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Loyalty Programs Take a New Turn

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Retail Dive recently wrote about the upsurge of premium loyalty programs. The Great Recession had retailers scrambling for customers and sales. Coupons, discounts and loyalty programs were key in attracting hard-pressed shoppers looking for good deals and values.

Upscale retailers balked at this approach, which undercut their image, making it difficult to compete with stores that offered lesser or middle-of-the-road quality.

Gary Friedman, CEO and Chairman of Restoration Hardware, said in a recent letter to shareholders, “The multiple sale events and email communications do not reflect the brand we are building, nor are these promotions aligned with how our customers shop with us.”

As a result, Restoration Hardware is saying good-bye to traditional promotions, in favor of going with a premium customer rewards program, priced at $100 per year. Its new RH Grey Card offers shoppers 25% savings on all full-priced Restoration Hardware branded merchandise, along with 10% savings on clearance items, complimentary interior design services and reduced interest rates on its store credit card.

Paying $99 a year, nearly half of all American households are Amazon Prime members (this is from multiple sources). Bookseller Barnes & Noble has long charged members of its rewards program a $25 annual fee in exchange for exclusive in-store discounts, free express shipping online and other benefits. Many analysts believe Costco will increase its basic Gold Star Membership from $55 to $60, with the Executive Membership fee rising $10 to $120.

The same Retail Dive article quoted Matt Schulz, senior industry analyst at CreditCards.com, saying, “These programs are designed to get loyal customers into these stores more often, and they often work… if people are loyal customers of a store, they’ll be willing to pay for these types of programs—as long as they feel like they’re getting value. That’s the whole key: Offering them something of value, something that is unique to your store and that targets the customers’ wants or needs.”

Last year, a LoyaltyOne survey of over 1,000 consumers, found that:

* 62% of respondents said they would consider paying for a rewards program if their favorite retailer offered one. Among Millennials, the numbers jumped to 75% of 18- to 24-year-olds and 77% of 25- to 34-year-olds.

* 65% of respondents thought customer rewards were worth paying for if relevant to their needs. Millennials rated this even higher, with 79% of 18- to 24-year-olds and 76% of 25- to 34-year-olds in agreement.

* Almost half (47%) said rewards in a fee-based program were better than rewards in free loyalty programs.

According to 2015’s Colloquy’s Loyalty Census, Americans maintain 3.3 billion memberships in customer loyalty programs, up 26% from the previous study, conducted in 2013.

Affluent shoppers are the biggest users of rewards programs. More than 70% of American households with annual incomes over $112,000 have an Amazon Prime membership. Neiman Marcus’ InCircle program generates 40% of annual sales for the luxury retailer.

Premium loyalty programs tend to offer increased commitment from customers, who usually feel compelled to take advantage of the benefits they’ve paid for. They also offer instant gratification for customers, since benefits begin immediately without having to attain pre-set buying levels.

While free loyalty programs clearly eclipse fee-based programs, LoyaltyOne’s survey indicates significant consumer willingness to pay for additional benefits through membership programs when they perceive value. Many retailers are coming to believe fee-based rewards programs that offer enhanced benefits are a better service for their customers, while differentiating themselves from competitors.

People will pay a premium for things that make shopping easier. Take away their pain, and you’ll gain—loyalty and sales. 

TAGS: retail, retail trends, retailers,
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