How to Design a Tiered Customer Loyalty Program – Best Practices
In today’s age, a customer loyalty program without tiers is like a phone without a good selfie camera. In order to retain customers and ensure your loyalty program has a high recall value; marketers must design a highly sustainable, tiered customer rewards program. The tiered program should motivate your customers to earn more points for gaining exclusive benefits. Tiered programs are also a great way to differentiate between low, medium, and high spenders.
This blog highlights the best practices marketers must follow in order to create a highly rewarding tiered program for their brand.
1. Define Brand Goals
Before designing the tiered program, brands must enlist their goals. Below are a few examples of what your goals could be:
- Increase overall user engagement on the website (reviews, Q&A, email sign-up, etc.) and on social media (word-of-mouth recommendations, photo sharing, Pinterest, etc.)
- Increase revenue per customer per year by 20% in 12 months by
- Increasing AOV by 5%
- Increasing repeat purchase frequency by 15%
Once you have defined your goals, categorize your current customers into 3, 4, or 5 categories based on their current spending pattern or lifetime value (LTV). Your loyalty rewards program tiers should be designed to target each of these categories with the goal to move them to the next tier!
2. Create Rewards Tiers
Tiers add an element of gamification to your loyalty rewards program that influences customer behavior. You also need to motivate customers to pursue each new tier with effective rewards. Create a pyramid based on your current user categorization and set a 12-month target for how you want this pyramid to look.
Ideally, your loyalty rewards program should have three or four tiers targeting each of the customer segments with the goal of moving them up in the pyramid. However, depending upon your industry and customer segments you could choose to have 3-7 tiers. Now your objective may be to move approximately 10% of your customers into a higher tier over the next 12 months. This pyramid provides a base and a good foundation to design your loyalty tiers and the associated incentives while keeping an eye on the expected ROI.
3. Name Your Reward Tiers
Once you have decided how many tiers your program will have and the target user segments, it is time to name these tiers. Reward tiers should be named so that even the lowest tier feels special. If you want to start simple, use Silver, Gold, Platinum, and Diamond. You should avoid naming your lowest tier as Bronze. After all, no one likes Bronze!
You can further innovate and make it an interesting game for your customers. Below is an example of the brand, Sephora, a French chain of cosmetics stores, that has nailed it in the tier naming game.
Sephora offers the following tiers:
- Beauty Insider
- VIB (Very Important Beauty Insider) – play on VIP
- VIB Rouge – play on cosmetics plus red carpet treatment.
Sephora’s rewards program sets milestones based on dollars spent in a calendar year. In order to achieve VIB status, users must spend $350 annually, and to achieve Rouge status users must spend $1,000. This program truly masters the art of making its customers feel special. By offering interesting rewards at each tier they not only make their customers feel valued, but also entice them to share their status with their friends and family.
Reward tier names should be chosen to create an aspiration – users should want to get to the higher tier just for the bragging rights or to feel special. All users who register for the loyalty rewards program should be automatically set at the entry-level tier. Avoid adding points to the lowest tier and allow them to automatically enroll in the program. The lowest tier should open up some benefits (though small) for simply signing up for the loyalty rewards program. For example, an entry-level tier could allow the user to buy from an exclusive product set or get a one-time offer for free shipping.
4. Define Points for Each Tier
Brands should decide the number of points required to achieve each tier depending on the following factors:
- The number of points users can realistically earn on your website so that you achieve a distribution of users in the pyramid shown above.
- Whether all points will qualify for a tier change. For example, while others may be able to earn points for email signups and product reviews, you may decide that only points earned for purchases count towards a tier change. This will depend on your objectives.
Here is an example of how points could be allocated for various levels.
- Basic level for all users who sign up, even with 0 points
- Make them feel appreciated even at this level.
- Points required: equivalent of $150 in purchases over 12 months
- Points required: equivalent of $300 in purchases over 12 months
- Points required: equivalent to $500 in purchases over 12 months. In this case, the tier qualification is based on purchases. Points can be earned and redeemed for other actions, but will not help the user go to a higher level.
Predator Nutrition, a leading sports nutrition brand in the UK created an interesting tiered rewards system for its customers. In order to make their customers feel accomplished, honored, and privileged they not only added a fun element to the naming tier but also offered exclusive freebies based on points and tiers. Predator Nutrition increased the motivation of its customers by offering more points and freebies to the higher ranks.
5. Bonus Tip: Set Lifetime Tiers
Over a period of a few years, when a user has spent a significant amount of money with your brand, you can choose to define a “lifetime” tier. For example, in the above example, when the user has spent $5,000 on your site, you can say that the user has earned a Gold tier for life.
This strategy will motivate the users to spend more on your site for achieving a lifetime tier. Once they get used to buying from you and getting the Gold treatment, it will be hard for them to buy from anywhere else.