Tiered loyalty programmes are nothing new. Yet, they continue to be highly popular with many businesses today. Thanks to their segmentation abilities, scalable loyalty and tapping into psychology perhaps like no other loyalty programme type can do.
If there’s one thing to say about tiered loyalty programmes it’s that they're here to stay. Tried, tested and proven, it would be a disservice to your customer loyalty strategy not to have one in play. Which is why in this deep dive we’re going to get up, close and personal.
Contents:
Understanding Tiered Loyalty Programmes
Tiered loyalty programmes are a basic concept. Think of them as a pyramid of loyalty. At the bottom are the customers on the lower rung of loyalty. Typically, these are repeat buyers or have agreed to subscribe to your customer loyalty programme.
Businesses put certain qualifiers in place that customers must fulfil in order to reach a higher rank. The amount of ranks vary and are completely up to the business. So too are the qualifying factors. A customer might go up in rank for earning a certain amount of points. Or because they’ve repeatedly bought the same product.
Do they work differently to other loyalty programmes?
Generally, yes. Although the main objective of any loyalty programme is to inspire loyalty in customers and different programme types might share similarities; overall there are important nuances. It’s important to understand these differences – no matter how small – as certain programme types will serve your aims better than others.
In the case of tiered loyalty programmes, they are great for businesses that want to increase purchase value through upsells and cross-selling. Converting existing customers into higher paying ones by incentivising them to elevate their rank for more lucrative rewards.
The psychology of tiers
Where tiered loyalty programmes demonstrate a particularly compelling point of difference is their ability to tap into our natural drives as human beings. Most of us are attracted to competition in equal amounts to just how much we feel the fear of missing out.
Studies show that FOMO and the alluring nature of outcompeting one another compels 37% of customers to pay for higher tiers.
That’s because competitiveness is a prosocial instinct hardwired into our brains. This may all sound a bit too scientific but when we consider the drives it makes sense why tiers are so effective. It’s simply a basic need or desire for customers to want better rewards or status within the programme.
How we structure tiered loyalty to drive customer engagement
With all that in mind, it should come as no surprise that there is a method of structuring tiered loyalty programmes properly. So that your loyalty programme keeps your customers engaged throughout their entire lifetime with your brand.
Fear of missing out or FOMO appeals to another psychological pressure. Humans hate to miss out on something deemed valuable. Research into FOMO is widespread. It’s quite clear that businesses can exploit consumers with this basic but very powerful motivator:
FOMO influences the purchase decision of 60% of customers.
Creating a sense of exclusivity and hierarchy that’s attainable will drive customers to subscribe or fulfil certain qualifiers to reach higher ranks. Tiered loyalty programmes focussed on actually rewarding loyal customers instead of simply exploiting them, ensure that rewards at higher ranks are truly beneficial.
Relationship between tiered loyalty and points-based programmes
Tiered loyalty and points-based programmes work well when combined into a comprehensive and engaging rewards ecosystem. Together they add more depth to the customer journey. Tiers give customers a number of points to aim for. Points add almost a sense of gamification to reaching higher ranks of the loyalty programme.
Essentially, the two forms of nurturing customer loyalty enhance their intended effects. Customers are motivated to engage and accumulate even more points from anticipation of the benefits and rewards in the next rank.
Tiered loyalty programmes strengthen the differentiation of points-based programmes and add a deeper level of personalisation. Especially when data on how they've earned points in available. These can help you tailor the rewards of each rank specifically to the individual.
In addition, a points-based tiered loyalty programme ensures equality and fairness. Rather than using fiat funds to buy their way to higher ranks, customers must earn a universal currency. Set to specific actions, such as repeat purchases, these currencies have standard "exchange rates". A specified, fixed amount of points tied to product value or certain purchase behaviours i.e., buying the same product three times earns all customers 30 points.
As a result, the customer experience is enhanced and customer progression is encouraged. Points give new customers a sense of direction, tiers offer special rewards for the loyal customers that reach the destination. Giving them a sense of achievement and recognition.
