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07/13/2015

In Loyalty, Pay to Play May Be OK

By Pan Demetrakakes

A majority of consumers might be willing to pay to belong to loyalty programs as long as they perceive that they’re getting enough value for the money, according to a survey by loyalty program service provider LoyaltyOne.

The nationwide survey of 1,005 consumers revealed that 62 percent would consider joining a fee-based program if their favorite retailer offered one. Among consumers ages 18-24, that number jumps to 75 percent; with 25- to 34-year-olds, it is 77 percent.

Asked if they thought rewards in fee-based loyalty programs were better than rewards in free programs, 47 percent said yes. Again, those numbers were higher for young consumers: 61 percent of 18- to 24-year-olds and 54 percent of 25- to 34-year-olds said yes.

The survey asked which retail category would be the most enticing if it offered compelling benefits for a fee-based loyalty program. Of the five categories listed, grocery and mass merchandise scored highest, at 35 percent.

Lance Du Chateau, consulting associate partner for LoyaltyOne, says that the high visibility and frequency of purchase in the grocery/mass merchandise channel is the primary reason for its attractiveness in terms of potential paid loyalty programs.

“High-frequency categories play significant roles in the lives of shoppers to the point of becoming routine,” Du Chateau says. “Upgrading the experience in these categories feels more useful. Shoppers can say ‘I know I’ll use that enough’ versus wondering ‘will I really use this enough to cover the fee.’”

Du Chateau also says that grocery/mass merchandising is the category with the highest penetration of actual paid loyalty programs, like Amazon Prime. “Respondents are more likely to indicate a preference for a category in which they’re already involved and have experienced firsthand the tangible benefits,” he says.

The survey reinforced the notion that loyalty programs, especially paid ones, should ideally offer benefits that are unique, or at least uncommon—avoiding what Du Chateau calls “the traditional spend-earn-redeem” approach. Asked if they think all rewards programs seem alike, 49 of all respondents said yes. Again, those numbers went up for young consumers: 57 percent for 18- to 24-year-olds and 52 percent for 25- to 34-year-olds.

In grocery, discounts remain in high demand in loyalty programs, according to LoyaltyOne’s research. But there is an opportunity to enhance or move beyond discounts in grocery loyalty programs, Du Chateau says.

“Grocers have the opportunity to create differentiated and compelling benefits that are unique to their clientele, business model and service promise,” he says. “Specifically, these opportunities exist in the areas of delivery, advance order and pickup, automated replenishment of commodity items, or even more engaging experiences at the butcher or deli counters.”

From the retailer’s perspective, the whole point of a loyalty program is gathering and effectively using customer data. “Implementing a loyalty program without using the data effectively throughout the enterprise is akin to throwing good money after bad,” Du Chateau says. Fee-based programs can enhance this effectiveness simply by virtue of their upfront funding, which can mitigate the expense of executing a loyalty program, and by motivating consumers to stick with the store so as to get their money’s worth from the loyalty fee.

Other findings from the survey include:

Of the respondents who already participate in fee-based loyalty programs, 69 percent said they were enticed by free shipping, followed closely by special discounts at 67 percent.

Women (67 percent) are slightly stronger than men (64 percent) in their belief that rewards are worth paying for.

32 percent of 18- to 24-year-olds and 34 percent of 25- to 34-year-olds said they have never been offered membership in a fee-based program, versus 25 percent of the general population.

For more about LoyaltyOne’s services, click here