Issue #7: Maybe Loyalty Shouldn't Be Free After All

The average consumer is now part of 18 loyalty programs. Signing up is checkbox-easy—sometimes you’re auto-enrolled without even noticing. Brands love to tout the sheer number of members as a badge of success, as if a bloated database of dormant emails (and sorry…dead consumers) equals loyalty. Spoiler: it doesn’t.

Somewhere along the way, the industry lost the plot with free programs. We’re signing up everyone, hoping for incremental lift across all cohorts, when in reality the gains come from a small subset of highly profitable members. The rest? Discount chasers whose “loyalty” is measured in coupons and limited-time offers.

Many brands originally launched free programs under the guise of getting customer data. But that’s a pre-digital era excuse when cash ruled and tracking was hard. It’s 2025. There’s no shortage of ways to capture data without spinning up an expensive loyalty program.

And make no mistake, this loyalty-for-all mentality is expensive. It’s why points keep getting devalued, expirations tighten, and benefits get watered down. The irony: those changes hurt all members, including your best ones. Consumers notice too. “Free upgrades” that never happen and perks that rarely materialize are giving loyalty a bad name.

Enter the paid (aka “premium”) program. As Robbie Kellman Baxter told me in our interview below, “Free programs ask for your loyalty over time…paid programs ask for your loyalty in advance.”

Paid models create a clear contract between brand and customer: pay a fee, shop often, and you’ll receive guaranteed, high-value benefits that justify the cost. It’s a mutual trust equation and when done right, everyone wins. A 2020 McKinsey study backed this up, showing that paid loyalty programs drove way more spend than free programs.

A few paid programs that work:

⛰ REI CO-OP – A one-time $30 lifetime fee. Members earn roughly 10% back, plus a mountain of relevant perks.
Why it works: No renewal hassle, clear value, perfectly tailored to the adventurer.

🎮 GameStop PRO – $25/year for 2% back, plus $65 in guaranteed rewards. And points can offset next year’s renewal.
Why it works: The math makes sense. You can easily recoup the fee if you buy regularly.

🪑 Restoration Hardware (RH) – $200/year for 30% off. Spend more than $666 and the membership pays for itself.
Why it works: Easy ROI math at checkout makes signing up a no brainer. And at RH price$, that threshold isn’t hard to hit.

It doesn’t have to be either/or. A clever mix of free and paid tiers can deliver the best of both worlds:

We’re already seeing this hybrid model take hold in new ways. Accor and Wyndham now both offer paid subscriptions layered on top of their free programs.

A few other hybrids that work:

🎟 AMC Stubs – Offers free and paid tiers ($17.99/year or the higher A-List monthly plan).
Why it works: Scales from casual moviegoers to die-hard fans, with guaranteed benefits for those who pay and ensures AMC doesn’t lose its proverbial shirt along teh way.

💊 CVS ExtraCare – Free for basic deals, or $5/month for enhanced benefits and a $10 monthly bonus reward. Long-ass-coupons come with both.
Why it works: The automatic $10 reward makes the $5 feel like a no-brainer as long as you shop once a month.

💳 Co-branded Credit Cards – Annual fees flow to the bank, but brands still profit from the partnership by the banks buying the points at a nice premium. Every swipe fuels the loyalty flywheel.

🌮 Taco Bell – They launch 1-month “passes” for select products at various times. Why it works: Drives short-term demand and allows them to control cost without the commitment of a long-term paid program.

A few other notable brands with hybrids: Barnes & Noble; Petco; Cinemark; Panera

Not every paid model is a success. Sweetgreen’s Sweetpass was killed after a few years in favor of just a free points program. It likely eroded margin and wasn’t driving the incremental trips they needed to justify it. The “how should we” matters as much as the “whether we should.” Pricing, value, and target audience must align.

At least Sweetgreen tried. Too many brands chase free-program vanity metrics instead of testing paid models that could drive deeper value. The more members you sign up for a free program, the more expensive your program is likely to become. And your CFO will be knocking on your door, asking you to water down benefits to keep it afloat.

Instead of asking customers to earn loyalty over time, see if you can get them to buy into loyalty from day one.

YOUR POV

Have you considered launching a paid program, either standalone or as an upgrade to your free one? What’s held you back from testing it?

