Why the Best Loyalty Programs Are the Ones You Can't Join (The Case for Members-Only Cards)
Nov 4, 2025
Costco makes you pay £35 a year just to shop there.
They could be like Tesco. Doors open to everyone. No membership fee. No barrier to entry. Just walk in and buy stuff.
Instead, they charge you for the privilege of access. And they're printing money. £4.6 billion in annual membership fees. That's pure profit before they sell a single rotisserie chicken.
This violates everything we're told about customer acquisition. Remove friction. Make it easy. Don't create barriers. Welcome everyone.
Costco looked at that conventional wisdom and said: what if we did the opposite?
What if we made you prove you want to be here? What if we charged you upfront? What if we made membership exclusive, not open?
The result: 90%+ renewal rates and customers who spend 4x more than the average Tesco shopper.
This is the counterintuitive truth about loyalty programs: sometimes the best strategy is making them harder to join, not easier.
The Problem with "Everyone's Welcome" Loyalty
Most loyalty programs follow the same playbook: anyone can join, instantly, no questions asked. Scan a QR code. Get a stamp card. You're in.
This feels democratic. Inclusive. Customer-friendly.
It's also leaving money on the table.
When everyone can join your loyalty program, membership has no value. It's not exclusive. It's not special. It's just... there. Like those "VIP" email lists that go out to 10,000 people. If everyone's VIP, nobody is.
Watch what happens with open loyalty programs:
Customer signs up. Gets their stamp card. Comes in once. Never returns. Your "loyalty" program is full of people who aren't loyal—they're just collecting digital cards the way people collect browser bookmarks they never revisit.
You can't segment them. You can't target them. You can't give real VIP treatment when your VIP list includes people who visited once six months ago and someone who comes in daily.
Meanwhile, your actual regulars—the people who visit 3-5 times a week—they're getting the same treatment as the one-time visitor. Same discounts. Same rewards. No differentiation.
You've democratized loyalty to the point where it's meaningless.
The Economics of Controlled Access
Here's what changes when you put a gate in front of your loyalty program:
Scenario A: Open loyalty program
Anyone can join by scanning a QR code
847 members in your database
412 of them visited once and never returned
298 visited 2-3 times in the past year
137 are actual regulars (10+ visits/year)
You're giving the same benefits to all 847
Scenario B: Members-only program
Customers must qualify (employee validation, minimum purchase, paid membership, etc.)
243 members in your database
All of them are vetted, qualified, or paying members
Average visit frequency: 3x higher than Scenario A
You can give better perks because you're serving fewer, more valuable customers
Which database would you rather have?
The open program has bigger numbers. The members-only program has better economics.
This is the arbitrage: controlled access creates selection bias in your favor. You're filtering for customers who are serious about returning. Everyone else is noise.
When Gatekeeping Actually Creates Value
I can already hear the objection: "But Scott, won't we lose customers if we make it harder to join?"
Yes. That's the point.
You want to lose the customers who were never going to be valuable anyway. You want to lose the bargain hunters who joined for one discount and disappeared. You want to lose the people who collect loyalty cards but never use them.
You want to keep—and reward generously—the customers who actually drive your revenue.
Here's when members-only loyalty makes sense:
You have capacity constraints. Salons with limited appointment slots. Restaurants with limited tables during peak hours. Gyms with limited equipment. Making membership exclusive ensures access goes to committed customers, not casual browsers.
You want predictable revenue. Paid memberships create recurring revenue that smooths cash flow. Even free memberships with validation codes create psychological commitment that increases visit frequency.
Your margins are thin. If you're giving 10% off to everyone, you're eroding margin on every transaction. If you're giving 10% off only to validated members who visit frequently, you're trading margin for lifetime value strategically.
You need to fill specific time windows. Early-bird hours for members. Tuesday member perks. Off-peak member benefits. You're using exclusivity to shape demand curves, not just respond to them.
You want to signal premium positioning. Members-only access to new products, VIP treatment, priority service. This isn't for everyone—that's what makes it valuable.
