Why Membership Beats Loyalty For Retail + Hospitality Businesses

I started Submatic to help retailers, restaurants, and service businesses boost customer retention and loyalty. Here are some thoughts on why subscription membership is more impactful than loyalty.

Subscription membership programs have become increasingly prevalent in our lives. There are over 150 million Amazon Prime members in the United States, that’s nearly half of the US population. Many other businesses offer similar programs including:

  • CVS: Carepass
  • Walmart: Walmart+
  • Panera Bread: Unlimited Sip Club
  • Pret a Manger: Pret Coffee Subscription
  • SweetGreen: SweetPass
  • Bed Bath & Beyond: Welcome Rewards +

These programs serve a similar purpose as loyalty programs: to incentivize a customer to purchase from a business more frequently. However they are set up differently. A typical loyalty program is free to join and offers benefits once a customer meets a certain spend threshold. A typical membership program has a cost associated with joining and the benefits become available immediately for customers that enroll.

The key difference between a loyalty program and a membership program when it comes to influencing customer behavior is the timing of the benefit. With a loyalty program we tell our customers: “come back to my store, buy this product nine more times, and you’ll get a reward”. This can work and some customers will return to purchase more frequently than they would have otherwise, but this type of loyalty structure does not create an immediate hook that captures the customer’s attention. Here is a quick survey to demonstrate this point:

  • How many loyalty programs are you enrolled in?
  • Of the loyalty programs that you are in how close are you to a reward?

It was probably difficult for you to come up with an accurate answer for the first question. We all join loyalty programs and then forget about them. I usually join one if it’s offered and it’s easy to enroll. I might be in ten or twenty or more. For the second question you may have an idea of this for some businesses that you frequent but it’s most likely only if you recently joined the loyalty program, recently received a reward, or received some notification that you are close to a reward. Loyalty programs do a mediocre job of nudging customers back to buy from a business because of the long period of time between enrollment and reward.

On the other hand membership programs create an immediate and repeatable incentive for a customer to purchase from a business. Take CVS Carepass for example which costs $5 per month, and rewards customers with a $10 store credit in addition to other discounts and benefits. When I joined Carepass I got to use the $10 credit immediately. There was an instant gratification and satisfaction from knowing that I had already saved $5 by joining the program. That was a good feeling and when I received an email the next month with my $10 store credit I gladly returned to CVS to save another $5. CVS is happy with this arrangement because they create a meaningful incentive for me to go to CVS more often than I would otherwise. They know that I will likely spend more than $10 per month at their stores (which I do).

One challenge for a business with a membership program is that it can be difficult to ask a customer to spend money to join. It’s important for the business to structure the pricing and rewards in a way that creates value for the customer. In the Carepass example, the CVS employee that first informed me of the program asked “Do you want to save $5 at CVS every month?”. There was a clear value proposition for me since CVS sells many products that I buy regularly. A business may also create multiple membership levels at varying costs and with different benefits to capture distinct customer segments.

If you are interested in creating a subscription membership program for your business Submatic can help. Request a demo here