Published By Upzaar Team
All You Need to Know: Tier-Based Loyalty Programs
What is a Loyalty Program?
Loyalty programs offer rewards, discounts, and other unique incentives to acquire and retain customers. They’re made to encourage customer retention by rewarding customers for sticking with a business or brand. Loyalty programs can help you extend your customer base, increase consumer spending, and increase customer interaction options. Customers are more inclined to suggest brands with solid loyalty programs and to increase their spending to take advantage of the program’s perks.
What is a Tiered Loyalty Program?
We’ve all encountered labels like “Elite Member” when visiting hotels, airlines, or retail businesses — but what do those tiers mean, and why should businesses look to create a tiered loyalty program?
A tiered loyalty program, in a nutshell, provides different rewards or discounts to groups of customers depending on their spending. The more the customer spends, the higher their rank would be, and consequently, they’ll receive better rewards. Customers are rewarded for every purchase, which motivates them to spend more.
There are different kinds of tiered loyalty programs, but the two most common are the following:
Membership programs that you can buy into immediately or programs that unlock rewards and ranks the more you spend.
Once a customer achieves a specific spending threshold, new perks and rewards become available. Promotional discounts and coupons, gift cards, and rewards like points on credit cards can be rewarded for customers. Every consumer feels valued and excited throughout their journey, thanks to a steady increase in rewards. Unlike typical earn-and-burn loyalty programs, Tiered (Membership) Loyalty programs assign members to specific categories based on specific indicators. Each tier is defined by a collection of prizes, services, or benefits that grow in value as customers advance.
According to industry data, “50% of customers agree to change their purchasing habits or increase spending to achieve a higher level in a tier-based loyalty program. Naturally, these programs make customers feel appreciated and valued because the higher levels bring more perks. They have an understanding that they will get exclusive benefits that most other customers won’t get, which encourages them to stay loyal to your business even more.
According to Adobe research, the top 10% of your consumers spend three times as much as the average customer, with the top 1% spending up to five times more.
A Reward-based loyalty program is beneficial because it creates an emotional connection with your customers, resulting in greater loyalty and long-lasting engagement. You can deliberately offer more attractive prizes to your most valuable customers to demonstrate how vital they are to your brand or business.
1. Spoil Your Customers!
In tiered loyalty programs, benefits grow in value over time. Meaning that the greater the perks and the more exclusive the brand experience, the higher rank the tier is. Tiers provide an excellent incentive for members to keep purchasing from your business and engage in your loyalty program.
2. Customers Can Be Engaged in New Ways.
Tiers provide a powerful way to communicate with your customers outside of purchases. Around tiers, you could add other layers, such as names, branding, color schemes, and imagery, which can increase customer enthusiasm and emotional engagement.
3. Long-Term Customer Loyalty and the “Social” Element.
Using a tiered loyalty system, you can build stronger long-term relationships with your customers. It resonates with your customers on an emotional level when you communicate that they are being valued and provide them a spot in the tiered structure as privileged members. There is a psychological effect on consumers who feel like they are part of a special group. Members feel honored by the brand when they achieve a unique status or rank. Customers will return again and again if they perceive the benefits of committing to your brand.
With the addition of tiers and ranks, customers now have a social standing based on their rank or level compared to other customers. People are naturally concerned about their position and status compared to others in similar situations, and this worry fuels enthusiasm for your program. To get the most out of it, make sure to display your customers the percentage of program members in various tiers to pique their interest.
4. Segmentation and Understanding Your Customers.
By analyzing customer habits and activities, you may better segment your customer base with the assistance of a tier-based loyalty program. You may enhance their customer service and communicate with them in a more targeted manner. Identifying your most valued customers and allocating them to the highest levels of your loyalty program gives your brand even more leverage to increase client retention.
How to Build An Effective Tiered Loyalty Program
1. Simplicity is the Way
Complications can be frustrating. Earning and redeeming rewards and upgrading to the next level or rank should be simple, obvious, and understandable to your customers. All ‘instructions’ for customers should be clear and straightforward, whether about qualifying for higher tiers or describing the potential incentives with each tier. Consider creating a program for members with the shortest attention spans who may seek out alternative options if yours is too complicated.
