savings, the program is also extremely easy to access thanks to AMC’s mobile apps. In a nod towards the emerging digital wallet era, the app functions as both a digital loyalty card and a place to keep track of accumulated rewards and benefits.

While fee-based programs unsurprisingly have fewer members, a fee-based strategy can be used to attract and deepen relationships with those more likely to invest in the brand. Fee-based programs give brands immediate ROI but have less growth potential, while free programs can take time to build but have a higher trajectory. Neither strategy is right or wrong. It all depends on who you want to target and what you want to achieve.

In an attempt to gauge consumer interest in fee-based loyalty programs, comScore found that 49% of consumers have already signed up for an online retailer’s rewards program. Of that segment, 10% paid to join. Also, 22% of consumers who have not signed up say they would be willing to pay for an online retailer rewards program.

“Pay-to-play” can be a powerful behavioral motivator because members are immediately invested in the program and they’re eager to maximize the dollars they’ve spent to join, but strict ROI may not be the best benchmark of success or value. The O’Doyle Rules reviewed AMC Stubs a few years ago and pointed out the limits of cost-benefit analysis. Pay-to-play is not only about stretching a dollar as far it can go, but about creating an exclusive brand experience. Customers who are ‘invested’ in a fee-based loyalty program want more than just a transactional value to their experience, and as long as a company delivers that added value, paying members may be more willing to share data and receive communication. This, in turn, helps the brand offer more personalized rewards and a better loyalty experience. But return on dollars invested does not fully capture that experience.

In the age of loyalty program clutter and declining customer engagement levels, fee-based loyalty programs might prove to be the ultimate win for brands and their customers.

Mixing Models for Customer Engagement Success

Consider Landry’s and its loyalty program, Landry’s Select Club. The hospitality chain owns and operates more than 450 dining properties, including brands such as Landry’s Seafood, Chart House, Saltgrass Steak House, Bubba Gump Shrimp Co., Claim Jumper, Morton’s The Steakhouse, McCormick & Schmick’s, and Rainforest Café.

Landry’s loyalty program allows members to earn points and rewards at its participating restaurants in 35 states but takes a hybrid approach. While Select Club membership requires a one-time membership fee of $25, Landry’s also offers its most loyalty customers (i.e., highest spenders) access to the even more exclusive President’s Club. Membership status is reached by spending $7,500 or more with at least 3 restaurants during a 12-month period and includes benefits such as free valet parking, a $100 birthday reward and in the case of Morton’s, complimentary after dinner drinks.

Despite the success of AMC Theaters and Landry’s, fee-based loyalty programs aren’t for every brand. The same comScore survey I mentioned above found that 64% of consumers would not join a fee-based program. But for those that do, they can become a brand’s most loyal, highest-spending customers. Whether fee, free or hybrid solution, brands must determine which type of loyalty program works for them and their members.

The bottom line:

◝ Fee-based loyalty programs deliver faster ROI, as money is coming directly into the program from the start rather than accumulating slowly as membership grows.
◝ Pay-to-play motivates continued customer loyalty since members have skin in the game by paying for the service.
◝ Fees offset the cost of high-quality rewards.
◝ Invested members equate to quality members.

Fee-based loyalty programs create a platform for brands to engage customers in a more exclusive way and tap into brand equity that only exclusivity can create – but only if program offers the right balance of behavioral and emotional rewards that will, in turn, increase the lifetime value of those customers.

Does your brand operate a fee-based program? What are some challenges and best practices you can share with loyalty program managers and marketers? Share your insights below or email us at info@kobie.com