Why Tiered Loyalty Programs Are Attractive For Customers

What is the psychology behind tiered customer loyalty programs? Why they work and how can they increase customer loyalty? Find the answers in this blog post.

The cover image of Antavo's Tiered Loyalty Programs Guide
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What makes customers truly loyal? According to Relationship Marketing, the key lies not in sales and discounts, but in customer satisfaction and long-term engagement. This is underlined by the fact that customers with an emotional connection to a brand have a 306% higher lifetime value. From this point of view, tiered loyalty programs are one of the most efficient ways to retain your audience. Let’s find out why!

What Is a Tiered Loyalty Program?

A tiered loyalty program is a type of membership program where customers enjoy different loyalty program benefits depending on their rank. Unlike traditional earn & burn loyalty programs, tiered loyalty programs rank members into certain groups based on a certain metric. Each rank – or tier – is defined by a set variety of rewards, services or benefits, which increases in value as customers progress.

To better understand these loyalty program types, think about “love” as a strong emotional bond that’s required for a successful marriage, or even a deal or purchase. This bond sustains loyalty, which is the core component to repeated and frequent purchases. And that’s precisely why tiered loyalty programs are so powerful, since they give customers a benefits structure they can really sink their teeth into and engage with for years to come.

If your customers are fed up with point expiration or want a more flexible way to spend points, tiered loyalty could be a great alternative. In this video Zsuzsa Kecsmar, CMO and Co-founder of Antavo asks Jörn Roegler – our VP of Strategy & Insight – what tiered loyalty programs actually are, and how they work.

The 4 Benefits of Tiered Programs

Tiered loyalty programs are popular because they make the life of both the customer and the company better. Here are four loyalty program benefits for tiered reward systems

  1. New ways to engage customers: Use the reward program for branding – come up with meaningful reward level names and use a new layer of color scheme and imagery to bring excitement to a member’s life.
  2. No mix-up with expiration dates: Points that expire are frustrating for the customer and a major undertaking for the company to properly communicate. Also, if you have levels, long-time customers can keep their benefits, in contrary to only using point.
  3. Shield Yourself from the Competition: By attaching services like free delivery or extended returns to certain tier levels, people will be inclined to choose you over the competition, as they are granted additional benefits to their purchase.
  4. Segment customers even better: By reviewing the activity and aspiration of members, companies can better understand them. On the other hand, customers would feel that the brand looks after them.
Tiered loyalty programs benefits
Raise the competitive spirit in customers by attaching higher-value rewards & benefits to the top tiers and applying different reward mechanisms per tier, including fixed benefits, behavioral triggers and surprise & delight benefits. This is how we think of this matrix while we help our clients.

How Tiered Loyalty Programs Use Behavioural Science

If you wish to retain your customers, inspire them to climb your loyalty program ladder. Tiers help you set up the ladder – and the rules that customers can follow to receive rewards and benefits. But instead of just collecting loyalty points indefinitely, members receive a loyalty status which makes them stand out and feel more acknowledged and invested in the brand. And more importantly: it provides a goal for members to shoot for, and therefore an incentive to keep up their interest in your loyalty membership program far longer.

Just think about the video games where you beat monsters and collect treasures to unlock a higher level. Once you reach that higher level, you’ll unlock more awesome rewards. You kind of get addicted to this gameplay loop, because it lets you experience a series of incremental achievements.   

Tiered loyalty program pyramid
When portraying loyalty programs as part of Maslow’s Hierarchy of needs, tiers can satisfy the upper three categories.

5 Ways to Make Your Tiers Exceptional

1. Have a differentiator that sets you apart from your competitors

Everyone is a child at heart, expecting a reward for what they have done. And that means customers compare their gained value with other customers’ achievements. Hence, you as a smart parent should underline and visualize the difference in benefits. The gold status must have at least 2-3 more privileges than lower membership tiers.

This adds an air of exclusivity to the loyalty program, while also giving a feeling of satisfaction and superiority to those who achieve the desired rank. Furthermore, members who obtain the gold rank will push their way even higher to achieve more rewards and get an even better status, that maybe money can’t buy. This is how a tiered loyalty program unobtrusively prevents your customer from choosing your competitor’s membership program.

Stylebop.com tiered loyalty program
STYLEBOP.com, the luxury fashion retailer has five tiers, each with corresponding bonuses. The higher you are on the ladder, the more exclusive your status is. Plus, on higher levels you earn more points for the same purchase.

