June 24, 2016
Loyalty programs are one of the most effective ways for merchants to boost customer retention. A study by Colloquy suggests that last year, US consumers alone held 3.3 billion memberships in customer loyalty programs.
In fact, more than 75% of US adults participate in customer loyalty programs like those offered by credit card companies, hotel chains and retailers and more than $50 billion in reward points and miles are issued by American businesses annually.
Although the numbers seem impressive, there is still space for growth for large retailers. As Edward Lampert, Sears Holdings Chairman and CEO, commented, Our loyalty program has fallen short. Getting people engaged and interested is super-important. We've built the platform, (but) we've fallen short on getting them engaged. We want to serve our members deeper. Sears’ lack of success with its loyalty program is now well-documented.
But for other retailers, loyalty programs are their lifeblood. Amazon and Costco are two notable examples. What is interesting in these cases is that unlike most loyalty programs which are rebate-driven, these programs actually force shopper payment upfront, essentially locking customers into loyalty. And in these two examples, a paid loyalty program works fabulously well.
RetailWire’s recent webinar on the ways paid-tier programs are stirring up customer engagement contains insightful results. The survey says that a whopping 96% of consumers would pay between $4.99–$9.99 per month for access to an additional, expanded array of benefits.
The same study estimates that 62% of all US consumers would consider joining a fee-based rewards program if their favorite retailer offered one, and 47% believe rewards in premium programs are better than those in free programs.
There’s one more example of a paid-tier loyalty program that is relatively unknown in the retail industry but has quietly achieved success. And that’s GameStop’s PowerUp Rewards program.
GameStop is the world’s largest specialty retailer of primarily new and used video games.
Its PowerUp Rewards program allows members to sign up for a free or paid membership that offers points earned on purchases in GameStop stores and the US website, which can be redeemed for discounts or merchandise. The Pro plan (its paid tier) also includes a subscription to Game Informer magazine, additional discounts on selected products and additional credit on trade-ins in stores. Its loyalty program has 49 million members, of which 9 million pay more for a higher loyalty tier.
GameStop’s loyalty program makes a significant part of the business. In fact, according to Forrester Research Analyst Sucharita Mulpuru, 75% of the GameStop store revenues are coming from those memberships. Moreover, 50% of transactions are reported to have a PowerUp Rewards card attached to them.
One of the benefits that paying customers receive particularly emphasized by Mulpuru is a video game magazine Game Informer, which now, due to affiliation with the reward program, has one of the biggest circulations of any magazine in America, even greater than magazine industry stalwarts like People and Sports Illustrated.
Indeed, the company claimed in the financial report of 2014 that Game Informer magazine is the fourth largest consumer publication in the US. The digital version of the magazine is the largest subscription digital magazine in the world. Game Informer is a part of the PowerUp Rewards Pro loyalty program as a key feature of each paid PowerUp Rewards membership.
The magazine is one of the most interesting parts of the loyalty program. Not only it is a great selling point for the company, but possibly another monetization tool that can create a stream of extra revenue from advertising.
In addition to the magazine, with the launch of the GameStop mobile app in 2014, smartphone users were able to browse an extensive product selection and experience an enhanced PowerUp Rewards dashboard. According to company’s estimations in 2014, the GameStop mobile app has been installed over 5 million times.
By locking their best customers with the paid-tier loyalty, GameStop is able to make itself the preferred shopping destination for its best customers in a highly competitive, digital industry, and it is positioning itself for revenue streams in adjacent businesses like media and mobile. Merchants would be wise to adapt their programs to be more like GameStop’s versus the money-back bounceback programs that are otherwise ubiquitous in retail.