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Loyalty, To Fee Or Not To Fee?

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In this blog, Sarah Lewthwaite, Managing Director & Senior Vice President, EMEA, discusses her knowledge of free loyalty programs and Matthew Liebmann, Senior Vice President - the Americas, tackles what you can get out of a paid program. Ultimately they conclude that the right approach needn’t be black and white.

Rockin’ the free world

What makes a loyalty program effective comes down to how a company harnesses the guest data gained from it.  This could be in how a company uses the available data to identify trends and gains insights, improve the online and offline experience or to target guests with highly relevant communications, offers and recommendations. Regardless, the full value of a loyalty program is only realized when the use of guest data is maximized.

While ‘free’ loyalty programs may not appear to have a cost to them, your guests are still exchanging value with you.  The currency exchange may not be in Dollars, Pounds or Euros, but the exchange of data has a value and the easier you can make it for your guests to give this to do, the more data rich you will become.  Now I am the first to also say that it is not just about the quantity of data but rather the quality, and there are ways to ensure the data you are generating from guests is of quality, but that is a topic for another time.  What I believe is that you should be putting as few barriers as possible in front of your guests to sign-up for your loyalty program in order to get the richest data set possible for your cinema chain.

A loyalty program that costs money to join is an immediate barrier to some guests.  Fee-based programs are typically designed to reward your best or most frequent guests, however will your occasional or infrequent moviegoers see the value?  Someone who only comes to your cinema 2-3 times a year, may not be as willing to sign up for a program that has a fee attached as they may not perceive a return in their investment. Are you willing to risk losing out on capturing data from this crucial segment of your guest base?

When a program is free and easy to join and earn benefits, you will most likely drive more membership and will reach a wider cross-section of your guest base. Yes, you will also likely find that you may sign-up a segment of guests that become latent, and less engaged; yet understanding who this segment is can also provide you with some valuable business insights.  It is important to learn about all of your guests, not just your best ones.  That being said, you can still continue to carve out segmented strategies.  For example, you are still able to identify who your top guests are and treat them specially.  When you have such a plethora of rich data available, there are unlimited possibilities to segment and target.

Movio’s data scientists have also determined that the incremental contribution of a member within a free loyalty programme who receives a well-targeted offer is $0.38. While this is lower than the measured contribution of a member who belongs to a paid loyalty program ($0.61), when you multiply $0.38 across a larger member base, the net contribution to your bottom line will be greater.

While there are certainly other main factors and variables to take into account before making a decision whether to offer a Free or Paid loyalty program, it is important to understand that you may be making some sacrifices in the data if you head down a paid-program route.  And this might be one costly mistake.

She’s got a ticket to ride

A paid program will never have the most members but it will have the best ones: those who are most open to increasing their spend and frequency with you, as well as choosing your brand over your competitors.

Paid members literally invest in a program and, as with most investors, they want to get the most from their investment. They are more likely to be forthcoming and truthful when sharing personal information. Open and click-through rates typically exceed free members’ as they devour the latest targeted offer. More importantly than these engagement metrics, research undertaken by Movio’s data science team determined that whenever a paid loyalty member is extended an offer, they spend $0.61 in incremental revenue compared to $0.38 for the average free loyalty member.  That really adds up over the course of a year’s worth of offers to a membership base in the tens or hundreds of thousands.  And this is in addition to the membership dues.

A paid program can afford to be more generous because it has a war chest of membership fees. It needs to be more generous because paying members have higher expectations. These valuable rewards can be used at critical junctures to encourage members to live up to their end of the Give/Get Ratio between you and them. For example, the paid program I designed and ran gave members a free ticket but only once they had registered online. Our members had invested in the program and had a valuable reward waiting but couldn’t redeem it until they had provided necessary personal information to help us enhance targeting – in other words give them more relevant offers in a personalized way. As a result of this approach, the quality and completeness of our member data was exceptional.

Once a member joins a well-run paid program, you can also expect to capture a greater share of their ‘cinema wallet’.  In competitive areas, moviegoers have a ‘left versus right decision’ to make: your cinema or your rivals’.  Having paid to join your program, paying members will be predisposed to your brand.  As most exhibitors know, changing a guest’s preference is often the hardest behavior to shift.

In an industry where free programs are still the norm, a paid program can create cut-through in a competitive trade area through its differentiation.  This is particularly true for smaller players who have smaller membership size and more limited geographic coverage.  There really is a lot to be said for ‘zigging’ when all of your competitors are ‘zagging’!

I can see from both sides now

The Movio data science white paper ‘Successfully Target Your Campaigns’ describes the incremental value of each type of loyalty program's members. For example:

If we make a like for like comparison before any membership fees we see the following results:

  • Free loyalty member - $0.38 with 1 million members = $380,000
  • Paid loyalty member - $0.61 with 400,000 members = $240,000

A paid loyalty member produces a higher yield per member so is this worth the sacrifice of the other 600,000 members data? The reality is that you have a diverse guest base and offering one type of program over another risks alienating one group or another.  And the truth is that you do not have to choose: one exhibitor can offer free and paid clubs within the same loyalty program.

Aside from the simple benefit of offering choice, a combination of loyalty programs provides a solid base of free members to target and motivate into the paid club. The inverse is that should a paid member let their membership expire, they can fall to the free program where you can continue the relationship rather than lose them altogether.

The critical requirement for operating free and paid clubs is to have an integrated strategy. Operating them independently is a sure recipe for disaster and sets the clubs up for mixed messaging to guests and internal competition for members.  Rewards and benefits need to be well-calibrated so that there are clear value propositions for both clubs whilst not cannibalizing the more lucrative paid club.

Above all else though, understand your market, your competitive environment and most important, the end goals for your loyalty strategy will help you craft a loyalty program that will be most effective for your chain.  One size does not fit all, but understanding the give and take of a free verus paid loyalty program approach, will hopefully set you off in the right direction.

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