Lululemon, no stranger to loyalty, is now experimenting with a paid program. The membership fee is a hefty $128, higher than Amazon Prime’s annual rate. However, members get exclusive benefits including access to workout classes, free expedited shipping, and, of course, a pair of the brand’s signature leggings. The brand reported that current members have been highly receptive to the program and intends on opening the program to other markets this year.
Other retailers have also found membership programs to have clear ROI. For example, Restoration Hardware saw tremendous success when it shifted from a promotional to a membership model, with members accounting for 95% of its core business in Q4. However, the pay-to-play club remains small, as most retailers instead focus on removing barriers to entry for existing programs.
The big question is: will brands be able to maintain momentum and keep members engaged? A majority of consumers choose to unsubscribe from loyalty programs they no longer find relevant, emphasizing the importance of responding nimbly to shifting consumer preferences and fine-tuning rewards to embody the needs of a brand’s target audience.
In 2018, brands recognized the need to diversify loyalty rewards by delivering more than just monetary benefits: 61% of brands analyzed in Gartner L2’s recent loyalty report offered both experiential and monetary benefits, a 14% increase from 2017. Brands notably doubled down on experiential rewards, hoping to differentiate themselves with specialized services. Going forward, leading brands will be those that develop a holistic view of customer data and understand not only how to draw in new members but also re-engage existing ones.
Loyalty programs that charge membership fees such as Amazon Prime and REI Co-op have an explicit value proposition, allowing customers to immediate buy into elevated benefits. By choosing to put a price tag on becoming a loyalty member, brands are raising the bar for themselves, as customers who participate in paid loyalty programs demonstrate greater interest in a brand’s products and expect high-value perks. If executed successfully, paid loyalty works in a brand’s favor by securing the most valuable customers, creating a supplementary revenue stream from fees and laying the groundwork for personalization tactics.