Benefits of Tiered Loyalty Programmes
Tiered loyalty programmes engage customers in the long term and encourage them to continue participating with your brand. Buying your products or subscribing to your services in return for exclusive benefits and rewards. But there’s even more benefits that we can explore…
1) Increases customer engagement
OSo we’ve seen the psychological elements behind why tiered loyalty programmes incentivise engagement. The alluring aspect of rewards that are ever increasing in value are just too much for customers to resist. Research shows that 74% of customers would engage more with brands that offer access to higher tiers and rewards.
Much of the engagement also comes from the need to get higher on the social hierarchy. If someone is in the bronze tier, they won’t be satisfied until they reach silver, gold, platinum, diamond and so on.
2) Increases customer retention
Customer loyalty programmes increase retention due to the ancillary value they offer. However, some businesses may fall into the trap of thinking that they’ve secured their customers’ loyalty forever once they’ve implemented a method of rewarding it. A lack of innovation and attentiveness has resulted in high rates of churn:
57.7% of Millennials abandon loyalty programmes due to rewards that lack relevance or compelling value.
Tiered loyalty programmes encourage businesses to think outside the box. Otherwise they will fail to incentivise their customers to elevate ranks. And when customers perceive high value in the rank they’ve reached, they’re more incentivised to keep it.
3) Increases spend and frequency
Tiered loyalty programmes incentivise higher spending more often using incrementally valuable rewards, exclusive perks, and personalised experiences at higher tiers. Customers striving to reach the next level willingly spend more to unlock these better benefits. Ultimately this leads to an increase in lifetime value.
Retaining customers using a tiered loyalty programme yields certain financial advantages due to higher spending habits over time. Such as consistent revenue and lower maintenance costs (retained customers cost less than acquiring new ones).
Additionally, loyal customers tend to advocate for the brand. Word-of-mouth referrals significantly reduces the cost of customer acquisition. This creates a cycle of customer retention, increased lifetime value, higher revenue, cost-effective acquisition.
4) Refines customer segmentation
Tiered loyalty programmes are a great way of categorising your customers. Often this is based on their engagement levels with your brand, spending patterns and customer advocacy.
In some ways, you can think of your tiered programme as a natural filter. One that helps you understand your customers better. The distinct tiers reflect the level of their commitment, acting as a looking glass which you can use to analyse and identify key traits of different customer groups.
Refined segmentation leads to tailored marketing strategies, product offerings, and personalised experiences. Together, these drive innovation, helping you to create tiers that contain content that resonates with customers.
5) Collects better data for personalisation
Another significant advantage of tiered loyalty programmes is their ability to gather comprehensive data about customer behaviours and preferences. As customers progress, their interactions and transactions provide a wealth of crucial information.
Data about their preferences, purchase habits, and engagement levels become the backbone of personalised:
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Marketing campaigns
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Product recommendations
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Exclusive offers tailored to meet the specific needs and desires of customers at each tier
Consequently, leveraging this detailed data allows businesses to deliver highly targeted and relevant experiences, significantly enhancing customer satisfaction and loyalty.
6) Gives competitive advantage
Marketplaces have never been more crowded. Consumers are spoilt for choice and there’s lots of tiered loyalty programmes they can choose from out there. Yet, your tiered loyalty programme is a great way to showcase the uniqueness of your brand.
You can offer tier-specific benefits and rewards tailored around your unique value proposition. Brand exclusive rewards, even unique tier names related to your brand, sets your company apart from the competition because it’s truly unique to your brand.
By offering brand exclusive Differentiation not only attracts new customers seeking enhanced experiences but also retains existing ones who find value in the personalised rewards and perks. Thus giving your business a distinct competitive advantage.
7) Builds brand loyalty
Elevating loyal customers to higher spheres of value is a great way of securing long term loyalty. It’s a way of acknowledging their commitment to your brand. This fosters a sense of appreciation.
74% of consumers say feeling appreciated makes them loyal to brands.
Customers who feel recognised, feel valued. Which is a major motivator behind consistent engagement with your brand and becoming an ambassador for it. Personalised rewards strengthen the emotional connection you’ve forged and this becomes a central pillar of long term relationships.
