Customer Loyalty: Membership-Based Programs

Now that we’ve established the importance of customer retention (see the June 1 “Retention is Paramount” post), let’s examine one of the most basic and common customer loyalty programs: Membership-based. Membership-based programs are common because they are simple and they work. Regardless of whether the membership is free or paid, membership-programs can be one of the most effective ways to retain customers. Membership programs can be either free (think grocery stores) or paid (think Costco and Amazon Prime). While free memberships are usually non-committing, offering loyalty incentives such as price discounts, paid memberships must offer exclusive and superior benefits or services in order to create loyal customers and encourage retention.

Amazon Prime offers its members unlimited free two-day shipping, along with other perks including free Kindle downloads and movie streaming, for an upfront fee of $79 per year. Existing free users of the site are usually retained through a “no strings attached,” free one-month trial of the otherwise paid Prime program. Customers are often satisfied with the service enough to not manually cancel their membership after the trial period, and accept paying the resulting bill that converts them into full members. This, of course, results in dramatic increases in retention, and even encourages positive word-of-mouth advertising. The resulting membership fees generate revenue and retention through the member fee and increased purchases (to utilize the benefits) from that site.

Word-of-mouth advertising is another key benefit of offering a free trial period to your otherwise paid, “members only” service. The chances of acquiring and retaining customers through paid membership based programs increase dramatically when a recently-retained customer alerts family and friends of the opportunity. While this soon creates a positive sales cycle, none of this is relevant if your product or service lacks. While it is not mandatory (but usually is beneficial) for businesses to offer a free trial, it’s a red-flag if you lack enough confidence that a trial period of the service can convert users into paid members. This, almost always, suggests a trip back to the drawing boards for your business to reevaluate its product or service and improve accordingly.

Membership based programs generate substantial amounts of customer data. Such data is essential for increased retention, as it can be used to better individualize marketing to existing customers. It can also be used to create more holistic customer profiles and information, which provides your business with key information to better target customers. This, in turn, encourages purchases and upgrades to paid membership options. Many businesses neglect utilizing customer data, which is one of the most substantial benefits of any membership based program.

Even the most basic information members must provide in order to attain their membership can be essential in understanding your customer base. Implementing a membership-based program to your business can be both simple and highly effective. Membership programs are not, however, the best customer-loyalty initiatives for all eCommerce businesses. Simple points systems, for instance, are superior for eCommerce sites that rely on small but frequent sales. Be sure to stay tuned to the blog for the upcoming more detailed posts on other such methods.