Tiered loyalty programs are popular among businesses and customers alike, with companies like Bank of America and Starbucks each moving to tiered structures this spring.
The love for tiers isn’t a surprise. Tiered loyalty programs drive aspiration, which taps into humanity’s shared love of doing better and getting more, according to Patricia Camden, managing director of EY Studio+ Customer Experience and loyalty leader.
“We're guided by visible progress,” Camden told CX Dive. “I like to think of it like when a customer sees a ladder. You just want to climb that ladder, man. You want to move up.”
Tiers offer multiple benefits to a loyalty program, including a sense of exclusivity, the ability to offer flexible benefits and extra opportunities for brands to engage with customers. Conversely, poorly implemented tier systems can feel frustratingly slow or complex.
Many customers love tiers and will join any program that offers them, according to Camden. EY’s research finds that the customer preference for tiered loyalty models is growing — but companies still need to make sure their loyalty program is working for them.
Tiers can make customers feel special
Tiers can be a great way to make every customer feel special while reserving the most expensive benefits for shoppers whose spending warrants such investment.
By rewarding top-spending customers, companies reinforce the idea of status and recognition for customers who spend a lot of time and money with a brand.
Earlier this month, Michaels revamped its loyalty program with an additional tier for its biggest spending customers. This change was “about recognizing and rewarding our most dedicated shoppers,” Michaels President and Chief Customer Officer Heather Bennett said.
But that sense of exclusivity isn’t reserved for customers who spend hundreds or thousands with a given brand every year, according to Camden. Even smaller benefits at lower tiers can make the loyalty relationship feel special.
“Customers love feeling like they're part of an exclusive group, and even tiny benefits like priority service or free shipping or early access can feel really, really meaningful,” Camden said.
Brands can also influence customer behavior with how often tiers reset, according to Bobby Stephens, principal in Deloitte Digital’s retail and consumer products practice. Depending on the brand, it might make sense for a tier to be a lifetime achievement, or it may be better for customers to need to reach a certain annual spend to retain their status.
Done right, resetting tiers can be a chance for brands to regularly reengage with customers, according to Stephens. Engaging with a customer who is about to gain or lose a tier can be a powerful motivator to shape their behavior.
Tiers must be understandable and accessible
Tiers can be the extra spice that makes a loyalty program successful, but leaders should be wary of pitfalls that can turn such benefits into frustrations.
Tiers share a common challenge with every loyalty program schematic: They can be too complex for customers to follow, according to Stephens.
Businesses also need to ensure that the gaps between their tiers aren’t too wide. If members feel like they keep coming back to a business without being properly rewarded, their motivation to keep shopping can dissipate.
“Say everybody gets stuck at some certain level,” Stephens said. “And there's definitely programs in the market where maybe that first tier is very, very, very easy to get to, but that second tier is nearly impossible to get to, at which point you've sort of just created a loyalty program with one tier.”
Without accessibility, the psychology that makes tiered loyalty programs effective stops working, according to Camden. Customers who feel they can’t reach the next rung of the ladder won’t be motivated to try.
“I think if only a tiny fraction of your customers ever reach that top tier, then it's not a behavioral driver,” Camden said. “It's just a decorative badge for that customer.”
Many tiered programs reward customers based on spend, rather than engagement, and that can come with its own problems, according to Camden.
A customer with a high-end luxury brand might be able to reach the top tier with a single handbag purchase every year, Camden said. They’re not engaging or being incentivized to return because the program is “measuring wealth versus true loyalty.”
Instead, leaders should ensure their loyalty programs reward frequency, advocacy and engagement, according to Camden.
Get to know your customer before setting tiers
Companies considering tiered loyalty should take the time to analyze their customers’ behavior to ensure their system fits the needs of the business and the customer.
Tiers can be beneficial even when the company doesn’t tell its customers about them, according to Stephens. Leaders can first design and test their ideas internally to see how customers react to certain benefits at certain tiers.
“You can do them in the background to start,” Stephens said. You can create tier segments — all kinds of stuff that only you as the retailer know about — manage it for a period of time to get comfortable with what the thresholds are, what the behavior should be at each threshold, and then potentially reveal that to the customer.”
This approach carries several benefits, according to Stephens. Companies can make sure the incentives line up with the requirements without officially taking something away if the experiment doesn’t work. The internal approach also gives teams time to perfect how the tiers will be named and marketed so that it launches with branding that matches the benefits.
Starting with invisible tiers can help leaders avoid spreading them too far apart as well, according to Stephens. They can take the time to understand how long customers spend within a given tier and match that against the company’s goals.
Whatever the approach, getting loyalty tiers right, from maximizing flexibility to avoiding complexity, is a matter of understanding the customer and testing the program.
