Should You Charge Customers to Enroll in Your Loyalty Program?
Loyalty programs are highly beneficial to both consumers and merchants. They give consumers incentives to do business with one company instead of another by providing them with attractive discounts and privileges. Many people join loyalty programs for the simple fact that it makes them feel like a part of a special club. Merchants also benefit from loyalty programs because they allow them to collect valuable demographic information about their customers, as well as data about their purchasing behavior and visiting patterns.
An issue of concern for many merchants is that loyalty programs cost money to implement. Therefore, many business owners wonder if they should charge consumers to enroll in their loyalty program to ensure that they receive a return on investment. Approximately two-thirds of all loyalty programs in existence are free. However, some businesses have found success with fee-based programs.
Free vs. Fee
Free loyalty programs are open to any customer who wishes to participate, while fee-based loyalty programs require a payment for joining. Free programs tend to attract a wide range of customers, including infrequent ones, whereas fee-based programs appeal to a smaller number of devoted customers. Ultimately, your decision between a fee-based program and a free program should depend on the objectives of your loyalty program.
If your goal is to attract a broad pool of customers to your loyalty program, then making your loyalty program free is a great choice. On the other hand, if you only want to engage with your most profitable customers, then creating a fee-based loyalty program may be a better option. Fee-based loyalty programs allow businesses to justify the costs associated with signing up new members, as they achieve a return on investment more quickly. The challenge with fee-based programs, however, is the difficulty of ensuring that the customers you want in the program will actually sign up. The fee is a barrier to entry for many customers, which leads to several lost opportunities.
Generally speaking, free loyalty programs are preferable to fee-based loyalty programs because they attract a diversity of customers and allow you to build an extensive customer database. Free loyalty programs typically attract three times the number of members that fee-based loyalty programs attract. It’s also easier for business owners to promote free loyalty programs because joining clearly provides benefits and poses no risks. On the other hand, employees have to do the work of selling customers memberships to paid loyalty programs, which can be a challenge. Free loyalty programs also eliminate accounting hassles.
Although fee-based loyalty programs achieve a return on investment more quickly than free loyalty programs, their long-term growth is modest because they tend to have a smaller membership size. Comparatively, free loyalty programs have a slower start but have far more long-term growth potential because they attract a larger number of members.
The choice between a fee-based loyalty program and a free loyalty program is ultimately yours, but it has repeatedly been proven that free programs achieve the best results in the long run. A free loyalty program will take longer to show a return on investment, but it will make your money back and then some, as long as it is well planned and executed.