The businesses that get this right aren't trying to be accessible to everyone. They're trying to be valuable to the right customers.
The Psychology of Having to Qualify
There's something powerful about earning access rather than just receiving it.
When a coffee shop hands you a loyalty card, you feel... nothing. Maybe mild appreciation. It's free. It's instant. It required no effort.
When a coffee shop says "our members-only program gives you 10% off, early access to new drinks, and priority service during busy hours—here's your validation code to join," you feel different. You've been selected. You've qualified. This is worth having.
Same 10% discount. Completely different psychological framing.
This is the velvet rope effect. The nightclub with a line outside is more desirable than the empty club anyone can enter. The country club with membership requirements is more prestigious than the public golf course.
Scarcity creates value. Exclusivity creates desirability.
Your members-only loyalty program taps into this. Customers who had to get a validation code from staff, who had to qualify somehow, who feel like they're part of something exclusive—they value it more than customers who just scanned a random QR code.
And here's what's measurable: they use it more. Redemption rates on members-only programs are 40-60% higher than open programs. Not because the rewards are better, but because membership feels valuable.
Six Ways Smart Businesses Use Members-Only Cards
1. The Margin Protection Play
Coffee shop gives 10% off to members. But you can only become a member if staff give you a validation code—which they do after you've visited 3+ times.
Why this works: You're not discounting first-time visitors who might never return. You're rewarding proven customers who've already demonstrated loyalty. Your 10% discount goes to people who will visit 50+ times, not people who came once for the discount.
Net result: Better unit economics. Same or better customer satisfaction.
2. The Demand-Shaping Play
Cafe has slow mornings. They launch "Members-only early-bird hours: 7-9am, members get free size upgrades."
Why this works: You're using exclusivity to drive demand during low-traffic windows. Members feel special getting VIP treatment. You're monetizing otherwise empty capacity.
Net result: Higher morning traffic without discounting your peak hours.
3. The Calendar-Filling Play
Salon gives members priority booking and text reminders. Members get first access to weekend and evening slots.
Why this works: Your high-intent customers (members) get the best times. They're less likely to no-show because they value their member status. Your calendar fills with reliable bookings.
Net result: Reduced no-shows, better utilization, higher-value clients.
4. The Value-Add Play
Salon offers members a complimentary add-on service (scalp massage, conditioning treatment, etc.) that would normally cost £15.
Why this works: The actual cost to you is maybe £3-4 in product and 5 minutes of time. The perceived value to the customer is £15. You've increased their satisfaction without deep discounting your core service.
Net result: Higher retention, better word-of-mouth, no margin erosion on primary services.
5. The True VIP Play
Wine shop or club offers members-only access to tasting room, special events, first access to limited releases.
Why this works: You're creating experiences that money alone can't buy. Members get genuine exclusivity. The value proposition isn't just discounts—it's access and status.
Net result: Members willing to pay for membership or meet higher qualification thresholds.
6. The Weekday Warrior Play
Restaurant gives members a specific perk on slow days: "Free dessert on Tuesdays for members."
Why this works: Tuesday is dead anyway. Giving members free dessert costs you £2 in actual food cost but drives a £30 dinner purchase from someone who might not have come in at all.
Net result: Revenue on otherwise quiet nights without training all customers to expect free dessert.
Notice the pattern: members-only programs aren't just about rewarding customers. They're strategic tools for margin protection, demand shaping, and value creation.
The Two Models: Paid vs Validated
There are two ways to run members-only programs, and both work depending on your business model.
Paid membership:
Customer pays £5-30/month (or £50-300/year) for membership benefits. Costco model. Amazon Prime model.
Pros:
Creates recurring revenue stream
Extremely strong selection bias (only serious customers pay)
Members are psychologically committed (they've paid, so they'll use it)
Predictable cash flow for planning
Cons:
Harder sell upfront
Won't work for low-ticket, low-frequency businesses
Requires strong enough value proposition to justify the fee
Validated membership (free but controlled):
Staff give validation codes to qualifying customers. Customer enters code to activate their digital membership card.
