Loyalty programs are useful strategies to retain customers by providing rewards depending on the amount of money spent or the frequency of purchases. There are many types of loyalty programs and one of the most popular types is tiered loyalty programs.
Owners of tier-based programs reported a 1.8 times higher return on investment than those of programs without tiers, according to the Global Customer Loyalty Report 2022.
In order to foster brand loyalty, businesses can use tiered customer loyalty programs to motivate customers to engage with all aspects of the program. Keep reading to learn how to build an effective tiered loyalty program for your Shopify business!
What are tiered loyalty programs?
Tiered loyalty programs are a type of membership program where customers can benefit from various loyalty program perks depending on their rank.
The main way it differs from other types is that it has a clear structure. A hierarchical structure used in loyalty programs helps motivate customers to purchase more so they can achieve higher ranks and unlock more perks.
These programs naturally make your customers feel valued and appreciated as the higher levels offer more perks. They are aware that they are receiving special benefits that the bulk of other customers do not receive.
Customers feel a sense of importance thanks to the exclusivity that comes from such a hierarchy, which also improves the bond between them and your businesses.
How do tiered loyalty programs work?
Customers will have access to ever higher prizes as they go up the program’s tiers. Customers will be eligible for new perks and privileges whenever they spend a particular amount. Discounts, coupons, gift cards, freebies, and even credit card points/miles are offered as incentives.
In contrast to traditional earn-and-burn loyalty programs, tiered loyalty programs classify members into different groups according to different metrics. As customers advance, the value of the incentives, services, or benefits that characterize each rank or tier increases.
Tiering is effective at boosting customer involvement and engagement. Tiers encourage users to move up the levels in order to get the highest rankings and win the best rewards.
Members of loyalty programs can earn points for a variety of actions they do and purchases they make. You can choose what actions will do so beforehand.
Customers will level up in the tiers of your loyalty program by accumulating more points. You can foresee the number of points that customers will have to accumulate in order to move up to tier two, three, and so on.
For example, as a thank you for signing up, you give your customer 15 points. They will then receive more points for each successive action they complete, which they can use to claim a reward when making their initial purchase.
Benefits of tiered loyalty programs
Although tiered loyalty programs are not new, they remain one of the best ways to define your brand community. Let’s learn what, specifically, makes them so efficient for attracting customers and increasing sales:
1. Tons of benefits and privileges for customers
Benefits that are linked to tiers gradually rise in value. The perks and brand experience are greater and more exclusive as customers reach the higher tiers.
In addition to transactional rewards (such as points for money spent), customers can enjoy experiential rewards which establish an emotional bond between them and the brand. The experiences available to members who receive experiential incentives are only exclusive to the brand and cannot be found elsewhere.
2. Better customers engagement
Tiers naturally create chances to connect with your customers in ways other than through transactions. To increase customer excitement and emotional connection, you should customize your VIP programs’ branding, color, tier name, etc, so that they are well-aligned with your brand theme.
By creating program tiers that are tailored to both your brand and audience, you can use your distinctive branding to make your rewards program creative and specialized.
3. A better understanding of your customers
You can effectively segment your customer base thanks to tiered loyalty programs by keeping track of and analyzing member behaviors and preferences. Besides, you can build communications that are specifically targeted and enhance the customer experience your programs offer.
4. Establishing long-term customer loyalty
Tiered loyalty programs lay the groundwork for long-lasting, emotionally based relationships between customers and brands. Members feel honored by the brand when they reach a specific status or level, but they also experience anticipation and delight when they receive incremental advantages.
Since customers recognize the advantages of sticking with your brand, they will keep returning for more. Hence, businesses can generate greater income over time by implementing tiered loyalty programs.
5. Becoming more competitive
You will be in a stronger position to protect customers from the competition when you have a tier and advantages that they can obtain only with your brand.
People will be more likely to choose you over your competitors if you give them offers like free shipping or extended returns in specific tier levels that they can’t get anywhere else. That allows your customers to get more interesting and exclusive perks with each transaction.
What is a tiered membership program’s cost?
In this part, we delve into the cost of this membership program but one decision must be made before budgeting: Who will create your loyalty program? This decision will have an impact on the entire budget planning process. There are three options to think about:
- Internal planning
- Agency’s custom plan
- Loyalty program software
Moreover, management, marketing, and technology are other components of budgeting for tiered loyalty programs. Ask yourself how many employees you want to dedicate to managing the loyalty program or how big the marketing campaign should be.
