Loyalty and membership programs are some of the most effective marketing strategies used by brands to reward and retain their customers. In a world of increased competition and skyrocketing customer acquisition costs, customer retention has become crucial for brands in recent years.

While loyalty and membership programs can accomplish similar goals for a brand, there are distinct differences between the two types of programs. Put simply, loyalty programs require customers to earn their rewards, while membership programs give customers immediate access to perks and rewards.

As a brand marketer, it’s important to understand the differences between these two types of programs and how they can be applied to your business. Depending on your business goals and target audience, you may decide to offer a loyalty program, a membership program, or a combination of both.

Loyalty Programs

Structure

Loyalty programs can typically be characterized as brand engagement programs that reward customers benefits based on their interactions with the brand. The simplest example of a loyalty program is the familiar punch card model of buy 9, get the 10th free. In a more modern loyalty program, a customer may earn points for every dollar they spend at a store, as well as through other less traditional actions, such as completing scavenger hunts, referring friends, leaving reviews, and more exciting activities. These points can be redeemed for benefits, such as free products, access to unique experiences, rewards from partner brands, and more.

Advantages

Loyalty programs typically offer a variety of rewards and benefits that are designed to make the customer’s experience with the brand more enjoyable and valuable. For example, a coffee shop may offer customers a free drink after they make a certain number of purchases, or a clothing retailer may offer a discount on a future purchase after a customer refers a friend to the store.

One of the key advantages of loyalty programs is that they can bolster long-lasting customer engagement. By offering rewards and benefits that are tailored to the interests of customers, these programs can encourage customers to continue interacting with the brand and sharing their experiences with others, becoming more engaged members of the community.

The vast majority of loyalty programs are free to join (or have a free-to-join component), making them a powerful way to engage a large portion of a brand’s customer base.

Another advantage of loyalty programs is that they can generate valuable customer data. By providing a free-to-join loyalty program with enticing benefits, the brand can maximize the number of customers that join the program and track their interactions with the brand, which provides insights into their preferences, behaviors, and needs. This data can then be used by the brand to improve its marketing and business strategies, as well as provide personalized recommendations and offers for customers.

Loyalty programs are also a way to surprise & delight customers. In a loyalty program, customers are rewarded for taking actions that they may have already taken otherwise, which builds trust and allegiance between the customer and the brand. As loyalty programs have become more commonplace, not having a loyalty program might be a dealbreaker for customers. A recent survey revealed that 63% of shoppers will not commit to a brand that doesn’t offer loyalty benefits.

Examples of Loyalty Programs

Successful free-to-join loyalty programs often offer a variety of rewards and benefits that are tailored to the interests of their customers.

Delta SkyMiles is a free-to-join, tier-based loyalty program. Customers earn miles by purchasing flight tickets, using a Delta SkyMiles credit card, or shopping with Delta partners. SkyMiles members can use their miles to purchase flights, seat upgrades, lounge memberships, buy vacation packages and more. Miles also enable customers to work towards Medallion tiers: Silver, Gold, Platinum, and Diamond. Customers with Medallion status get increased benefits like complimentary upgrades, free checked bags, and more miles earned per dollar spent. The SkyMiles program has amassed over 92 million worldwide members.

The Delta SkyMiles program is successful because a better travel experience is highly valuable to customers. Flights are expensive and infrequent for the average traveler — so it wouldn’t make sense to have to pay for membership into an airline miles program. The program creates strong incentives for brand allegiance — if a customer buys a flight on another airline, they won’t earn Delta miles to use on their next flight.

Sephora Beauty Insider is a free-to-join, tier-based loyalty program for cosmetic retailing giant Sephora. Members of the program earn 1 point per $1 spent at Sephora. There are three tiers: Insider (free-to-join), VIB (requires spend of $350/year), and Rogue (requires spend of $1,000/year). The Beauty Insider program offers three types of benefits to customers that join: savings, samples, and experiences.

