Millennials See Fee vs. Free Loyalty Programs Differently

CINCINNATI — Have you ever joined a customer loyalty program? Upon joining, were you prompted to pay a fee? Chances are, if you’re a millennial, you took the plunge and paid the fee to reap the benefits.

A LoyaltyOne nationwide survey of 1,005 consumers in May revealed that millennials, aged 18-35, scored significantly higher than any other population segment for being open-minded about investing in loyalty program membership.

Key numbers from LoyaltyOne’s fee vs. free loyalty program research include:

• 62 percent of overall respondents said they would consider joining a fee-based rewards program if their favorite retailer offered one. This number was higher among younger millennials aged 18-24 (75 percent), and 25- to 34-year-old millennials (77 percent).
• 65 percent of overall respondents said customer rewards are worth paying for if they fit their needs. Younger millennials again rated higher (79 percent) than 25- to 34-year-old respondents (76 percent).
• Nearly half of overall respondents (47 percent) said the rewards in fee-based programs are better than the rewards in free programs. Sixty-one percent of younger millennials and 54 percent of 25- to 34-year-olds said this statement resonated true.

LoyaltyOne pointed out that some high-profile marketplace developments prompted its research. In early June, Walmart announced details on Shipping Pass, its new $50 per year fee-based delivery program, which is viewed as competition to Amazon Prime with its $99-per-year fee. Jet.com has also emerged with a membership-based shopping club that offers a lower $49.99 fee.

“These results should attract the attention of brands considering a shift to fee-based loyalty programs as marketers look for ways to create competitive differences and lock in customer spend against a backdrop of waning program effectiveness and engagement challenges,” LoyaltyOne Consulting Associate Partner Lance Du Chateau said.

He noted that the survey found 49 percent of overall respondents believe all rewards programs seem alike. Younger millennials (57 percent) and 25- to 34-year-olds (52 percent) indicated a stronger sense of program sameness .

“Brands have historically hesitated to explore new loyalty strategies because traditional programs were still novel in most spaces. However, this hasn’t been true for years. The perception that only a small minority shoppers will ‘pay to play’ is also a dated viewpoint,” Du Chateau said. “Forty-two percent of consumers surveyed have already paid to join a program and 62 percent of respondents said they’d consider joining a fee-based rewards program if their favorite retailer offered one.”

Some other key findings from the LoyaltyOne research are:

• 69 percent of respondents who currently participate in fee-based loyalty programs said they were enticed by free shipping, as well as special discounts (67 percent).
• Women (67 percent) have a slightly stronger belief than men (64 percent) that rewards are worth paying for.
• Respondents ranked grocery and mass merchandise (35 percent), credit card rewards (26 percent), travel (18 percent), specialty retail (13 percent) and restaurants (9 percent) as the categories that would be the most appealing to them if compelling benefits were available through a fee-based program.
• 32 percent of 18- to 24-year-olds and 34 percent of 25- to 34-year-olds said they have never been offered membership in a fee-based program, vs. 25 percent of the general population.

“The traditional spend-earn-redeem reward program doesn’t make sense for all companies and customers, and fee-based value propositions increasingly are a topic of conversation,” Du Chateau concluded. “More marketers should explore this approach.”

LoyaltyOne helps design and implement coalition loyalty programs, customer analytics and loyalty services for Fortune 1000 clients around the world.