2. Learn how to name membership levels to increase the feeling of belonging to a community

Let the creativity flow when choosing the name of each rank. Think about the best customer loyalty program names and titles that reflect your business’s personality AND really speak the language of your target audience to increase brand engagement. For example, in the case of a nutrition supplement store, the level names could be: Rookie, Hardcore Builder, Shredded Superstar, etc. Be as fun and engaging as possible.

Marvel's tiered loyalty program
For more inspirational reward program names, just look at Marvel. In Marvel’s loyalty program, participants can reach four levels: Insider, Agent, Elite and True Believer. These statuses reflect on how comic book fans may define themselves in the comic book community. And it also allows fans to associate their levels of membership with their level of commitment to the community.

3. Use the power of subscription fee-based status

For years now, discount culture has been conditioning customers to follow the price tag. As a direct result, buyers feel less loyal, abandoning you immediately in favor of a competitor who offers bigger markdowns. That’s why your reward system should have a wide array of incentives to surprise, satisfy and retain customers.

Moreover, you need to be consistent with your offer. The best working example of fee-based loyalty programs – besides the recently released Amazon Moments –  is that of Amazon Prime. In different tiers, you can get different rewards based on your subscription fee. Their success proves that people are willing to pay month-after-month for high-quality loyalty program benefits.

Fee-based  loyalty membership programs can add further value to your tiered loyalty program, especially by deploying  some of these features:

  • Faster ROI delivery, because money comes into the program right after a member signs up, instead of driving revenue over a longer period of time.
  • Pay-to-play incentives motivate customers to stay active, because they don’t want to throw money out the window.
  • Qualified membership allows you to avoid having loyalty members who sign up without actually having a real interest in your loyalty program.
Orchestra's The 50% Discount Club
Orchestra, a French fashion outlet for kids, has a discount club where members receive a 50% discount on all products, in exchange for an annual fee of $10.

4. Increase customer engagement through gamification

Another great example comes from our all-time favorite coffee chain: Starbucks. They have a tier system and also involve a little gamification in their loyalty program, by allowing gold card owners to earn more points on Monthly Double-Star Days. Once per month, flashing the personalized membership card earns customers four stars per $1 spent, instead of two. This is a great way to max out another gold-tier reward, which comes after collecting 125 stars. So why is this a clever move?

To put it simply, the feeling of receiving a rewarded is a great motivator. 75% of consumers prefer to associate themselves with a brand that offers loyalty program rewards. However, this report suggests that some loyalty programs actually don’t help to strengthen emotional bonds with the brands. Why? Because they only focus on discounts. This is precisely when gamification swoops in to save the day; introducing fun elements into your tiered loyalty program. And where there’s fun, there are emotions.

 LuisaViaRoma not only has a tiered loyalty system, but as an added bonus customers can unlock different rewards.
LuisaViaRoma not only has a tiered loyalty system, but as an added bonus customers can unlock different rewards by completing a series of challenges, called badges.

A banner recommending to download Antavo’s case study on Luisaviaroma5. Personalise emails based on customer tiers

By including tiers in your rewards program, you automatically have a way to send more personalized offers. Email and loyalty programs are a match made in heaven anyways, proven by this award-winning campaign that generated more revenue than all non-loyalty emails combined.

If you know their tiers, you can set up automated email campaigns to nurture specific groups of customers. When someone reaches the silver membership, you already know they are a returning customer. But if you tell them about the benefits of the gold rank, they’ll go and buy more from you.

The goal here is to incentivize customers to engage more level by showing the benefits of higher levels. You’re encouraging them to move from their current customer life cycle stage toward the ultimate goal, real loyalty. Want some more tips on getting there? You can read more about customer lifecycle-based loyalty offers and personalization in this blog post.

Estée Lauder tiered loyalty program email personalisation
As a member of Estée Lauder’s loyalty program, you’ll receive emails that display personal information, such as your loyalty points, tier level, available discounts, and even the date of your first log-in.

How to Start

Before you start planning your loyalty program tiers, it’s best to get back down to the basics and examine how to create a loyalty program, step-by-step. In case you missed it, this ebook describes how to build a successful and flawless loyalty program in 7 steps.

A banner recommending to download Antavo’s 'The Definitive Guide to Creating a Successful Loyalty Program'

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Headshot of Zsuzsa Kecsmar, Co-founder, CMO and Head of Partnerships at Antavo

Zsuzsa Kecsmar

Zsuzsa is CCO and Co-founder of Antavo, listed by Forbes as one of Europe’s top 100 female founders in tech. After acting as Antavo’s CMO for nearly a decade, she took over the role to help the company’s clients. She is also a former journalist and has been awarded by the European Commission.

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