Zsuzsa Kecsmar is the Chief Strategy Officer of Antavo Enterprise Loyalty Clouda best-in-class provider of loyalty technology.
Let me start with a direct answer to the question in the title: Yes, you most likely need to adjust your loyalty program.
Of course, not every company will take the same approach with their loyalty programs, and in some cases tiers (at least levels that are visible to the customer) don’t fit into your overall strategy. But for organizations considering whether or not to add tiers to their earn-and-burn programs, the evidence is there: tiers get results. According to my company “Global Customer Loyalty Report 2022” (download required), of 325 people surveyed, owners of tiered programs reported a 1.8 times higher ROI than owners of untiered programs.
Approach levels as built-in segmentation.
Levels are segments in themselves. They make it easy to identify your most engaged and/or best spending customers. This segmentation can be a great way for programs – with or without points – to get to know customers better.
Vary your rewards.
Levels allow you to distribute benefits in a way that makes financial sense. By keeping your more valuable rewards for top-tier and high-potential customers, rather than offering the same benefits to everyone in the program, you can ensure that your rewards budget is spent on your most valuable customers.
Varying compensation by segment is a best practice that doesn’t necessarily require tiers to happen, but tiers are a great way to communicate benefits and who they are available to customers in a transparent, easy-to-understand way. Customers in this day and age are already familiar with the level concept, so it should be easy for you to describe it in a way your customers can digest.
Understand the customer psychology behind levels.
People like to gain status. When a loyalty program seems to offer great benefits to a privileged few, members are driven to achieve higher status. Lower level members have something to strive for, while higher level members feel they have earned exclusive benefits. But the best perks should really be reserved for top customers; otherwise, if research of Cornell Hospitality Quarter has shown, feelings of injustice may surface.
Build brand affinity.
Levels are the foundation of long-lasting brand relationships. When customers join a tiered program, they are already looking at long-term benefits, not just the welcome bonus. As members reach new status, they should feel recognized and feel like they’ve accomplished something they don’t want to let go of.
Speaking of brand, make sure your level names include your brand. Bronze, silver and gold are easy to understand, but unless you sell precious metals, do they really speak to your brand?
Treat your tier strategy as a competitive advantage.
When members are part of a tier and receive special benefits, whether it’s free shipping, more points per purchase or a spectacular reward, they’re more likely to choose your brand when they make a purchase.
When you offer attractive benefits, customers have to sacrifice benefits or forfeit their status altogether if they choose a different brand. This is another important point psychologically that explains why tiers are so effective.
Make room for surprises.
Hidden levels and mystery levels are a great way to add an unexpected twist to your rewards program. Some companies have a secret level for their very best customers. Inviting members to an unadvertised tier can add an extra layer of exclusivity for luxury brands. Another strategy would be to offer influencers or ambassadors a separate layer. This creates a “loyalty program within a program” and offers a different set of rules and benefits for this important customer group.
Four tips to get started with tiers in your loyalty program
1. Start small and introduce your program with fewer levels. Three to five is standard. It’s easier to add more than to take away levels; Taking benefits away from customers is always hard to explain.
2. Reserve your top benefits for top members. This will help you keep your budget in check and ensure that these members see the value of all the effort they’ve put in.
3. If you are considering a strategy that includes level drops, make sure you introduce that concept from the very beginning. Giving someone access to something that has a permanent status and then introducing an expiration date later will definitely backfire.
4. Create level-targeted email campaigns. Levels are automatic segments and most members are interested in their current status in your loyalty program. Tell customers when they’re close to the next level, welcome them to new levels, highlight their underused level perks, or share new rewards they’ve unlocked as a top member.
Think of levels as segments for your business and milestones for your customers as you develop your tiered loyalty program concept. Incentivize your customers and keep benefits and rewards current to retain customer interest for the long term. After all, irresistible status is hard to turn down, which is why levels are such a powerful element in some of the most successful loyalty programs out there.