How To Create an Effective Tiered Loyalty Program

No two loyalty programs are the same and that’s how it should be. However, this makes creating one difficult for companies. Whilst we can’t give you a step by step manual on how to create the perfect tiered loyalty program for your business, we still want to help. We have designed a great resource with excellent industry insight, offering top tips to remember when designing a tiered loyalty program. 

This guide will come in handy if you’re building a tiered rewards program in-house. If you’re looking for a flexible loyalty engine that will feed into your systems and work well with your data, you can get in touch with us here.

Now, without much further ado, let’s get right into the topic of tiered loyalty programs.

What is a tiered loyalty program?

A tiered loyalty program is a type of customer incentive program that rewards different groups (or tiers) of customers differently. It is usually formed into a hierarchy system with each tier offering progressively more benefits (or more valuable benefits). Such a hierarchy then creates not only stronger customer-brand connections but also exclusivity, which makes customers feel important.

Tiered loyalty programs are commonly employed by companies that want to engage their customers by offering them rewards for loyalty they exert towards the brand. The main difference that sets a multi-tier loyalty program apart is its clear structure. By implementing a hierarchical structure into a loyalty program, each customer relationship is clearly defined. It is therefore expected that in order for a customer to receive better rewards, they must also meet a set of criteria set by the company. 

How do they work and why?

The world is full of hierarchies, from socio-political to enterprise contexts. Hierarchies also feature frequently in consumer psychology; from Maslow’s hierarchy of needs to Elements of value pyramid. It signifies how human brains work in tiers. By nature, people always look for something better. This is why tiered loyalty programs feel so natural and they also tap well into consumers’ motivations and aspirational nature.

In a way, tiered loyalty programs mirror social settings, in which humans climb the social ladder to acquire a higher social status. As a result, desiring recognition for belonging to a higher tier or group is expected. By clearly presenting all the benefits customers can get by climbing the loyalty program ladder, they are intrinsically motivated to become a part of that exclusive group. Consequently, engagement is increased, which in turn results in retention and loyalty.

What are the benefits to a company?

Firstly, having multiple tiers of loyal customers helps with segmentation. Not only do loyalty programs create useful data but tiers also make it easier to prioritise certain segments.

As already mentioned, multi-tier loyalty programs create more engagement with the brand as they introduce a form of gamification. Moreover, with the right tools in place, they develop a stronger bond with the customers over time without losing momentum. A progressive improvement in rewards ensures every customer feels valued and excited throughout their entire journey.

We know that it costs 5x as much to acquire a new customer than to retain an existing one. Thus, tiered loyalty programs aim to maximise ROI of every single customer without the extra effort setting individual incentives. Tiered loyalty programs tend to be more stable and predictable, which is beneficial for both the company and the customer.

How to create a tiered loyalty program?
 

First, ask yourself this question:

‘What brings value to my brand and what brings value to my customers?’

Your loyalty program should align with your wider marketing and business goals. For instance, if you’re a growing ecommerce brand still working on brand awareness, value can lie within your customer reviews and social media shares as well as the amount your customers spend. For your customers, on the other hand, free returns or express shipping can be valued rewards. Then, you can drive value on both sides by encouraging customers to review your brand in exchange for free shipping on their next order. To create a tiered loyalty program, simply create a set of rules that customers must follow in order to get their set of desired benefits, just like in the example we created below.

If your company is already more established in the market, you might also consider a points-based tiered rewards program. Points-based loyalty programs are good for encouraging customers to shop regularly and spend more at your brand. They are also straightforward and easy to understand, which is why most retail companies tend to employ them. 

Nevertheless, the principles stay the same - your brand needs to establish at which point is a customer more valuable to the company in order to create tiers. In order words, you must decide the dividing number of points a customer must accumulate to move up a tier. In return, your brand should offer better value rewards or more points per £ spent (see example below). 

The reason why something as impersonal as points can motivate customers so well to spend more is exclusivity. Being a part of an exclusive group can give us a feeling of self-actualisation and make us feel accomplished. Never underestimate the value of exclusivity.

Do tiered loyalty programs work in B2B?

Variations of multi-tier loyalty programs can also work in B2B markets. In this case, tiers can be set based on the time a client is loyal for. This idea stems from the concept of customer lifetime value. Due to the often large order value or quantities, this is particularly important in B2B. Depending on the type of your business, you can then reward loyal customers with discounts and other incentives. Furthermore, as client relationships are extremely important to B2B firms, creating a bond via a loyalty program is essential. Consider creating a VIP tier of rewards, which will make your loyal customers feel valued and satisfied. Such a connection then creates a barrier for switching suppliers.

Top Tips For Effective Tiered Loyalty Program

1. Always think customer first. Test every single decision and step against whether it is valuable and attractive for the customer. If not, scrap it.
2. Geek it out. Use gamification to increase engagement, build relationships, and by extension drive loyalty. In order to truly achieve loyalty, you must establish a bond with the customer. Unfortunately, too many companies focus on offering discounts. Whilst these work well on a short-term basis, they do not promote relationship-building. What’s more, they contribute to the brand switching behaviour that is so common among consumers in this day and age. Instead, put some thought and creativity into personalising gamified rewards for your specific audience.
3. Monitor results. Use an analytics software to evaluate which parts of your program work well and which do not seem to resonate with your audience. Consider getting feedback directly from the targeted customers and make necessary changes.
4. Communicate. If you want your loyalty program to be successful, you’ll have to work with your clients to make it work. Explain how the program works, display benefits clearly and regularly communicate when and how they can redeem them. Remember that if you can be helpful in any way, this will benefit both parties. Thus, set up a system of reminding customers of what rewards they are eligible for when they have enough points (or equivalent triggers that you set up).
5. Have it all in one place. Whether you’re building your own program from scratch in-house or getting help from specialists (remember to check out the platform we built if you’re looking for solutions), remember to integrate. From campaigns, to analytics, to reward fulfilment, you want your systems to be clear and easy to use.

Checklist for Effective Tiered Loyalty Program:

• Create measurable value to your company
• Offer rewards that your clients actually want
• Design each new tier to be aspirational and offer improved desired benefits
• Make your program engaging and create customer bond
• Set up targeted communication for each tier
• Put analytics in place
• Integrate systems

Need more information on tiered loyalty programs? Get in touch with us here.

For more guidance on how to create a loyalty program for the modern customer, click here.