Finally, the costs of perks offered to your members are the most important component in your budget plan. As they vary significantly, it is more challenging to create a bottom line for your reward system than it is for marketing and technological costs.
Based on customers’ feedback, you will need to make adjustments like removing unpopular prizes or adding new rewards for holidays or special occasions. If the reward expenses are calculated properly, they will increase revenue growth rather than decrease it.
Tips to create successful tiered loyalty programs
It is highly recommended to create a tier-based loyalty program if you want to retain your customers and increase their lifetime value. The ladder and regulations that customers have to abide by in order to obtain rewards and perks are built up through tiers.
To make customers feel more appreciated and invested in your brand, you need to provide them with something special rather than merely loyalty points endlessly. Therefore, our following tips will help you make your tiered loyalty program alluring to your customers:
1. Choose a structure that fits your strategy
A tiered loyalty program can be created in one of two ways: based on points or spending. If your tiers are based on spending, clients can advance by making additional purchases, and each tier is associated with a certain spend threshold.
However, the number of engagement touchpoints with the brand is limited when adopting levels based on spend limits, and progression is typically slower and less exciting.
If your tiers are point-based, customers can climb the ranks by making purchases and engaging in extra activities like filling out a gamified profile, writing a review, or engaging in physical activity.
This enables you to reward members for taking part in a variety of non-transactional activities and makes it possible for users to accumulate points more quickly.
2. Don’t overcomplicate it
Maintaining simplicity will increase participation in your tiered loyalty program. Your clients should be fully and clearly informed of the eligibility conditions. Here are a few ideas to streamline your tiered loyalty programs:
- Set up only 3 tiers: a free or basic tier, a middle-of-the-road tier, and a high-value sort of premium tier for die-hard followers and high-spending patrons.
- Use a visual loading bar that displays the cost to advance to the next level.
- Compare the several tiers side by side to show the varying value levels.
- Don’t make it too hard for customers to advance to the next level; instead, make it worthwhile for them.
Regardless of the style you choose for your loyalty program, keeping things straightforward is always a good idea.
3. Brand membership levels to enhance the sense of belonging
When deciding on the names for each tier, be creative. Try to come up with the best customer loyalty program names and titles that reflect your company’s personality and truly speak the language of your target audience if you want to improve brand engagement.
You can keep it straightforward with a gold-silver-bronze model or get out of the box. For example, the Peach Party is a brand-named loyalty program offered by Our Bralette Club. All clients have the opportunity to participate in the community. With their various tiers, they elevate it to a new level.
They feature a simple spend threshold structure that allows customers to access brand-new, exciting rewards. They name their tiers as “Seed,” “Bloom,” and “Peach.” Each tier fully represents its brand and welcomes customers into a kind, welcoming community.
4. Offer rewards at every level and for various customer behaviors
You need to ensure that no one misses out on rewards. A good tiered loyalty program must offer value at every level. When rewards are available at every level, you can improve the customer experience and encourage more money spent and loyalty.
Besides, you don’t need to base your tiered program on transactions only, consider allowing your potential customers more actions to earn points such as following social media, referrals, etc.
Customers who follow your business on social media, subscribe to your blog, use your mobile app, see product videos, and contribute material on those platforms are also those who deserve your rewards.
5. Best rewards for your best customers
Exclusiveness helps each client feel appreciated. Customers in your higher tiers need to feel more valued by your brand with better rewards. This will enhance their interaction with your brand and increase their propensity to become brand evangelists.
By emphasizing and displaying the differences in benefits, you can add a hint of exclusivity in your program. The biggest rewards should only be for your best clients, and the highest membership tier must have at least a few more privileges than other membership tiers.
Specifically, the high-value level should only be attainable to a small percentage of loyal customers, from 5% to 10%. They are your best customers and they need to feel prestigious with the most exclusive benefits. Meanwhile, the lower levels which are the middle tier and the free, basic tier will be more obtainable to bigger groups of customers.
Therefore, members in the highest tiers experience a sense of accomplishment and superiority. Additionally, members who are in the lower ranks will be encouraged to keep achieving more rewards in order to reach a higher status that perhaps money cannot buy.
6. Custom emails based on customer tiers
Email and loyalty programs go together like peanut butter and jelly. You have the means to provide more individualized incentives and send more personalized emails when using tiered loyalty programs.
You can create automated email campaigns to nurture specific groups when you have information about each customer tier. For instance, you already know a person is a repeat customer when they reach the Silver tier. They may be willing to buy more items if you explain the advantages of the Gold tier. By highlighting the advantages of higher tiers, you can encourage customers to participate more.