A general, non-personalized rewards system may not be effective in influencing customers. Creating rewards that bring unique value to your customers is far more effective. Choosing an outstanding name and new color scheme for the program and its tiers will make your customer feel privileged to be part of it. Underline and visualize the differences in benefits to add a sense of exclusivity. Customers should be distinguished at each level, and loyalty and engagement should be rewarded. Your top-tier members should have at least 2 or 3 more benefits than lower-tier members, and your best rewards and gifts should be kept to your most loyal customers. It increases their experience with your brand AND their chances of becoming brand supporters. Supporters are enthusiastic people of your community who can’t wait to share their positive experiences with others, making them your most valuable marketing asset.
Every customer feels cherished when they are treated with exclusivity. Having exclusive rewards for your top-tier members provides an impression of loyalty and gives individuals who achieve the top ranks a sense of fulfillment and superiority. Members at the top will be compelled to keep earning more prizes to achieve a higher status that money may not be able to buy.
3. Gamify Your Approach
By implementing gamification into your loyalty program, your customers can gain more points and progress to higher tiers and ranks. Customers will be more engaged and immersed due to the exciting components of fun introduced. Gamification is a fun aspect of reward programs that can help your brand’s community to the next level. By adding addictive elements such as progress and milestones, you are incorporating engaging and interesting components while also guaranteeing customers gain something for each activity or win.
Starbucks, the world’s largest coffee company, included gamification into its program to allow gold cardholders to earn bonus points. They improved their loyalty experience and increased sales by utilizing the concept of gamification. Customers would earn “stars” every time they interacted with My Rewards via the app or made a purchase.
4. Make it a Worthwhile Experience
If you provide your customers with experiential rewards, they will be more likely to move up a tier. Offering perks to customers that aren’t related to just the purchase process can form an emotional bond with them. Inviting customers to a product launch, setting up celebrity meet-and-greets, and more are some of the best instances of experiential rewards. The main focus here should be on giving the customer a memorable experience. Exceeding the customer’s expectations and enhancing your tiered loyalty program with experiences will help you stand out.
5. Enhance the Sense of Belonging by Naming Membership Levels
Allow your imagination to run wild while naming each rank or tier. Consider the best customer loyalty program names and titles that reflect your business’s personality and truly speak the language of your target audience to improve brand engagement. Make it as enjoyable and interesting as possible. This allows members to link their membership levels to their level of dedication to the community. Look no further than Marvel for more creative reward program titles. Participants in Marvel’s loyalty program can advance to one of four levels: Insider, Agent, Elite, or True Believer. These designations reflect how comic book fans may define themselves within the community.
Popular Tiered Loyalty Programs
Lancôme (Elite Rewards)
Lancôme Elite Rewards Gold members get a 5-day head start on new launches and promotions, double point events, and invitations to three unique promotions.
Uber – Uber Rewards
Members of Uber Rewards get points for every qualified dollar spent on Uber trips and UberEats orders. Passengers can earn points and access special membership privileges at each level, whether just starting out or riding with Uber daily.
American Express - Centurion
American Express has become synonymous with exclusivity, and with that comes an extraordinary cultural cachet that extends to its most affluent members.
Their loyalty program, in particular, is tailored to the needs of their customers. It grants access to a variety of benefits, including enhanced security, airline perks, and a 24-hour concierge service that provides entertainment planning, gift-giving, and business services.
Tier-based loyalty programs provide you the power to engage your consumers regularly and keep them satisfied, making them a must-have in any customer retention strategy. Tiers offer members a goal to strive for and, thus, a motivation to stay engaged in your tiered loyalty program for a more extended period of time. This is partly due to the fact that preventing the loss of something valuable is more critical than getting new items, which is why members are equally as concerned with preserving their current tier as they are with moving up. Customers will continue with you rather than switch to another brand.