Savings are straight forward — like the opportunity to redeem 500 points for $10 off, free standard shipping on every order, and access to members only discounts. VIB and Rouge members also have access to brand point multipliers. Many would argue that the second type of benefit offered in the Beauty Insider program, samples, is what Sephora is most known for. Members of the program can choose a free sample at checkout and get birthday gifts — a surprise & delight moment that introduces them to new brands. Finally, Sephora has an array of exclusive experiences for members. These experiences span from access to the Sephora app to exclusive product launches and events.

The Sephora program provides benefits that are highly customized for their customers. Cosmetics are typically bought every few months in one big purchase, meaning an average customer may not be coming back to Sephora frequently. However, they know that when they do need to restock their items, they wouldn’t go to any other store.

Membership Program

Structure

Membership programs require customers to pay a fee to join (subscription or one-time), which immediately provides access to benefits. These programs often offer customers a wide range of perks that go beyond what is offered by free-to-join loyalty programs. And because they’re paid, membership programs can afford to provide more valuable rewards for customers that join.

Advantages

Membership programs are designed to make the customer’s experience with the brand more convenient, enjoyable, and valuable. Benefits may include some of the same rewards we mentioned above, such as free or discounted shipping, access to exclusive deals and events, personalized recommendations, and other perks.

One of the key advantages of membership programs is that they provide a steady stream of revenue for the brand. And best of all, cash is received in advance of the benefits being offered, meaning the cash flow dynamic is favorable for the business (cash in before cash out).

Unlike loyalty programs, which may not generate any revenue directly, membership programs allow the brand to collect a membership fee from customers. Fee revenue can help the brand offset the cost of providing rewards and benefits to members, as well as fund other marketing and business activities.

Another advantage of membership programs is that they can offer customers exclusive benefits and rewards that differentiate the brand from its competitors. Memberships enable the brand to create compelling benefits like private events and raffles with high ticket items. These benefits are not available to non-members, which can make the brand more appealing to others outside the program.

Membership programs can also create a sense of customer affinity and commitment. Recent trends have shown that once a customer has monetarily committed to a brand, they’re significantly more likely to come back more often. A McKinsey survey on loyalty programs found that members of paid programs are 60 percent more likely to spend more on the brand after subscribing, while free loyalty programs only increase that likelihood by 30 percent.

Examples of Membership Programs

Successful paid membership programs demonstrate tangible value to the customer such that they are willing to continue paying for it.

Amazon Prime is a subscription membership program that costs $14.99 a month. The core value proposition of Amazon Prime is that members have access to same-day, one-day, and two-day free shipping on millions of items in store. Amazon Prime members are able to order nearly anything and have it at their doorstep in less than 48-hours. Not to mention that members also get unlimited access to Prime Video, Gaming, Music, Photos, and more.

From a customer standpoint, this is an undeniably good deal. The tangible value of this program can be felt from a member’s first order. It’s a magical moment when a package that a customer ordered that morning shows up the same afternoon.

Separately, Costco’s Gold Star Membership is a subscription program that costs members $60 a year. The Gold Star Membership offers customers access to exclusive in-store discounts and services, as well as the ability to earn cash back on certain purchases. In order to shop at Costco, customers must be members of the membership program.

For customers on a budget, the Costco membership has immediate value. For $60 a year, shoppers can save hundreds or even thousands of dollars in grocery costs per year. Costco is only able to offer products at such low prices because of the subscription revenue received through the membership.

Both loyalty and membership programs can help brands engage and retain customers. Brands must determine which type of program is optimal for their business and their goals. Loyalty programs can help brands build customer engagement, increase customer retention, and generate valuable customer data. Membership programs, on the other hand, can provide a steady stream of revenue for the brand and offer customers exclusive benefits that can differentiate the brand from its competitors.

As a marketer, it’s important to understand the differences between these two types of loyalty programs and how they can be applied to your business.

Know what type of program is best for your brand? Hang can help launch a loyalty or membership program without writing a single line of code.

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