In February, Urban Outfitters Inc. began testing a new brand loyalty-building tactic: a paid membership program. The program, called UP, charges an annual membership fee for a range of benefits like 15% off purchases, free shipping and returns, etc. The price tag of that annual fee is determined by the market in which the member lives. For the next six to 12 months, the program will remain in a test phase — meaning membership is currently only available in the test markets of Atlanta ($48 annual fee) and Dallas ($98 annual fee).
Why Is Urban Outfitters Trying a Paid Membership Program?
The launch of UP comes after a difficult year for the company (among many other retailers, from small businesses to household names — re: the global pandemic). Urban Outfitters’ Q4 sales dipped by 7% YOY, which is admittedly not a steep drop in comparison with other retailers. They made up for a lot of lost foot traffic in online sales, seeing a 50% rise in digital customers.
However, the company is still seeking new ways to revive lost earnings and encourage brand loyalty in its customer base. Loyalty building is probably a wise move. We’ve seen a lot of shifting loyalties in consumers in the past year, especially as brands were pushed to take a stance on political and ethical issues.
“UP is designed to drive increased frequency, capture a greater share of wallet, improve retention, provide opportunities for greater cross-brand exposure and selling and attract new customers. The ability to access benefits at all Urban brands, for the price of one membership fee, offers a key differentiator for our program.”— Richard Hayne, Urban Outfitters CEO
How Effective Are Paid Membership Programs for Retail & E-Commerce?
Well, in many ways, that remains to be seen — many businesses are still trying to rely on their existing loyalty programs to bring consumers back. These traditional programs are free, and require a member to earn points (usually by spending money with the brand) in order to unlock benefits.
But, those points-based systems are falling short these days, especially since the pandemic. Most households belong to a bunch of different loyalty programs. On average, households have 29 loyalty memberships, but are only actually active in about 12 of the programs.
Paid membership programs (sometimes called premium loyalty programs) show early signs of being the new and improved option for building brand loyalty. These usually work exactly the way Urban Outfitters has structured theirs. Instead of earning points over a long period of time to eventually redeem for rewards, members of paid programs pay a recurring fee to unlock benefits that can be used any time.
A survey done by McKinsey in 2020 showed promise for programs like these. Their results suggest members of paid loyalty programs are 60% more likely to spend more on the brand after subscribing. Free loyalty programs work about half as well, only increasing that return-to-the-brand likelihood by 30%.
“The landscape of paid loyalty programs is small today, but it’s expanding rapidly. Recently, major brands have launched paid loyalty programs to fund unique experiential benefits and offer an air of distinction to members.”— McKinsey
Urban Outfitters is joining a small group of brands jumping on the paid membership bandwagon, but they’re just dipping their toes in at this point. Other brands should be keeping an eye on how successful this trial period is for the company. It just might reveal whether charging a premium for unfettered access to perks is a better brand loyalty driver than traditional programs.