There has been a tectonic shift in both marketing strategy and consumer sentiment when it comes to loyalty models and programs for online retailers and ecommerce businesses. The trend toward paid membership and reward programs—as opposed to free or traditional “points only” programs—has significantly accelerated since the COVID-19 pandemic.
A recent study conducted by the strategy firm McKinsey & Company found that the demands of the pandemic have challenged customer loyalty and increased the value of paid loyalty or membership programs for companies that do them right. Since the pandemic there has been a “massive shock to consumer loyalty” according to McKinsey. One robust way that online retailers and ecommerce businesses can significantly bolster their overall marketing strategy is to effectively implement a paid customer loyalty program.
Paid membership programs are a proven way to enhance a company’s marketing strategy. Eventually, they might even represent the flagship tactic for overall marketing efforts. Customer loyalty represents a vital link to a business’s long-term success.
Best in class companies around the world are using these programs to build customer loyalty and retention. One of the main reasons for any organization—especially retailers and ecommerce—to promote customer loyalty as a critical component of its marketing strategy is that existing customers can grow a business faster than its sales and marketing teams.
More specifically, paid membership programs establish a sense of community and trust which leads to higher customer lifetime value (CLV) along with a higher average order value (AOV). Marketing campaigns targeted at paid members also enjoy significantly higher email open rates making them more successful. There is also a heightened responsive feedback cycle with paid members that can deliver valuable marketing data for analysis and machine learning (ML). Lastly, paid loyalty programs build on and offer highly regarded “social proof” and perceptions about the quality of a brand.
Each of these points will be discussed in turn below.
1. Creating a Real Sense of Community and Trust
Paid loyalty models foster a sense of community and trust between an online retailer or ecommerce brand and its most valued customers. It’s all about the relationship. This is demonstrated when customers choose to frequently return to a company because they find the value they are getting out of the “relationship” outweighs the potential benefits or lower prices they might get from a competitor.
Community and trust are established when a business can show customers how important their business is to the organization. Accordingly, customers tend to spend more money when they feel appreciated, important, and receive a high level of attention to satiate their needs. Paid loyalty programs also drive a high return on investment (ROI) because they are focusing their marketing efforts on establishing community and trust with their most valuable customers or members.
A recent McKinsey & Company survey on loyalty programs (McKinsey Consumer Paid Loyalty 2020 Survey) found that members of paid loyalty programs are 60% more likely to spend more on the brand after becoming a member. By comparison, free loyalty programs only increase that likelihood by half of that (30%).
Furthermore, paid loyalty programs drive higher purchase frequency, basket size, and brand affinity compared with free loyalty programs. In other words, an effective paid loyalty program can substantially increase both customer lifetime value (CLV) and average order value (AOV). Consequently, paying members—with a strengthened bond for the brand—may be worth several times more than non-paying members. This does not even include the additional revenue earned from membership fees.
The psychology behind these programs is simple: a paid membership provides a highly engaged customer with a special feeling of being recognized that connects at an emotional core or level. Also, if customers have paid for a loyalty membership, it makes them more likely to shop and fully take advantage of all the benefits of being an exclusive member or engaged customer.
Highly engaged customers make for the best customers. According to a recent study by Rosetta that polled 4,800 U.S. consumers on their experiences with 83 market-leading brands, the following was found:
- Engaged customers buy 90% more frequently
- Spend 60% more per transaction
- They are five times more likely to indicate it is the only brand they would purchase in the future
- Engaged customers deliver three times the value to a brand over the course of a year
The brand is increasingly at the core of the engagement experience. In The Loyalty Report 2018 released by Bond Brand Loyalty—a global customer engagement agency that specializes in building brand loyalty—it was found that 71% of members reported that loyalty programs are a “meaningful part of their brand relationship.”
Overall, a paid membership or loyalty program established by an online retailer or ecommerce enterprise is an attractive marketing strategy that establishes community and trust for increasingly connected and experience-driven consumers. It is an emerging loyalty model for acquiring new customers and establishing a stronger relationship or bond with long-term ones. It is a personal connection between a customer and a brand that is strengthened over time, resulting in mutual value.
2. Increasing Email Open Rates
Studies from several ecommerce platforms that have successfully integrated loyalty programs and email marketing modules have found that the “open rate” for emails tied to a loyalty program typically performs better than regular marketing emails. In fact, one loyalty program solution provider found that emails targeted at loyalty members performed 14 times (1400%) better than other emails.
