Brand Engagement
Rewards & Incentives
September 28, 2023

Pay to Play or Free to Stay: What type of loyalty programme is right for your customers.

Loyalty programmes have proven to be a powerful tool when it comes to engaging and retaining customers and is usually used to reward customers and incentivise repeat purchases.  


We want to delve into the world of loyalty programmes and specifically compare the two main categories: paid loyalty programmes and free loyalty programmes. We’ll explore their features, benefits, and drawbacks to shed light on which type of loyalty programme might be best for your business.  

Let’s dive in. 


Understanding Free Loyalty Programmes 


How free can a loyalty programme be?  

Free loyalty programmes offer benefits and rewards to customers without any upfront costs or membership fees. Customers generally sign up for these programmes at no cost, providing their basic information in exchange for membership benefits. 


Let’s check out the benefits: 


Free loyalty programmes offer several benefits for you and your customers.  


· They provide a sense of inclusivity and accessibility, as anyone can join without any financial commitment.  


· Customers can enjoy cost-effective rewards and discounts, which can contribute to long-term savings. 


Take AA Smartfuel for example, they understand that fuelling up is a necessity for most Kiwis. So why not make it a rewarding experience that customers can look forward to!  

· These programmes are also usually easy to understand and participate in, requiring minimal effort from customers to start earning rewards. 


What does successful free loyalty look like? 


Success within free loyalty programmes can welcome many benefits to your brand. Free loyalty programmes present compelling opportunities for marketers to drive customer engagement, retention, and data acquisition, while also opening avenues for cross-selling and word-of-mouth promotion. 


Many businesses have excelled in implementing free loyalty programmes that resonate with customers. For instance, Starbucks Rewards offers customers the opportunity to earn stars for each purchase, which can be redeemed for free drinks or food items.   


Another example is Rodd & Gunn’s lowest level of their tiered loyalty programme. It is free to join and provides members with benefits such as free shipping services spanning New Zealand and Australia, exclusive invitations to select Rodd & Gunn occasions, as well as an enticing 'welcome to the club' offer of a 10% discount for newly enlisted members. 

Unveiling the possibilities of Paid Loyalty programmes 


Paid loyalty programmes, also referred to as premium or VIP loyalty programmes, take a different approach by offering enhanced benefits and exclusive rewards to members who are willing to pay a membership fee. These programmes are designed to cater to customers seeking a higher level of personalised service, unique experiences, or exceptional treatment.  


This creates a sense of exclusivity and provides additional value beyond what is offered in free loyalty programmes. 


Benefits and Perks  


Paid loyalty programmes often offer a range of benefits that go beyond the standard rewards provided by free programmes. Members may receive: 


· priority access to new products  

· dedicated customer service support  

· exclusive event invitations 

· personalised recommendations 

· surprise and delight gifts 

These enhanced perks aim to create a sense of luxury and make customers feel valued.  


Notable Paid Loyalty programmes in our backyard:  


Several businesses have successfully implemented paid loyalty programmes. One prominent example is TheMarket’s paid membership, which provides MarketClub+ customers free shipping on orders over $45, exclusive coupons and birthday rewards.  


MarketClub+ is designed to cater to various customer preferences by offering flexible subscription options. Customers can choose between a one-month plan for just $5.99, a three-month plan priced at $15, or opt for an entire year of privileges at $50 with a convenient one-time payment.  


This transparent pricing structure appeals to customers who value avoiding the often-hidden costs associated with other loyalty programmes. 

Additionally, Living Rewards: Life Pharmacy and Unichems combined loyalty programme has a simple and enticing points system, where every dollar spent translates to one reward point. The more they spend, the more they get rewarded. 


They reward members with $10 vouchers when they reach 150 points, which can be garnered from both retail purchases and paid prescriptions. This reward system serves as a strong incentive for customers to keep coming back. 


One of the key strengths of the Living Rewards programme lies in the diverse product offerings of both Life Pharmacy and Unichems. As these stores provide a comprehensive range of both essential and desired products, customers find value in participating in the programme.  


By keeping their loyal customers satisfied with regular rewards, the programme effectively encourages repeat visits and fosters long-term relationships with the brands. 


Differences from Free Loyalty Programmes 


The difference between paid and free loyalty programmes lies in the level of benefits and exclusivity being offered. This differentiation can create a sense of exclusivity and encourage customers to invest in the membership. 


