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Fee based programmes can’t be ignored

A brewing topic in the loyalty world is the concept of “fee-based” or premium loyalty programmes. In the last 18 months, many notable loyalty programmes have adopted the pay-to-play (subscription based) model where members pay a recurring fee to stay in the programme in exchange for heightened level of service/experiences and/or product specific benefits that they can use anytime.

“Premium loyalty – a loyalty programme where members pay an annual fee for enhanced benefits that can be used right away.”

Clarus Commerce – Premium Loyalty 2019

Companies offering this model or type of programme in return benefit from a substantial revenue stream that affords them the opportunity to provide richer, more tailored, and relevant experiences. It has also been said that when members pay for a monthly service/subscription, they remain more engaged with a programme or brand than non-paying members. However, we believe this largely depends on the type of subscription model/programme (as we identified below, variation of this type of model) and what the associated benefits are. It is also largely debated whether or not fee-based programmes are essentially loyalty programmes.

Why do we say this? Well, traditional loyalty programmes exist to reward customers for specific behaviours (transactional or non-transactional). They encourage a behavioural change through incentivisation so if you are simply paying for benefits to receive them upfront, what are the behaviours you are looking to change or encourage?

We’ve identified 3 versions of fee-based loyalty models that exist:

  1. Pay and get (basic subscription / club model)
  2. Pay for loyalty membership (pay to join & enjoy benefits of a programme)
  3. Pay to upgrade loyalty membership (pay to unlock enhanced benefits of a programme)

 

1. PAY AND GET (BASIC SUBSCRIPTION / CLUB MODEL)

A particularly popular and effective offering model is known as a subscription model,

What are the unique characteristics of this model:

  • Relatively low monthly fees
  • Guaranteed benefits upfront
  • Not a loyalty programme per se
  • Access to benefits are not based on transactional behaviours

A subscription model offers members a wide range of benefits across various categories. They typically charge a low monthly subscription fee either charged directly to the customer or absorbed by the company as a cost of sale. They offer instant rewards and do not require customers to accumulate a loyalty currency making it an attractive alternative to a traditional loyalty programme.

In South Africa, the traditional club concept often includes a main “hook” for customers when joining a club in the form of affordable insurance such as funeral cover or basic medical / hospital cover. These are particularly popular in some of SA’s largest retailers who offer the club concept over and above their loyalty programme. A club concept aims to service the customers overall lifestyle needs by providing access to rewards and discounts at a variety of providers at a low fee. Similar to the retail club offering, Daddy’s Deals, an online platform offering daily deals and offers on an array of lifestyle products and experiences, also have a premium subscription, which, for a low monthly fee of R99, unlocks even deeper discounts (save up to 30% more), provides early access to deals & VIP call centre support to all its Club Daddy members. The discount level is so deep, that after purchasing just one of their deals, you can already make back the R99 spent on the membership that month.

It may be argued that a premium version of the club or subscription-based concept could include Amazon Prime. To access the Amazon Prime benefits, one needs to pay a monthly fee of $12,99. Without paying, you simply do not access the premium benefits such as fast and free shipping, free video streaming, etc. Amazon has no other rewards programme for members to join for free, other than Prime Rewards, which is solely linked to the Amazon credit card. Thus, making Amazon a very similar proposition to the well-known club offering.


2. 
PAY FOR LOYALTY MEMBERSHIP (PAY TO JOIN & ENJOY BENEFITS OF A PROGRAMME)

This model refers to having to pay to join a loyalty programme. Without paying a monthly or annual fee, you do not gain access to the programme.

This is particularly popular in financial services programmes or retail banking programmes as one of the main entry requirements (other than a specified product holding) to “play” in their loyalty programmes come at a monthly fee.

What are the unique characteristics of this model:

  • Monthly fees are required to join the programme
  • Guaranteed benefits upfront however, access to certain benefits are sometimes linked to tier status or behavioural activities

The first programme that comes to mind which mirrors this model is Discovery Vitality’s model. Discovery Medical Scheme or Life insurance policy holders qualify to join Vitality. Vitality’s fees range from R259 – R359 per month depending on how many beneficiaries belong to the main member’s policy. Members also pay additional assessment fees to further unlock Vitality benefits.

Without paying the monthly fee, members cannot access any of the benefits associated to Vitality such as gym, retail or travel discounts. Your Vitality status is not dictated by the fee you pay, but is rewarded based on the activities you complete or goals you achieve through the accumulation for points on an annual basis. There is no free version of Vitality other than their recent acquisition campaign called the Vitality open, where non-discovery members were allowed to join for a certain period of time.

Momentum Multiply & Sanlam Reality’s model are both similar to Discovery Vitality in that they are only open to policy or medical scheme policy holders and charge a monthly fee to participate in the programme.

Retail banks also play a part in the model. Retail banking programmes such as Absa Rewards, Standard Bank UCount and Nedbank Greenbacks also request a monthly card linkage fee to join their programmes. Again, without paying these fees, you are unable to use their respective loyalty programmes.


3. PAY TO UPGRADE LOYALTY MEMBERSHIP

The combination of traditional loyalty and fee-based loyalty co-exist here. We believe that the true level of premium loyalty exists when you create a version of your value proposition exclusive to those who really want it and are willing to pay for it.

What are the unique characteristics of this model:

  • Annual or monthly fee to join
  • Guaranteed benefits upfront
  • Base loyalty programme is free and rewards members for their transactional behaviours

These programmes are usually targeted at your loyal customers who are entrenched in your offering already but want more. They want more convenience and a premium. They are engaged in your programme already but want more.

Programmes in the last 12-18 months have adopted this, including leading international brands such as GameStop, GNC, WayFair and even Alibaba.

Let’s take a look at GNC. GNC, originated in the U.S, is a global specialty health, wellness and performance retailer. Their programme (USA only), GNC Rewards is a free programme allowing members to earn cashback on purchase. They also offer GNC Pro, an annual fee based version of GNC Rewards ($39.99 per annum), giving members guaranteed free shipping, product samples and extended redemption days to mention a few. Below, is the GNC table, available on their website comparing the two plans clearly showing the benefits of being on the free version vs. paid-for version.

GameStop, the world’s largest speciality retailer of primarily new and used video games, also offers a premium tier of their Power Up Rewards called the Pro Plan. An article published by Medici says the GameStop Power Up Rewards has 49 million members, of which 9 million of them are on the Pro Plan, contributing a large proportion to their overall revenue.

We believe that there is a place for fee-based loyalty to exist on their own or in parallel to existing programmes.

Recent studies by RetailWire (USA) have shown that up to 62% of customers would sign up for fee-based programme if their favourite retail programme offered one, with 47% believing that the rewards offered by premium / subscription based programmes are better than those in free programmes. This indicates that globally there is an appetite for more exclusive products and services, even if it comes at an additional fee.

So, whether they are called “loyalty” programmes or not it is almost irrelevant, so long as they can add value to your customer and to your strategy.