Subscription-based services aren’t a new concept. Going back even a century ago, consumers were paying subscription fees for everything from milk deliveries, to weekly papers, to country club dues. But, for the most part, consumers during that time were only used to paying an up-front cost for items and services they deemed essential to their daily life. As time, technology, and consumer tastes evolved over the past century, the definition of essential also changed, especially in the retail and consumable media industry. With nearly one-fifth of all U.S. adults reporting going online “almost constantly,” businesses have a significant opportunity to capture the attention of a broad swath of Americans who are going online to consume media, shop online and browse products. As a retailer or a media organization, it becomes crucial to turn those one-time customers into super users. Even though that goal seems like a tall task, with so much competition, there is one tool that could be a key differentiator—the premium loyalty program.
Just like subscription-based programs of the past, like milk delivery, members of premium loyalty programs pay for the service upfront and instantly get benefits, unlike a traditional buy-first, benefits- later program. The most famous premium loyalty program, Amazon Prime, has become the gold standard of all loyalty programs—premium and traditional alike. The $99-a-year program currently boasts an estimated 80 million members and is projected to be in nearly 50% of all U.S. households. The results of their program are eye-opening:
- Virtually all of the $6.4 billion in subscription revenue Amazon recorded in 2016 came from Prime memberships; and
- Prime members, in addition to the $99-a-year fee they pay to join the premium loyalty program, spend an average of $2,500 on Amazon—nearly five times more than non-Prime members; and
- 91% of 1st-year members renew for a second year, and 96% of those members return for a third
With numbers like these, it’s clear how much of an impact premium loyalty can have on a company’s bottom line. Through an offering of seemingly endless premium benefits, (free 2-day shipping, Prime Video, Prime music, Prime Day exclusives, etc.), Amazon Prime members almost seem obligated to shop at the e-commerce giant, instead of another retailer, considering premium benefits and selection they’re receiving.
But Amazon Prime customers aren’t on an island on their own; regular consumers are hungry to provide a monetary investment to a company, if the return investment provides premium benefits and seamlessly integrate into their everyday lives. If you look at some recent studies, it’s clear that consumers are growing tired of the status-quo:
- Among millennials, who are expected to spend more than $200 billion annually by 2017, negative sentiment towards loyalty programs stood at 85%; and
- Sixty-two percent of respondents of a recent survey say they'd consider joining a fee-basedrewards program if their favorite retailer offered one. In fact, 75% of 18- to 24-year-olds and 77% of 25- to 34-year-olds say they'd do so; and
- The "you get what you pay for" mentality seems to play a role in the majority of consumer’s answers. Almost half (47%) say the rewards in fee-based programs are better than those of free programs, with 61% of 18- to 24-year-olds and 54% of 25- to 34-year-olds concurring
So with consumers saying they want a premium loyalty program, and admitting to investing more of their money with companies that provide that type of system, why aren’t more companies switching to this system? The simplest reason is that creating, maintaining and improving a premium loyalty program takes a lot of infrastructure and a ton of employee hours. Per a recent survey from Accenture, which spoke to top-level employees about their biggest loyalty program challenges, businesses faced four major hurdles:
- 40% of respondents said one of their biggest challenges is keeping up with the underlying technology or investing enough in technology; and
- 33% of respondents said one of their biggest challenges is keeping up with competing loyalty programs; and
- 33% said managing the liability and financial complexity of a loyalty program was one of their biggest challenges; and
- 30% said that they didn’t even have the extra staff or the right kind of talent to pull off a unique and differentiated loyalty program
With so many challenges, it’s no wonder why there are so many standard loyalty programs, but not enough premium loyalty programs. But, with the right premium loyalty program infrastructure, whether that be supported by an outside agency or built internally, businesses could see massive returns on their investments. Amazon Prime may be dominating the market right now, but with a strong focus on developing a competing program, businesses can be well on their way to setting themselves up for success.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.