Today’s loyalty landscape is saturated with the typical spend and get model. With “86% of loyalty marketers using points and 75% using instant cash-back or discounts in their program1,” customers are yearning for - and frankly - expect brands to recognize them with a differentiated experience.
A high emphasis on filling the top of the funnel often leads to brands devoting too much time and resources on low value customers. It's far more efficient and profitable to focus on the right customers who are most valuable to their business.
With only 23% of consumers happy with brand personalization today,2 a tiered program is one way in which brands can increase personalization and differentiate from competition through offering recognition and status to their high-value members. Tiers help brands maintain and increase customer value by influencing desired customer behaviour, often at a higher margin, which in turn adds business value.
1. They build brand equity. Strategically determined tier thresholds and desirable benefits, can incentivize “striving” behaviour, motivating members to increase frequency and spend and show recognition for and reward their loyalty to the brand. These types of benefits boost customers’ emotional attachment to brands and allow companies to treat customers differently by emphasizing the premium value of their products and services instead of discounting and devaluing their products and services.
2. They provide a better customer experience: Offering FOMO-inspiring rewards and benefits that make your customers feel valued and important and helps to build an emotional connection with your brand. Tiers should make all customers feel valued, even if you are providing more exclusive benefits to members in higher tiers. The balance brands need to find is offering thresholds their members are inspired to exceed without excluding them along the way. Airlines do this really well by offering lounge access and early boarding. These are benefits all customers appreciate and want to have access to, but don't resent others for.
3. They protect margin and distribute costs: Aside from increases in spend, tiers can help provide a tangible return on investment and drive advocacy for your brand. Tiers allow brands to be smarter about the benefits they provide; based on returns, some benefits can “pay for themselves.” Strategic partnerships with like-minded brands that share your values and ideal customer profile can be a great way to expand your membership base and extend your reward and benefit inventory while
With these benefits in mind, brands should consider their business objectives and structure, as well as their current customer data and assets to determine if a tiered program is the right approach.
Not all companies will be ready for tiering. The chart below can help you determine if you're operationally ready to implement tiering and, what tier structure will best serve your business and your member base:
Brands must explore the frequency, longevity and interactional touch points with their customers to define their tier qualifying criteria.
1. How often do your customers shop with your brand? High frequency brands can employ gamification to kick-start engagement and encourage members to work towards thresholds. Lower frequency brands would be likely be best served by facilitating a strong community around their product or service to maintain engagement between purchases.
2. What is the average tenure of a customer? Every brand's answer will be different but understanding the lifecycle of your customer will be critical to how you structure your tiers. Here, time plays a very critical role. How a luxury car brand structures their tiers will look very different from a quick service restaurant program. The luxury brand has the time to focus on servicing the current vehicle and exclusive access to new models, slowly building the brand experience overt time. The quick service brand needs to act fast and should focus on making the next order better with benefits like upgrades or guaranteed delivery quality during the short period they have to win that customers retention.
3. What will your mix of transactional and emotional engagement opportunities be? Great programs need both. How you apply them to help your members progress through tiers is critical to your program's success. Quick earn and reward redemption transactional opportunities are one of the best ways to ensure that a member fully onboards and engages in your program to reach that first tier. Once a member has a past the first threshold, service and experiential benefits are most likley to keep them engaged but building their relationship with and connection to your brand.
Changing a loyalty program is delicate business — and consumers take time to adapt to any change that they believe impacts them negatively so clear, consistent proactive communication is key.
Communicate the change to your program early and ofter and always with the benefit to the members front and centre. To help ease uncertainty, suggest ways they can apply their current currency or status to access the benefits of the new program. Once implemented, check in with them to make sure the changes are delivering the desired outcomes to both your members and the business. Use voice of the customer surveys to better gauge what's working and what needs tweaking to deliver the intended value.
Change is rarely easy but it can be exceptionally rewarding and bring your business and your relationships with your customers to the next level.
1Forrester: Advance Your Approach To Customer Loyalty by Emily Collins
3As per internal Kognitiv benchmarks across US programs 2016-2018