Robbie is a renowned subscription expert, helping companies maximize their potential to build deeper, lasting relationships with their customers. She’s a consultant, advisor, keynote speaker, and host of “Subscription Stories” where she interviews business leaders about how they leverage subscription pricing and membership models. She is also the author of two books (highly recommend btw!), The Membership Economy and The Forever Transaction. You can learn more at robbiekellmanbaxter.com.

The interview has been condensed and lightly edited for space.

#1 SMP: Loyalty programs have traditionally been synonymous with “free.” Consumers don’t often consider paid programs like Amazon Prime to be true loyalty programs. How do you define it?

Robbie: When I think about loyalty programs, I think both points-based programs and premium or paid loyalty programs, which are a subset of subscription-based businesses. A subscription is really a pricing decision and it can take many forms. It can be your entire business (like Netflix), an add-on that enhances your experience but isn’t required (like Amazon Prime), or even a gating factor (like Costco). Subscriptions can also serve as trial mechanisms like Porsche Passport, which lets people drive different vehicles on a monthly basis and often converts new buyers. EA Games uses subscriptions to keep players engaged between full-game purchases. So, there are many ways to use a subscription model, and one of those is as a premium loyalty program.

#2 SMP: You’ve talked about subscriptions creating a “forever promise.” What does that mean? And can a free program ever deliver that same feeling?

Robbie: The “forever promise” is what justifies a “forever transaction.” If you’re asking someone to pay you continuously, you must deliver ongoing value, solving a recurring problem or helping them achieve a recurring goal. The payments have to align with the outcome. If the value is only episodic or one-time (for example, joining a professional association just for job hunting), the member will cancel once that need ends. The organization must define what ongoing value it delivers to earn that right to charge continuously.

#3 SMP: What are the biggest misconceptions or traps brands fall into when creating a paid membership or loyalty program? And are paid memberships and paid loyalty programs the same thing?

Robbie: In most retail or consumer contexts, they’re essentially the same thing. A gym or country club membership isn’t a loyalty program, it’s access. But when you pay for a better experience with a brand, it’s designed to drive loyalty. A paid program gets someone to commit to being loyal in advance. Free, points-based programs ask for loyalty over time — but paid memberships flip that. You’re paying up front for your loyalty. Brands often get this wrong. They see only the revenue potential and don’t think through whether the benefits are truly compelling. Another trap: not defining the behavior change you’re trying to drive. Paid memberships usually deepen relationships with existing customers, not attract new ones. You’re designing for your most engaged users, not for expansion.

#4 SMP: How can brands win with a paid model, especially without over-delivering and killing margins, as we saw with Sweetgreen’s former “Sweetpass”, where they admitted it was too heavily discounting to their best customers, and so instead moved to a free program.

Robbie: When modeling a new program, assume the only people who will join are your most active customers. Then ask: is it still profitable if that’s the case?
Example: EA Games sells games for $60. If they offer a $100 subscription for access to multiple games, that works great for players who used to buy one game a year, but not for those who used to buy two. You could end up earning less from your best customers.
Similarly, in the car wash industry, Uber drivers started using unlimited wash subscriptions daily which was an unintended behavior that required adjustments (e.g., limiting peak times). Brands also need to navigate internal conflicts: for instance, giving away “free soda” as part of a premium pass might cause friction with the food & beverage team, even if it boosts total profit. Teams should look at total business impact, not just departmental P&Ls.

#5 SMP: Can a hybrid model work — one that keeps a free program but adds paid elements?

Robbie: Absolutely. Free programs are great for data collection, engagement, and upgrades. They bring customers into your ecosystem, give you permission to communicate, and make it easier to upsell to paid tiers. Paid programs, on the other hand, are for deepening relationships with your best customers.
A brand might use the free program to nurture new or infrequent guests, and a paid program for frequent, high-value ones. It all comes down to knowing your segments and being clear about what behavior you’re trying to drive. The mistake brands make is saying, “Our membership is for all of those things.” That’s rarely true — you need to pick the number you want to move.

#6 SMP: With subscription fatigue growing, are consumers becoming more skeptical of paid memberships?

Robbie: Definitely. There are three main drivers of subscription fatigue: