I received a promotional email from Uber the other day, inviting me to purchase a pack of flat-rate fares for use in downtown Seattle. The offer was simple: pay a flat “activation” fee of $5 to get 10 “City Pass” uberX rides at a flat rate of $4.49 over the next 28 days. I thought this was a clever pre-pay offer, but soon realized it was actually a loyalty play.

At its heart, every loyalty program is an exchange in which the customer spends more money with a company and the company rewards them with discounts or high-value benefits. This exchange can come in different forms, such as a customer visiting more frequently or spending more at each visit, but the end result is a company gaining a greater share of the customer’s wallet and customers receiving something they highly value. That’s the deal.

What makes the Uber City Pass unique is that it flips the loyalty program mechanics we’re used to. Rather than spending our way toward discounts like most loyalty programs (everything from Nordstrom Rewards to Air Miles to your local cafe’s punch card), Uber offers the discount benefit up-front to secure minimum revenue – in this case, 10 rides for the discounted price of $49.90 (including fee). While only the $5 fee is guaranteed revenue to the company, odds are high that customers will want to take full advantage of this time-limited offer.  By securing their customers’ commitment to 10 rides over four weeks with Uber, the company stands to gain share of wallet over competitors, and increased frequency of customer rides. A pretty savvy move and solid deal for the company.

The fee-for-discount model isn’t new – Restoration Hardware’s Members Program offers an across-the-board 25% discount on full-priced merchandise and 20% off sale prices in exchange for a $100 annual fee – but timeboxing the customer benefit in a unique spin on the traditional fee or membership models.

If this works, Uber could innovate the model further or even take a hybrid approach.  Personalized offers could target low-frequency customers in order to drive (ha!) increased ridership. Passes could also help customers progress through the early phases of their lifecycle by speeding up how long it takes them to get to specific usage targets (for example, getting more new customers to complete X rides within their first month). Both Starbucks Rewards and Canada’s Shoppers Drug Mart Optimum blend traditional earn-and-redeem with personalization very successfully to drive increased program engagement and revenue.

As brands try to find the secret sauce to customer loyalty, the Uber City Pass is a good reminder that loyalty can look different as long as the outcomes – increased customer visits and revenue – are met. Perhaps it’s time for more companies to lay down their punch cards and rethink the old loyalty program models.  

Popular Loyalty Program Models

1 – Spend-based

How It Works

Customers make purchases up to a set amount, then earns a reward (generally a dollar-amount discount or free item), which they apply to a future purchase. While most programs use branded rewards cards that scan at the register to track purchases, some restrict qualifying purchases to store-branded pre-paid, credit, or debit cards.

Examples

 

2 – Payment Card Rewards

How It Works

These types of programs generally take one of two forms, depending on the brand. The most common is that customers make purchases with branded debit or credit cards and receive instant discounts in-store on each purchase. Since customers are using store cards to pay, the rewards are usually more generous than those earned with scanned loyalty cards.

The second option is seen most often among “occasion” brands, like hotels. These card programs accumulate rewards based on any spend, but customers see faster accumulation on brand purchases (like spa services at the hotel).

Examples

3 –  Member Exclusives

How It Works

Customers use a membership number during purchase in order to receive benefits with high perceived value like access to exclusive events and content, and free shipping of online orders. One notable exception is Safeway, whose Club Card grants “member pricing” discounts on certain items.

Examples

4 –  Fee-for-Discounts

How It Works

Customers pay an up-front fee in order to access across-the-board discounted prices for a set amount of time. This is often marketed as a membership program.

Examples