All you need to do is regularly verify your email list to ensure you are reaching the right audience and send them thorough details of the unique benefits they will get if they reach higher tiers.
7. Gamification can boost customer engagement
Intriguing loyalty program features like gamification raise the bar for your brand community. Gamification is the process of involving enjoyable, game-like elements in loyalty programs’ user interfaces.
Earning points, receiving random bonuses or prizes, unlocking surprise goodies, and lottery-style techniques where anyone may win if they make a purchase within a specified time limit are examples of gamification.
Tiered loyalty programs can keep customers hooked easily with these addictive components. Gamification offers entertaining features while making sure that users gain rewards for each activity or victory.
bCODE is a fantastic illustration of gamifying a loyalty program. The results bCODE saw a 94% increase in loyalty point spending after launching their double points campaign!
You can set up an exclusive secret tier just for brand ambassadors and influencers. You can quickly segment your most valuable audience by adding a secret tier to your loyalty program. Hence, you may then give them the best rewards possible.
Inspiring tier system loyalty program examples
Businesses are using tiered loyalty programs more and more. If you are planning to create one on your own, it is worth looking at your competitors to see how they set up and run their programs.
The following examples can help you and your team comes up with some inventive ideas on how to make yours interesting for your most devoted customers.
1. Sephora loyalty program
Sephora, a brick-and-mortar and online cosmetics retailer, established its Beauty Insider customer loyalty program in 2007, and it was successful for the company.
Beauty Insider offers clients special, one-of-a-kind privileges through a tiered system of benefits. Members love it not only because of the tiered approach, but because it provides experiential rewards, unlike pure points programs.
Through a tier-based system of rewards, the Beauty Insider program provides clients with unique, exceptional privileges. In addition to the tiered approach, members adore it because it offers experience benefits, such as:
- Members can earn more points per dollar spent and redeem points for free samples or full-sized items.
- High-tier members can take advantage of getting first dibs on restocks, new product launches, and more.
- Other advantages include presents for moving up tiers, free shipping, and point-multiplier events.
With customized sessions, Sephora has created a program that is captivating, motivates customers to purchase more, and significantly raises their lifetime value.
2. Hyatt loyalty program
The World of Hyatt, a loyalty program offered by the Hyatt Hotels Corporation, enables participants to accrue points for lodging, dining, spa visits, and other experiences. These can then be applied to rewards like complimentary hotel stays and excursions.
Customers can sign up for a free World of Hyatt membership. There is a minimum need for nights spent, points earned, or meetings held in order to become a higher-tier member.
This tiered loyalty program offers amenities including free parking, late check-out, premium internet, the ability to share hotel perks with friends and family, guaranteed availability at the last minute, and so on.
3. American Express loyalty program
The American Express “Black Card,” also known as the Centurion Card ®, is distinct from other loyalty programs in that it is only available to those that AMEX invites to apply.
Users are allowed to make any purchases they want with the card as long as they pay them off within a month since there is no credit limit. Along with admission to major events including sporting events, concerts, theatrical performances, VIP events, and more, members enjoy advantages from airlines, hotels, airports, car rental companies, and even shopping sprees.
4. Marriott loyalty program
Another excellent example of a business adopting a tiered reward program is Marriott International. Its program named Marriott Bonvoy provides members with benefits and opportunities that genuinely enhance their hotel stays.
- Members can earn points for using their credit cards, renting cars, flying, and more in addition to staying at hotels.
- Members can use their points to book flights, rent a car, or even purchase gift cards.
- Members may use their points to enjoy deluxe experiences like the entrance to concerts, sporting events, or upscale dining events.
5. Uber loyalty program
Members of Uber Rewards receive points for every qualified dollar spent on Uber trips and Uber Eats orders. Regardless of their experience level or frequency of use, passengers can accrue points and gain access to premium membership privileges at each level. The Uber app makes it simple to access the free loyalty program.
Members of the diamond tier have access to premium support, top-rated drivers, and double Eats points. Members receive a refund for cancellation fees when they rebook within 15 minutes, and they receive 10 reward points for every dollar that is valid on the route of their choice.
Tiered loyalty programs provide you the power to keep your customers not just engaged but also completely satisfied, making them essential to include in your customer retention strategy.
Implementing these programs is a good way to nurture your relationship with customers. Additionally, following our tips will ensure better outcomes, giving your customer the VIP experience.