Marketing
It's prime time for retailers to grow an Amazon-level loyalty program
Clarus Commerce CEO Tom Caporaso believes it's time for retailers to take advantage of the new membership economy.
January 20, 2021 by Tom Caporaso — CEO, Clarus Commerce
The launch of Walmart+ has proved beyond a shadow of a doubt that customers will pay a premium for exclusive, members-only perks.
In one recent survey of U.S. consumers, 1 in 10 respondents were already members of Walmart+ — an astounding feat, considering the service had only been around for two weeks when the survey occurred. Coupled with the finding that 45% of these new members were also paying Amazon Prime members, this data reveals a big opportunity for retailers:
Customers are making room for more premium loyalty programs, so it's time to take advantage of the new membership economy.
Can a premium loyalty program work for my audience?
The short answer is yes, and probably even better than you might think.
First, let's define what a premium loyalty program is. These programs give your most dedicated customers instant, 24/7 transactional benefits like discounts and free shipping, as well as top-tier experiences, in exchange for a membership fee. These programs produce higher engagement that can foster brand ambassadors. In fact, data shows that customers are vocal when they're loyal: 89% of consumers say they would recommend a premium loyalty program to friends or family members if the benefits were enticing.
It might be easy to dismiss the success of Walmart and Amazon's premium offerings as inevitable — after all, these giants have nearly unlimited budgets, the best resources and incredible reach. But there's also quantitative data that shows your customers are looking for more than traditional loyalty programs, and these opportunities can help you succeed.
● Premium loyalty members earn their title — 94% shop at retailers where they have memberships at least once per month.
● Joining one program just isn't enough. Nearly 70% of customers who already belong to a premium loyalty program will join another.
● Customers are ready for premium loyalty: 70% of consumers who are not in a premium program would join if their favorite retailer offered one and the benefits were valuable
But while there's an obvious demand for better and more exclusive loyalty programs, there's so much opportunity for retailers to do better in their existing offerings.
Apply elements of Prime to your loyalty program
It's possible to make an Amazon-caliber impact on your loyalty efforts if you apply lessons learned from retail giants at scale in your business. These four strategies helped the likes of Walmart, Kohl's and Sephora become successful — consider how they can help you, too:
1. Maintain a customer-first focus. Amazon's success with Prime is largely due to the way the company grew the program. From the beginning, the company focused on the biggest customer pain point — shipping — and slowly added to the program over time. Solving for the customer's biggest headache from the start built trust, and with membership already paid for, the additional benefits Amazon added over time have simply amplified customer loyalty. Takeaway: Focus loyalty efforts on the most immediate customer needs, and build from there. These can be pain points or just things that you customers value. What makes your customers unique, and how are you solving their novel challenges?
2. Offer instant benefits. Instant gratification is critical, especially in an age when customer attention is measured in seconds, not minutes. If you leave a customer waiting, they'll leave you. Our research found that 40% of consumers expect benefits after one purchase — not five or ten — and 60% said instant discounts are key to them joining a premium loyalty program. Big brands that use checkout offers and instant prizes for new visitors are reaping the rewards of instant gratification, as these tactics get customers through the first purchase and primed to sign up for a loyalty program or membership. And once they're in the program, things like instant discounts go a long way, as opposed to spending over time for rewards. Takeaway: Loyalty programs that wait to reward new members aren't as interesting to consumers anymore — find ways to incentivize customers more incrementally, including between purchases.
3. Keep members in the loop and continue optimizing. Big brands like Sephora, Macy's and Amazon focus as much marketing effort on retaining existing members as they do recruiting new ones, and it sets them apart. You can't walk into a Whole Foods without seeing a Prime logo. Even when on the highway, you can't go 10 minutes without passing a truck with the Prime logo on it. And on the other hand, these brands have all added to their programs over time. While Prime started with just free shipping, Amazon continues to add more benefits to the program. Sephora and Macy's have also made enhancements in recent years. Existing loyalty members should get regular updates about changes to your program, new perks and early access to sales. Takeaway: You need to continue nurturing relationships with your customers to keep coming back and enhance the program over time. You can't "set and forget" a loyalty program — you need to constantly optimize and promote new features. Walmart+ did this well around the holidays, when they made headlines for removing the $35 shipping minimum ahead of the shopping season rush, delivering on their promise to add benefits to the program over time.
4. Don't rule out charging membership fees for enhanced benefits. Smaller retailers too quickly dismiss premium loyalty programs like Prime and Walmart+ as impossible to execute on their scale. But there is more to consider. When customers pay to join a loyalty program, they are directly offsetting a cost — whether it be shipping or other enhanced benefits that free programs can't touch — and allowing the customer to receive the benefits immediately. At the same time, the customer is more willing to spend in an effort to recoup the membership cost, giving you more touchpoints to gain their favor. McKinsey recently found that members of premium loyalty programs are 59% more likely to spend more on the brand after subscribing, while free loyalty programs only increase that likelihood by 30%. Takeaway: Don't just assume a premium loyalty program is only for the biggest brands. Retailers of all sizes stand to benefit from the boost in spending that comes with premium loyalty membership. According to McKinsey, the value of a paying customer can be multiple times greater than a non-paying member, even if you take out the revenue from membership fees as a factor. Just make sure your members are getting enough value out of the program.
Retailers should focus on recalibrating their own loyalty mindset as they look to evolve their loyalty programs. With better messaging, more instant rewards and a mentality that puts the customer first, you have the opportunity to grow a loyalty program that's worthy of your customer's dollars.
Tom Caporaso is CEO of Clarus Commerce
About Tom Caporaso
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