Are Paid Memberships the New Loyalty? An Empirical Investigation of Paid Loyalty Program on Consumer Purchase Behaviors

Paying membership fees in exchange for membership privilege has recently gained popularity in loyalty program design. However, the effectiveness of such Paid Loyalty Programs (PLPs) has not been studied. The current research examines the impact of the PLP enrollment on consumers' spending and revenue contribution with a unique consumer-level transaction dataset provided by an online retailer, which adopted PLP during the sample period. With a quasi-experimental difference-in-difference research design facilitated by recent advances in Causal Forest machine learning methods, the authors find that average consumer's annual spending increases by 43% and contributed revenue grows by 67% after the enrollment. The authors further investigate the consumer-level treatment effect of the PLP and find that only about 60% of the consumers significantly increase their spending and revenue contribution after enrollment. When promoting their PLPs, retailers could benefit from targeting the responsive consumers who exhibit the following characteristics, shopping with the company at a moderate level, variety seeking, and sensitive to shipping fees and product prices. The authors also explore plausible mechanisms that explain the data patterns