Why It Might Be Time to Switch from a Loyalty Program to a Membership Model

Why It Might Be Time to Switch from a Loyalty Program to a Membership Model | The Sterling Woods Group

Elvis Presley. The Beatles. Beyoncé. These performers have done more than sing songs; they’ve built a powerful fandom. For their followers, it’s not just about the music. It’s about the persona behind that music.

This phenomenon speaks to the crucial difference between loyalty programs and memberships. Loyalty programs make you feel nice about getting a little something back from brands that you frequently shop with. Membership programs, however, build fervor around the brand. People go to extreme lengths to reap those exclusive rewards.

Retailers build up months-long waitlists for their coveted membership programs. Airlines have fliers with status zig-zagging across the country on connecting flights just to gather the miles to maintain their ranking. Some brands have created such a buzz that their members post unboxing videos of gifts and perks they receive that garner thousands of views online.

A great membership program speaks to the desires of a brand’s biggest fans and creates a following around the program itself.

Of course, the pandemic has changed a lot of what membership programs can do. Offering access to in-person VIP events is off the table. And with in-store shopping experiences paused or significantly altered, retailers can’t rely on those touchpoints to promote the membership or offer additional benefits.

So how do you go from loyalty program to membership, particularly in this current climate? Here are some tips.

Discount Programs Don’t Serve You or Your Whales

Most loyalty programs are very blunt instruments: If you visit X number of times, then you get something for free. Effectively, this is a discount.

Discounts alone don’t build true brand loyalty. They don’t create a community. Discounts attract cheapskates who want a good deal. They don’t attract your whales.

Credit card companies have learned this the hard way. The Wall Street Journal reports that banks are re-engineering their rewards programs because too many people are gaming the system. Customers are taking advantage of the signup bonuses, fee-free first year, and special loopholes, then canceling the card once it’s time to pay the annual fee.

There are some benefits to discount-based loyalty programs. According to Forrester Research, retail loyalty program participants spend, on average, $42.33 more than non-participants. (Note we use the word “participants” and not “members.”) And if you’re big enough, you can use the loyalty card data to inform your marketing activities.

Leaving the Discount Program Behind

But what if you’re not a giant company, like a CVS or Stop & Shop? For most brands, it’s hard to justify a discount card program. The brands that have moved beyond the discount card to true membership understand a few things.

These brands get that a one-size-fits-all approach doesn’t work and that they need to tailor benefits segment by segment. They realize they need a balanced portfolio of benefits that resonates with the target segment.

Discounts are nice but not sufficient. Remember that Forrester Research report? It also found that 69 percent of people who regularly participate in loyalty programs do so because they find special treatment important.

Think About What Your Customer Base Really Wants

The key to crafting a great membership program is addressing your whales’ needs and desires. In a post-coronavirus world, those may have shifted.

Safety is a top priority for many now. The ability to order high-demand items easily and get them on-schedule at one’s home is critical. Some want to make purchases that give back to the local community in this difficult time.

Creating a great membership starts with understanding your whales. In a volatile time, it may be best to reach out and ask them what they want and need. Customer surveys can help you understand how priorities have shifted and will allow you to craft a program that is sure to attract the attention of your top customers.

Be flexible and willing to test new offerings. As the pandemic continues to change the way we live, your top customers’ needs might shift again. Keeping an eye on customer data and remaining devoted to measuring and experimenting will ensure that you spot any opportunities early and can pivot quickly to stay ahead of customer needs.

How Sephora Got it Right

Let’s look at what Sephora did with its loyalty program. Sephora is a retail company that sells beauty products. In 2003, they launched a standard rebate/discount-like loyalty program. It took 10 years for management to realize, “Hey, this is pretty generic. We can do better. We need to do better. Retail is tough!”

Sephora went to the data and found one new piece of information other beauty retailers were not leveraging: The most enthusiastic followers of beauty celebrities aspired to be influencers as well. Instead of sending coupons in the mail based on level of spend, Sephora created a tiered Beauty Insider program. Each tier contains benefits relevant to that group’s preferences.

The basic Beauty Insider level is open to everyone. You’re upgraded to Very Important Beauty Insider (VIB) after spending $350 in one year. To get admitted to the elite level, VIB Rouge, you need to shell out $1,000 a year. That’s a lot of lipstick!

Yes, members in the program earn points that they can redeem for free products, but it’s so much bigger than that. And while some of the perks for VIB Rouge members have become less relevant with in-person special events on pause for now, the free shipping on any size order that comes with top-tier status is still a major draw during this stay-at-home period.

More importantly, VIB Rouge has become a coveted status symbol in the cosmetics enthusiast community. Fans aspire to attain this level. They brag about it online! There are even unboxing videos of members revealing their experiences with the program.

Sephora now has over 10 million Beauty Insider members and counting. They are performing well in a challenging environment for retail. In fact, they were named Retailer of the Year at the World Retail Awards in 2018.

Do you have a loyalty program? Be honest: Is it just a discount program in disguise?

If your members are going above-and-beyond to get invited into the program, that’s a sign that you’re on the right track. If you’re still in loyalty-program land, take a closer look at what your members are asking for, and design a program that makes them feel like they’re getting special treatment as part of an exclusive club.

About the Sterling Woods Group, LLC

The Sterling Woods Group’s mission is to help clients make sense of their data to predictably grow sales. We apply data science to help you optimize your sales funnel, improve your marketing ROI, launch new products successfully, and enter new markets profitably.

We use a hypothesis-driven, data-supported methodology to discover insights that no one else is paying attention to. Then, we help you assemble the right sales strategies, marketing plans, technologies, and resources to seize this opportunity.

About the Author

Rob Ristagno, founder and CEO of the Sterling Woods Group, previously served as a senior executive at several digital media and e-commerce businesses, including as COO of America’s Test Kitchen. Starting his career at McKinsey, his focus has always been on embracing digital technology and data science to spur strategic growth.

Rob is the author of A Member is Worth a Thousand Visitors and is a regular keynote speaker at conferences around the world. He has been featured on ABC, NBC, CBS, Fox, and Digiday.

He holds degrees from the Harvard Business School and Dartmouth College and has taught at both Harvard and Boston College.

Rob lives outside Boston, MA with his wife, Kate; daughter, Leni; and black lab, Royce.