Here's why paid loyalty programs are all the rage at stores and restaurants
LOS ANGELES - In an era where the high cost of living makes it harder for Americans to justify spending on unnecessary wants, various companies are banking on loyalty programs to keep customers in.
Paid loyalty programs are the latest trend emerging out of the restaurant and retail industries in which businesses want reliable sales in an unreliable economy.
This involves offering enticing perks to consumers who purchase memberships like free delivery or first dibs on exclusive new products when they are released.
An example is Target, which has set its sights on tackling its most significant competitor, Amazon.
The company announced last week that paid loyalty members for Target spend $49 a year between April 7 and May 18 and $99 annually after that, so they can secure free two-day shipping and free deliveries of orders over $35 in as little as an hour.
At a restaurant chain like Chuck E. Cheese, customers can choose between Gold tier and Bronze memberships, which provide food and beverage discounts and chances to win more tickets at their locations.
Loyalty programs make businesses more money
Target executives said the 100 million-plus customers enrolled in the company's free Target Circle loyalty plan already spend five times more than non-members. CEO Brian Cornell told The Associated Press that the hope is that the new paid membership "builds more relevance, more stickiness."
To combat churn rates, businesses often consider implementing fee-based loyalty programs for revenue growth. A 2020 McKinsey survey revealed that paid loyalty program members were 60% more likely to increase spending on the brand, compared to a 30% increase for free loyalty programs.
The startup e-commerce site Hive Brands, launched in 2020, aims to be the leading online marketplace for eco-friendly products. In January, it introduced a $60-per-year loyalty program to address infrequent shopper returns.
Members receive expedited shipping, a $120 credit for recurring deliveries, and priority treatment for inquiries or orders.
"Customer care is paramount for us," stated Hive co-founder and Chief Commercial Officer, Katie Tyson. "While we maintain democratic customer service standards across the board, our members will enjoy exclusive benefits unavailable to non-members."
Can loyalty programs backfire?
Walmart was the recent subject of complaints on social media from customers who noticed some self-checkout kiosks reserved for Walmart+ members, who pay $98 per year for free next-day and two-day shipping on many online orders.
RELATED: Walmart, Target limiting self-checkouts in some stores. Will others follow suit?
Walmart spokesperson Kelsey Bohl said that during times of limited self-checkout access, some stores were designating select self-serve registers for Walmart+ members using the retailer's Scan and Go app and for independent contractors who make deliveries and returns for the chain and other stores.
"The decision is intended to better manage checkout availability," she noted in an emailed statement to The Associated Press.
The Associated Press contributed to this story.