Pros:
No price barrier to overcome
Still creates exclusivity through validation
Staff can strategically decide who qualifies
Easy to launch and test
Cons:
No direct revenue from memberships
Requires staff training and enforcement
Less selection bias than paid membership
Most small businesses should start with validated membership. It's easier to implement, test, and optimize. If you prove the model works and want to scale, you can introduce paid tiers later.
The Infrastructure That Makes This Possible
Here's where most businesses fail at members-only programs: they try to run them manually.
Staff are supposed to remember who's a member. Or customers carry physical cards they forget. Or there's a database somewhere that nobody updates.
This doesn't scale. It barely works for 20 members. It completely breaks at 200.
Digital membership cards solve this by living in Apple Wallet and Google Wallet. But with a crucial difference from open loyalty cards: controlled issuance.
Instead of anyone scanning a QR code to join, staff generate validation codes. Customer gets a code. They scan the QR code to access your membership page. They enter their validation code. The digital card appears in their wallet.
Now you have:
Controlled access (only people with codes can join)
Digital proof of membership (card lives in their phone)
Scannable verification (staff can scan the card to confirm membership)
Data on who's actually a member
Ability to push notifications to members about member-only perks
This is the infrastructure that makes members-only programs work at scale. Without it, you're trying to remember who's a member while working the breakfast rush. Good luck.
Perkstar handles this through membership cards with validation codes. You decide who gets codes. They enter codes to join. You get a database of actual members, not everyone who walked by your shop once.
The Front-Desk Workflow (Keep It Simple)
The biggest objection to members-only programs: "This sounds complicated."
It's not. Watch the actual workflow:
Customer checks out: Staff: "You've been in a few times—want to join our members program? You'll get 10% off every purchase." Customer: "Sure." Staff: Enters customer info into system (or gives them a pre-generated code). "Here's your code: M7K2R. Scan this QR code and enter that code to get your membership card on your phone." Customer: Scans QR code. Enters validation code. Digital membership card appears in Apple/Google Wallet.
Customer returns: Customer: Shows digital card from their phone. Staff: Scans card to verify membership. Applies 10% discount.
Total additional time: 20 seconds on first enrollment. 5 seconds on subsequent visits.
This isn't complex. It's just structured. And structure is what creates value—both for you (controlled access, data) and for customers (exclusive benefits).
What to Put on the Card (Keep the Perks Clear)
The mistake most businesses make: overcomplicating the value proposition.
Bad: "Members get rewards points, tiered benefits based on visit frequency, seasonal bonuses, birthday offers, and exclusive access to special events subject to availability."
Good: "Members get 10% off every purchase."
Even better: "Members-only: 10% off + early access to new menu items."
The clearest programs have 1-3 specific, tangible benefits that customers can understand immediately. Not a complex point system. Not vague "special offers." Concrete perks.
Examples of clear member benefits:
10% off every purchase
Free size upgrade on Tuesdays
Priority booking
Early-bird hours (7-9am)
Complimentary add-on service
First access to limited releases
Skip the queue during peak hours
Notice: these are binary benefits. You either get them or you don't. No calculating points. No decoding tiers. Just: members get this, non-members don't.
Simple scales. Complex dies.
The Objection: "We'll Alienate Non-Members"
Valid concern. Invalid conclusion.
Yes, non-members don't get member perks. That's literally the point. If everyone gets member perks, they're not member perks—they're just your normal offering.
But here's what actually happens when you launch a members-only program:
Non-members don't feel excluded. They feel intrigued. "What's this members thing? How do I join?"
You've created aspiration. People want what they can't easily have.
And here's the key: you control the qualification criteria. You can be as inclusive or exclusive as makes sense for your business.
Coffee shop might give codes to anyone who visits 2+ times. That's barely exclusive, but it still creates the psychological framing of membership.
