Skip to main content

Premium or fee-based loyalty programs have been gaining popularity for several years now. Indeed, more and more companies are banking on these types of programs to gain and retain customer loyalty.

But how do premium programs differ from traditional free programs and how can they meet your business needs?

If you are wondering if this type of program might be right for you, here is some information to guide you in your decision.

What is a premium loyalty program?

This type of programs work differently from traditional loyalty programs, which seek to reward customers for purchases made in the past; in other words, the reward comes later.

Conversely, a paid or premium loyalty program is one in which your customers pay fees (often recurring) to become members in exchange for perks and benefits that they can use right away.

This type of program typically targets a smaller number of customers, the top 20% in fact, who are willing to pay a fee to enjoy specific brand-related benefits.

Common advantages and benefits of premium programs include:

  • Express and free delivery
  • VIP and concierge services
  • Continuous discounts or member prices
  • Privileged access or exclusive content for premium members

The benefits should be attractive enough so that your best customers are willing to pay to gain access to them. If members don’t take full advantage of the program, they simply won’t renew. Amazon Prime and PC Optimum Insiders in Canada are two well-known examples of premium programs.

What are the advantages of a premium program?

Both free and premium loyalty programs aim to increase the share of wallet (SOW) of customers by increasing purchasing frequency or average basket size and reducing churn rate. That being said, what specific benefits can premium programs offer businesses?

Firstly, in premium loyalty programs, the initial and recurring fees paid by members help to fund these programs in advance. If the program is well designed, it pays for itself upon implementation. These recurring costs can represent an interesting contribution to the company’s cash flow.

Secondly, paying customers are more active with the brand. According to a 2020 McKinsey & Company survey, members of premium loyalty programs are 60% more likely to spend with a brand after subscribing to a paid program.

Thirdly, premium programs offer direct access to your best customers. This type of program gives companies quality data and a direct link to the top 20% of their customers. This makes it easier to set up more personalized experiences, especially since you are actively targeting a smaller group of members.

The choice is yours

A premium loyalty program targets your best customers. These are the customers who buy your brand more frequently than the occasional consumer. This is why they are willing to sign up for a paid program in the first place.

However, their expectations are much higher, and the benefits you offer must be tailored to their needs. The data you collect on your customers will allow you to get to know them better and identify their needs accordingly.

Paid programs are very effective in further engaging your best customers and maximizing their customer lifetime value (CLV). According to a study by Clarus, 87% of consumers who are satisfied with the benefits of a retailer’s premium loyalty program are likely to choose that retailer over a competitor with a lower price point.

Not all customers will be willing to pay a fee to join a program, but instead might prefer to join a free program. It may therefore be interesting to start with a free program to gradually grow customer loyalty and to get to know your customer base before launching a premium loyalty program.

Over time, free and premium programs may very well coexist within the same brand. By combining the two types of programs, companies succeed in reaching most of their customers based on their specific needs.

However, each phase of the customer’s life cycle must be taken into account, not to mention every customer segment.

Members of the free program may well upgrade to the premium program. Conversely, if a customer decides to leave the premium program, he or she will still have benefits through the free program.

Loyalty programs at a glance

Whether you opt for a free or premium loyalty program, remember that it has to be easy to understand and use, while providing real value to the customer.

Here is a comparison between the two types of programs to better understand their respective objectives and purposes:

Traditional program Premium program
Structure Customers accumulate discounts (e.g., points) over time for specific purchases or actions. Customers pay fees (often recurring) to immediately access benefits.
Advantages Accumulated rewards lead to benefits such as discounts on future purchases or privileged access. Benefits are available immediately and continuously in exchange for a fee.
Target Targets most repeat customers. Targets the top 20% of customers.
Results Increases engagement rate, purchasing frequency, average cart, and recommendation rate. Increases engagement rate, purchasing frequency, average cart, and recommendation rate.

Need advice on what type of program to choose? We specialize in loyalty programs of all kinds. Contact us to learn more about our strategic and operational support services for businesses.