The club concept: how to build brand loyalty

One of the biggest challenges for consumer brands is winning- and keeping- new customers. Big brands often use loyalty schemes to lock in customers, such as Nespresso’s subscription service or British Airways’ Avios rewards programme. But smaller scale can also be successful. Darius Alavi-Ellis helped create a paid-for member programme for cycling lifestyle brand Rapha. Now he’s collaborating with Oakley Capital portfolio companies including North Sails to help create their own programmes. Here he shares his top tips for getting it right. 

1. Why set up a loyalty club?

In short, humans are fundamentally social animals. Behavioural economics and psychological research have taught us that humans fundamentally crave a sense of belonging and meaning.”

Brands that help their customers feel like they belong to a team or tribe with a shared mission can increase their loyalty and lifetime value.  For the right brands, a formalised membership program, particularly where there are participative aspects such as running, golf, cycling or sailing, encourages customers to become members, and to stay closer to a brand.

2. How can brands benefit?

In so many ways. Enthusiastic members help acquire new members, resulting in lower customer acquisition costs. Once in, members are loathe to abandon the community and brand, resulting in increased retention and therefore improved lifetime value. In the case of Rapha, the lifetime value of our club members was up to nine times greater than average. Clubs can also lower your so-called ‘cost-to-serve’ resulting in higher gross margins, as members who meet and engage regularly with peers recommend products and give trusted advice, reducing their need to rely on customer service. Importantly, a club can also act as a framework to work with third parties that might not be possible for the brand as a whole. 

3. Getting the basics right

It may be stating the obvious, but the Club and its members must have a shared purpose and values i.e. “it’s clear why are we getting together”. There also needs to be a clear value proposition: new and existing members should easily understand what they are getting- will it have a bias towards ‘specialness’ and exclusivity via early access to new products or special events? Think about how members can join: paying a fee will help you cover the Club’s operational costs. Can they join automatically or must they be invited, creating a sense of exclusivity? And how can you incentivise existing members to recruit on your behalf? This can be incredibly effective. A study from Wharton University suggests referred customers have a 16% higher lifetime value and a 30% higher conversion rate than customers acquired from other channels.

4. Keeping it authentic

The most successful membership clubs have an explicit focus on inspiration and experience, underpinned by a commercial product offer. It’s important not to get these the wrong way round: inevitably you have to be mindful of the tension that exists between your brand’s internal objectives for organising a club and the external commerciality of the offer. The wrong emphasis can result in cynicism amongst existing and potential members. It can also cheapen your brand. For example, discount clubs with points systems are not ‘cool’, and your brand will end up giving away margin. In the case of Club North, we are 100% focused on creating events that inspire our members to do what they love most- kiteboarding- while we also offer practical support such as insurance and sail repairs.

5. Measuring success in your loyalty club

Focus on KPIs that help you measure customer value, brand loyalty and non-transactional engagement. We find regular RFM (recency, frequency, monetary) analysis of the members and non-members to be an easily-understood way to stay focused on positively impacting those things that really matter. In addition it can be powerful to track member ‘contact time’, or how long they’re spending engaging with your brand online or offline.

There are other, indirect measures of success. As two examples, ‘consumption’ and ‘creation’ focus on tracking participation and the value of what members consume and produce. This is done through measuring community traffic, new sign-ups, online contributions such as Q&A and other content for your club webpage, and helping to organise events.

If done well and woven into the fabric of a business, a formalised community can add to your competitive advantage and drive value through increased loyalty and engagement. For more information about how Oakley Capital can help you grow your consumer business contact us at enquiries@oakleycapital.com