Implementing Tiered Loyalty Programmes
Implementing a tiered loyalty programme requires some essentials that you should definitely consider. Here is one best practice, tip and strategy to follow, try and implement to form the basis of a successful programme.
Best practice - Make the journey clear
With this type of programme the customer journey will be clearly outlined before your customer. They will have an idea of what’s expected of them earlier on in their interactions with your brand to reach higher ranks. Or at least they should do.
If incentives, rewards or benefits are not advertised properly there’s a good chance customers will feel deterred to participate. They need to know clearly what they’re aiming for. What they’ll get in return for fulfilling certain criteria to reach higher ranks.
Tip - Use branded names for each tier
If possible, try to come up with creative names for each of your tiers. The names should relate to your brand in some way. This builds your brand identity, gives your tiers distinction from competitors’ loyalty programmes, and leaves a lasting impression with potential customers.
Strategy - Support with great communication
Consistent communication through various channels makes for a more cohesive experience across your brand. Social media, emails, influencers and PPC can be effective acquisition channels, places to nurture customers to subscribe to your programme, and much more.
Communications should seek to engage with the customer at every stage of their journey. From reaching a new rank, to utilising surprise and delight strategies to keep customers engaged. A robust, comprehensive and relevant communications strategy keeps customers engaged, informed and reassured throughout their journeys.
Challenges and Solutions
Below are some examples of challenges that businesses experience when trying to implement their own tiered loyalty programmes. These can be overcome with a whole range of the following solutions…
Complex design and communication
Creating tiers, defining benefits and effectively communicating these to customers is no simple matter. Sometimes tier structures will become complex and lack clarity as brands explore, create and execute the loyalty programme.
Communications might quickly devolve into a hot mess. Especially if the tier structure becomes hard to follow (even for the brand). Information clashes on multiple channels like email and app notifications could disorient customers, forcing them to abandon the programme altogether.
Solution:
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Develop a clear and simple tier structure with easily understandable benefits.
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Use a CRM to centralise multiple communication channels like emails, in-app notifications, website banners, and social media.
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Use clear and simple language when explaining how to progress through tiers and the rewards customers can expect for doing so.
Balancing rewards
Striking the right balance between offering valuable rewards and making tiers attainable also poses a serious challenge. That’s exactly why brands should conduct market research. Understanding customer expectations informs the type of qualifying goals to set. Observations should be periodic to observe customer behaviour. Drop-offs may indicate dissatisfaction.
Solution:
- Conduct market research to understand customer preferences and expectations.
- Set achievable goals for each tier based on customer behaviour.
- Regularly review and adjust tier requirements based on customer feedback to ensure they remain challenging yet attainable.
Technical burden
Building and maintaining any loyalty programme requires substantial tech and management. Personnel, skill sets and experience are all essential. Integrating tier upgrades, managing them so that the system isn’t compromised, and ensuring data security calls for reliable software.
Solution:
- Invest in reliable loyalty management software that tracks customer behaviour, manages tier upgrades, and enhances data security.
- Regularly audit data privacy measures and provide staff training for effective management and troubleshooting.
Ensuring Fairness
Customers expect fairness and transparency. Even more so when it comes to rewarding their loyalty! Unattainable benefits make customers feel as though they’ve been mistreated.
Solution:
- Make sure the terms and conditions are clear.
- Consult loyalty experts to design a fair rewards structure.
- Giving every customer equal opportunities to progress should be the main driving force in your design philosophy.
Unlock success with a tiered loyalty programme today
In spite of their widespread use, tiered loyalty programmes face hurdles. Especially when we consider the complex design balance of attainable yet exciting rewards. An engaging customer journey, held together with robust technical infrastructures.
Yet, there’s certainly a case for them. Businesses simplify tier structures, making them brand friendly to differentiate from competitors, and conduct extensive market research through segmentation to personalise hyper-relevant rewards.
Coupled with an unbeatable method of appealing to our psychological drives, tiered loyalty programmes have the power to keep pushing loyalty initiatives to even more enduring and profitable customer relationships. Maximising lifetime customer value and brand advocacy in the long term.
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