Why your business should use memberships instead of loyalty programs

Posted on December 2, 2020 by Andrew C. Smith

In the past decade, the familiar punch card — buy nine sandwiches, and get your tenth free — has transformed into an automated system allocating points-per-dollar, with loyalty rewards software that gives out free lattes automatically, without any up-front cost to the consumer.

But there’s another theory that says that the most effectively loyalty program is one that the customer pays up-front for. What if we said that you could stop giving away discounts for free?

How most loyalty programs don’t change consumer behavior

Most businesses generally want loyalty software that does a few basic things:

  1. Keep track of your customers’ orders
  2. Notify your customers about the status of their points
  3. Notify you and your customers when it’s time for a freebie

The basic premise behind these systems is that if customers are close to getting a freebie, they might come back one last time and pay for something just to get that extra bonus.

But how much do we think this really affects the customers’ behavior before that 8th or 9th sandwich? At that point, the customer is likely “loyal,” but you’ve already lost plenty of customers who only bought one, two, or three sandwiches before never returning. Why is it so rare to find a loyalty program that focuses on the customer after their first purchase — right when they’re most likely to bolt?

Withfriends captures your customers after every sale, and converts 5% of them into monthly sustaining members.

Case Study: Airline credit cards

Consider airline credit cards. It’s rare that an airline credit card is free after the first year. Instead, the cardholder usually pays a premium (frequently in the ballpark of $100 annually), and then subsequently might even buy a flight on the card-issuing airline when it’s more expensive than a competing airline’s flight. Why would a consumer buy something for more money, on top of paying an annual premium?

The answer is simple: they’re buying a membership, not a deal or a product. As a cardholder, the flyer gets to board first, they might get free itinerary changes, and they might get traditional “loyalty points” in the form of additional “airline miles” for booking with their airline credit card.

Use Withfriends to automate your benefits — including both subscription boxes and discounts — on Shopify, Square, and Eventbrite e-commerce stores.

How memberships will beat out loyalty programs

The membership model seeks to snag customers as members even as soon as their first purchase. We’ve implemented this at Withfriends with an automatic rebate for new members, essentially offering a one-time “deal,” and ensuring that customers are incentivized to return for a second and third purchase.

We’ve found that even a 10% overall discount will change customer loyalty if it’s well-placed. And what’s more, you don’t even need to give it away.

Offering a “membership” for a monthly premium and providing additional discounts for that membership will change consumer behavior, and get them to return for a second, third, or fourth sandwich without waiting for their tenth freebie. The overall cost to the business is the same (one freebie out of ten = 10% overall discount) but consumers are much more likely to sign on early.

What’s more, you can even charge for the membership program — even at a relatively low monthly rate of $3, which we calculate as 20% of an average order value of $15 — and make up for revenue lost to discounts. At a signup rate of 5-7%, your membership program will be bringing in additional monthly revenue, on top of giving your most dedicated customers a reason to return.

Let’s return to the airline credit cards. These airlines might give away the first year for free, but they lock in customers long-term even despite an annual fee. The customers feel more compelled to use the benefits of their airline credit card, and therefore become more dedicated customers, precisely because they are already paying for the benefit. It’s simple: people value what they’re already paying for.

By the end of the year, you could be bringing in over $15,000 in additional annual revenue, just by switching from a loyalty model to a membership model!

Questions? Let’s get started!

If you have any questions about this article, we’d love to hear from you! Drop us a line at team@withfriends.co, and while you’re at it get started setting up your own membership program. We’d love to hear what you think.

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Sell memberships for your small business, automatically.

Withfriends makes it easy to sell memberships for any business. Whether you run an online e-commerce store, a music venue, or a brick-and-mortar bookstore, you can use Withfriends to build sustainable recurring revenue for your business or organization.

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Curious who else uses Withfriends?

We've got everyone from music venues, to restaurants, to bands selling merch direct to fans, to farm-to-table produce operations on Withfriends.

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