Private club might require £500/year membership fee. That's genuinely exclusive.
Most businesses should lean toward inclusive validation (visit 2-3 times, or spend £X, or staff discretion) rather than expensive paid membership. You get the psychological benefits of exclusivity without actually excluding many people.
The sweet spot: 40-60% of your customers qualify for membership. Exclusive enough to feel special. Inclusive enough to capture most people who care.
When Open Loyalty Works Better
Let's be clear: members-only programs aren't always the right answer.
Open loyalty works better when:
You need massive scale fast. If you're trying to build a database of 10,000+ customers quickly, asking staff to validate everyone will bottleneck growth.
Your business is discovery-driven. New customers are valuable and you want zero friction to first purchase and enrollment.
You have high margins. If you're making 60%+ margins, you can afford to give discounts to everyone without economic pain.
Frequency is already high. Coffee shops where customers come daily don't need much incentive—open programs work fine.
You're fighting for share in a competitive market. Sometimes you need to be more accessible than competitors, not less.
The decision framework: Are you trying to grow awareness and trial (open loyalty), or are you trying to protect margins and reward your best customers (members-only)?
Both are valid. Just make the choice consciously, not by default.
The Implementation Is Simpler Than You Think
You don't need enterprise software. You don't need custom development. You don't need a six-month rollout.
Modern loyalty platforms like Perkstar let you create members-only cards in under ten minutes:
Choose "membership card" as your card type
Add your perks to the card (keep them simple)
Decide whether customers enter their own info or staff enter it for them
Generate validation codes (bulk or individually)
Train staff on the 20-second enrollment process
Print a QR code for your counter
You're live. Start issuing codes.
Week one: Test with your existing regulars. "You're in here all the time—want to join our members program?"
Week two: Expand to customers who visit 2+ times.
Week three: Promote it visibly and let anyone ask to join.
Month two: Analyze the data. Who's actually using membership? What's the redemption rate? Is visit frequency increasing?
Optimize based on results, not guesses.
The Compounding Value of Exclusivity
Here's what most businesses miss: members-only programs create compounding benefits over time.
Month 1: You have 43 members. They visit slightly more often. Modest impact.
Month 6: You have 234 members. They visit 40% more frequently than non-members. You can segment communications. You have real data on your best customers.
Month 12: You have 487 members. They generate 60% of your revenue despite being 30% of customers. You've built a moat. Competitors can't easily poach these customers—they have status and benefits with you.
This compounds because:
Members recruit other members (social proof)
Higher visit frequency creates habit formation
Exclusive benefits create switching costs
Data lets you optimize for member retention
Compare this to open loyalty programs where 60% of enrollees visit once and vanish. You're not building infrastructure. You're collecting dead weight in your database.
Members-only programs start slower but scale better. They trade easy growth for quality growth. And quality compounds while quantity just accumulates.
The Bottom Line
The best loyalty programs aren't the easiest to join. They're the most valuable to be part of.
Costco charges you to shop there. Amazon charges you for Prime. Country clubs have membership committees. Exclusive restaurants have reservation waitlists.
They're not stupid. They understand that controlled access creates value—both economically and psychologically.
Your coffee shop or salon or retail store can use the same principle. Not by charging £500/year for membership, but by making membership something customers qualify for rather than something they instantly receive.
This isn't about being elitist. It's about being strategic. Rewarding your best customers. Protecting your margins. Building a database of people who actually care.
The infrastructure exists. Digital membership cards with validation codes. Staff can issue them in 20 seconds. Customers get genuine exclusive benefits. You get better economics and data.
The question is whether you're going to keep running an open program that treats everyone the same while your best customers get no recognition, or whether you're going to build something exclusive that actually creates value.
Exclusivity doesn't mean expensive. It means strategic. Perkstar gives you membership cards with controlled access, validation codes, and the infrastructure to reward your best customers without giving discounts to everyone.
Stop treating your regulars the same as one-time visitors. Build a members-only program that actually creates value.
