Are Pay to Join Loyalty Programs Like Amazon Prime Effective?

October 27, 2015
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Amazon Prime… this program has single handedly started a craze for online merchants looking to replicate the program for their own store. For those of you who are not familiar with Amazon Prime, it is Amazon’s form of paid loyalty program. Essentially you pay a yearly subscription to be part of the program and you get perks and benefits that are not available to standard customers.

There are countless examples online of stores running a “paid loyalty program”, but are they effective? In this post I will give you my personal opinion on pay to join loyalty programs. I will provide insight into when they are effective, as well as situations where they won’t drive the value you are looking for.

 

Pay to Join Loyalty Programs

I have a very strong opinion on these types of loyalty programs. I believe they only effective for certain types and sizes of online retailers, I will get into that later. First let me explain why I believe a free to join (points based) loyalty program is a more effective than a pay to join one.

1. First Time Visitors Will Not See Value

If you are shopping on a new site for the first time, are you going to sign up for a $79 subscription to receive some benefits and perks? I am guessing you answered no. It is highly unlikely that a new shopper will even consider paying to join a loyalty program if they have never shopped with you before.

Customers need to know that they like your products and trust your store before they will pay to be part of your loyalty program. This means that all browsing shoppers and first time customers (which account for 92% of your traffic) will see no value in paying to join your loyalty program. At least not at the start.

pay to join loyalty programs first time visitors

On the flip side, a free to join points program can actually help you convert more browsers to shoppers and set you up for future success. Instead of asking shoppers to pay to join your program you can let them sign up for free and actually reward them for doing so. When a shopper is given points for registering (especially if it is enough for an immediate reward) they will sign up to get the reward, and you will be rewarded with their information for future marketing opportunities.

2. You are Providing Value to A Small Group

This may go without saying, due to point number 1. A pay to join loyalty program is really only targeting a very select group of shoppers, mostly because of the benefits that are usually offered.

(common benefits image)

Benefits in these style loyalty programs usually revolve around providing value to frequent purchasers. These benefits include: expedited shipping, free shipping, discounts on products, free samples with purchase, and more. My problem with these rewards is they don’t make me want to purchase more, they help me if I am planning to purchase frequently though.

Getting expedited shipping is going to encourage me to purchase more from a store I already buy from frequently, and if I need to buy the ability to get these perks I am going to have to be a frequent purchaser already to justify my investment. This means that a pay to join program is very effective at increasing purchase frequency among your top customers, but does not necessarily provide any value to the majority. This is not a bad thing though.

pay to join loyalty programs traffic revenue

As you can see your top shoppers are providing your store with the most value. A pay to join loyalty program is good at maximizing the value of your top customers, but if you want a loyalty program to drive as much value as possible you need to focus on each stage along the path to customer retention.

 

When Are Pay to Join Programs Effective?

In my opinion a pay to join loyalty program is very similar to store branded credit cards. They provide additional value to customers who are already loyal to a store. The purpose of credit cards and pay to join loyalty programs is to get your best customers to shop with you even more than they already do.

pay to join loyalty programs maximize profitability

This means that pay to join loyalty programs are effective for stores that have an established customer base. They also perform well for stores that have lower margins and rely on sales volume. These types of programs encourage customers to both purchase more and more often. This makes pay to join programs very effective for stores like Amazon. They have a strong brand presence and rely on sales volume and frequency.

You can actually start a free to join points based program that will provide you with the benefits of a pay to join loyalty program without the drawbacks.

 

Why I Prefer a Free to Join Program

A free to join loyalty program can actually set you up to maximize sales from your top customers, just like a pay to join, without the drawbacks. This is if you set it up correctly of course.

1. Reward Customer for Registering

One of the most valuable things your ecommerce store can do is get a customer to register for an account, rather than checking out as a guest. This gives you their email and customer information. This arms you with the ability to market to them in the future, but getting a registered account is easier said than done.

In a free to join points program you can give your shoppers points for registering in your loyalty program (which also creates a customer account). A Smile.io client was able to increase registered account creation by 35% by using a points offer at checkout.

pay to join loyalty programs checkout

Rewarding for account registration becomes even more powerful when you give them enough points to claim a reward as soon as they register. This gives them an immediate reason to return to shop with you again, and one more purchase from a first time shopper is very profitable to your store. Getting this customer to return after their very first purchase is something that is very difficult to do with a pay to join loyalty program like Amazon Prime.

2. Tiers are Just as Effective as Collecting Payment

When a customer pays to join something they are making a commitment that they will want to stay consistent with our initial investment. This known as consistency theory and is a major driver of purchasing behavior. This is one reason paying to join a program is effective, but a similar commitment can be created by using a tactic called loyalty tiers.

A loyalty tier is a series of “steps” or “stages” that a customer can be entered into depending if they meet a certain criteria. This means that you can categorize your loyalty program members into different tiers and offer different rewards for each. A great example of this is the tiers in Sephira's VIB program.

pay to join loyalty programs tiers

With tiers you can set milestones to enter each tier, so rather than paying to get benefits you need to spend a certain amount on products, refer a certain amount of friends, or earn enough loyalty points. This creates an element of gamification that will get your customers striving towards those top tiers. When a customer works towards a goal they will be much more committed and “loyal” to your store than if they simply pay to get it.

When you have tiers you are encouraging all members to strive for the next tier, and you can give your best customers (in the top tier) your best rewards like free shipping to maximize their value.

3. Reward Different Actions Along the Customer Journey

With a points based loyalty program you can reward points for different actions that help move a customer through the complete customer journey. Depending where a customer is in their journey they will be motivated by different rewards.

With a points based program you can reward points for different actions, that way your customers can engage with the ones that are appealing to them. When you use a pay to join program you are only providing value to a select group of people. This leaves a lot of your customers feeling left out.

A free to join points based loyalty program is a lot more flexible and versatile than an Amazon Prime style loyalty program.

 

Which Type of Program is Better?

This piece is meant to show my personal opinion about these two types of loyalty programs. I personally like the flexibility a free to join points based program provides. It allows you to engage a wider range of customers which can really boost your retention rate and profitability.

The objective of a loyalty program is to well, create customer loyalty. When a customer has to pay to enter a program that is not creating the emotion of customer loyalty. I hope I have presented enough information to come to your own conclusion.