Weighing the Pros and Cons 


When it comes to loyalty programmes, it's important to make a wise choice. Which is always best done through a classic pros and cons list!  


For your business:  

You should also consider what your customers want from their loyalty programmes. Use your customer profiles to consider the following benefits and negatives from a customer's point of view. 


Free programmes are available to anyone which makes them inclusive for a broad customer base, removing any barriers to entry. They’re cost-effective – because they’re free!  

Customers can enjoy rewards and discounts without incurring any membership fees, contributing to long-term savings. Free programmes are also typically straightforward and easy to participate in, requiring minimal effort from customers. 


On the other hand, free programmes may have limited benefits; limiting the potential value and exclusivity for customers. Without the added incentives of premium benefits, customers may be less motivated to actively engage with the programme. Additionally, since free programmes are accessible to everyone, they are unable to create a sense of exclusivity or special treatment.  


Many customers are willing to pay for loyalty programmes if it provides value to their lives. 


Members of paid programmes receive benefits that aren’t available to non-members or participants in free programmes, fostering a sense of exclusivity. Paid programmes also often provide tailored recommendations and personalised services, creating a more individualised customer journey.  


Customers can be deterred by costly membership fees if they cannot see any value or are unable to invest. Because of this, paid loyalty programmes may be inaccessible to customers which can result in some customers feeling excluded. With a premium price tag, customers expect a higher level of service and value, placing greater pressure on businesses to deliver exceptional experiences consistently. 


By carefully considering these pros and cons, businesses can start to make aninformed decision on which programme structure suits their target audience and business objectives. 


Evaluating the Value Proposition 


When evaluating the value of loyalty programmes, it’s crucial to consider the alignment between the programme benefits and the preferences and purchasing behaviour of your target customers.  


Here are key aspects to examine: 


To assess the value proposition of loyalty programmes, businesses need to consider factors such as customer demographics, purchasing patterns, and preferences. Understanding what motivates customers and tailoring the programme benefits accordingly can significantly enhance its effectiveness. 


A successful loyalty programme should align with customers' needs and desires. For instance, if the target customers value exclusive experiences, a paid loyalty programme with premium rewards and personalised services may be more appealing. On the other hand, a free loyalty programme focusing on frequent discounts and rewards may resonate with cost-conscious customers. 

Examining case studies can provide insights into the effective implementation of both free and paid loyalty programmes. By analysing how these programmes have delivered value to customers, businesses can gain inspiration and identify strategies that align with their own goals and target audience. 


Choosing the Right Loyalty Programme for You 


Hereare the top tips we recommend when considering what angle, you and your business should take: 


· Understand your target audience.  

Conduct thorough market research to gain insights into your customers' preferences, purchasing behaviour, and expectations. 


· Design a programme with a clear value proposition.  

Ensure that your loyalty programme offers unique and desirable benefits that are aligned with your customers' needs and motivations. 


· Regularly evaluate and refine your programme.  

Continuously monitor and analyse the performance of your loyalty programme, gather customer feedback, and adjust to improve its effectiveness. 


Feel free to also consider a mixture of both free and paid loyalty. Companies we looked at today such as Rodd & Gunn, and TheMarket utilise tiered loyalty programmes to offer their customers different levels of rewards to meet the range of customers’ needs and expectations.  


In the ever-evolving landscape of loyalty programmes, the choice between paid and free programmes depends on various factors. Free loyalty programmes offer accessibility, cost-effectiveness, and simplicity, making them suitable for a wide customer base. On the other hand, paid loyalty programmes provide premium benefits, exclusive rewards, and personalised experiences, creating a sense of exclusivity for members willing to pay a fee. 


To determine the right loyalty programme, businesses must understand their target audience and design a programme that aligns with customer expectations while delivering value and fostering loyalty. 


Ultimately, the success of a loyalty programme lies in its ability to meet customers' needs and provide a compelling value proposition. By carefully evaluating the pros and cons of paid and free loyalty programmes, you can make informed decisions that result in long-term customer satisfaction, increased engagement, and ultimately, a stronger brand-customer relationship. 


At Rapport Group, our team is experienced in developing and optimising loyalty programmes that drive customer engagement and growth. If you're looking to develop a loyalty programme for your business or want to optimise an existing one, we're here to help! 

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