Given the indisputable benefits and widespread popularity of email marketing— establishing a highly engaged, paid customer loyalty program with increased email open rates should be a no-brainer for any serious marketing strategy.
A well-thought-out email marketing strategy is going to make an online retailer or ecommerce business money. A study conducted by the Data and Marketing Association (DMA) in 2019 found that for every $1 spent on email marketing, an organization can expect an average return of $42. This is the “average” as opposed to emails targeted at highly engaged customers of a paid membership loyalty program.
An important factor that will affect the open rate for loyalty emails is the content of the subject line. This is key to getting the email opened. Consider doing the following to entice loyalty customers:
- Captivate the attention of the readers by communicating that they have rewards waiting
- Personalize the subject line as much as possible
- No hard selling
3. Responsive Feedback Cycle from Loyal and Engaged Customers
A major benefit of establishing a paid customer loyalty program is the ability to collect more marketing data about highly engaged customer preferences. Through a responsive feedback cycle, an online retailer or ecommerce business can glean significant data and insights from their very best customers.
Customer feedback can be delivered through various mechanisms such as email, forms, and surveys. Also, a newer marketing strategy “gamification” allows for the application of game-design elements to be paired with a loyalty program. When a retailer or ecommerce enterprise gamifies a loyalty program, it provides consumers with an incentive to purchase more frequently and to increase engagement by providing valuable marketing data.
A well-executed paid membership program can create the underpinning for a highly responsive customer feedback cycle. It can also be the bedrock upon which other valuable initiatives such as data-driven marketing and improved customer experience can be built. Fully integrated ecommerce platforms can leverage the data collected for serious analytics and insights that can form the basis for machine learning (ML) and artificial intelligence (A.I.).
In a recent article published by McKinsey the following question was posed: How do top-performing companies maximize the impact of their loyalty programs? The general answer was by focusing on customer behavior—segment by segment. Loyalty programs, properly designed and managed, can unlock significant value about consumer buying habits.
In the article, McKinsey discussed eight drivers of loyalty program value. One of the drivers stressed the importance of segmenting customers into manageable groups by behavior (as opposed to needs, values, or demographics). If done correctly, a behavioral segmentation becomes the foundation for creating personalized customer experiences. McKinsey noted that they have seen such initiatives yield increases of 10% to 20% in customer acquisition, 10% to 15% in long-term value/retention, and 20% to 30% in satisfaction and engagement.
4. Establishing Social Proof for a Brand
Another tactic that flows from a marketing strategy grounded in a paid customer loyalty program is the concept of social proof. It has been said that trust is at the heart of consumer loyalty—the confidence that consumers have in a brand and its products. One way of achieving that is through social proof.
Social proof is the idea that people tend to copy the actions of others in an attempt to emulate behavior in specific situations. This can be seen on full display when a celebrity or influencer recommends a product or service through a tweet or Instagram post. But social proof can also be established by incentivizing user-generated content—usually in the form of reviews or customer success stories—to build on the perception of a brand’s quality.
One way of doing this is by targeting and incentivizing a brand’s most loyal customers through a paid membership program. Because they are the most valued and highly engaged customers, it is easier to get them to provide positive content about the brand and its products.
To illustrate, today on the Internet, millions of consumers are posting reviews on popular review sites such as Google, Yelp, and Facebook. These reviews or social proof have become a major force influencing the reputation of businesses. In fact, a Harvard Business School study concluded that a 1-star increase in a Yelp rating increases revenue 5-9%. Obviously, social proof from loyal and avid fans of a brand is going to boost sales while driving recommendations to higher-margin products.
It's easy to see how a well-done customer paid membership program can be a powerful weapon in a marketer’s arsenal. This is especially true in the online retail and ecommerce space. Loyalty programs are all about harnessing the power of highly engaged customers.
Engaged customers are ideal because they have developed a genuine relationship with the brand through community and trust. They have a higher customer lifetime value (CLV), higher average order value (AOV), they open marketing emails at higher rates, participate in providing invaluable feedback, and offer social proof for other potential customers evaluating the brand.
An anonymous quote sums it up well: “Respect is earned. Honesty is appreciated. Trust is gained. Loyalty is returned.”
You can find parts 1 and 3 of this blog series below:
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