Do Loyalty Programs Work for Luxury Brands?

February 23, 2018

Editor’s Note: This post was originally published in April 2017 and was updated for accuracy and comprehensiveness on February 23, 2018.

You go to buy a new premium handbag, or watch, from an amazing ecommerce site you just discovered. They tell you that you can become a member of their rewards program, that will reward you with exclusive invites and first access to new products. They even give you more and more rewards as you gain a higher status in the program.

You look at it and leave, because if a site uses a rewards program it must not be a luxury site. That would never cross my mind, and definitely would not make me leave the site. So where did this myth that luxury brand loyalty programs are ineffective come from?

The Myth - Luxury Loyalty Programs Don't Work

I believe this myth started because luxury brands usually refuse to discount their product. Many loyalty programs allow you to redeem your points for a discount at checkout which is not aligned with a luxury brand’s strategy. I would agree that this type of program is not suited for luxury brands, but to say loyalty programs don’t work for luxury brands is inaccurate.

The Reality - Loyalty Programs Can Provide Huge Benefits to Luxury Brands

Like most things, a loyalty program is viewed how you market it. You need to add and remove things that will make the program synonymous with your brands image.

For example, just changing the name from a “loyalty program” to a “rewards program” immediately makes the program sound more prestigious. There are many ways that you can tailor a program for a luxury brand so that it ends up looking like a well fit suit!


Strategies for Luxury Brand Loyalty

Don’t Focus on Providing Customers Discounts

While shoppers don’t associate loyalty programs with cheap (non luxury goods) they may draw an association between discounts and “cheap” goods. Imagine seeing the following on luxury brand’s brand loyalty no discounts

The heavy discounting, the red, and the overall look scream “cheap”. A luxury brand would not use this type of marketing, and they shouldn’t use it in their rewards program either. Instead of using points to discount, a luxury brand should use points to add value. One way is to use the next example.

Provide Exclusive Experiences and Products

Instead of using points to give customers a discount, a luxury brand can let customers redeem points for products or special experiences. In these scenarios you are providing value through addition rather than subtraction.

Provide added benefits instead of using only discounts.

This is a tactic that has become popular with many luxury brand loyalty programs, such as Sephora’s Beauty Insider program and Starbuck’s My Rewards. When shoppers redeem points for your luxury goods, there is no disassociation from the luxury image you are trying to achieve. An even stronger way to let customers redeem points is with “Points Only Products”. These are products that are not available to be purchased in the store.

These types of products create an additional layer of exclusivity that your customers will love. Luxury brand customers value status and uniqueness and this is a way to give it to them.

Make the Loyalty “Points” Prestigious

Another best practice with a luxury brand loyalty program, is to name the program and points to reflect your brand image. Points sound… boring and generic, not the image your brand is going for. Instead give your points a creative name!

Come up with a creative name for your rewards program.

Starbucks calls their points stars, which sounds much more luxurious than points. Sephora uses “points” but they have a program name that matches their brand and shoppers, The Beauty Insider Program. My last point recommendation is about the number of points you reward.

The number of points you give can impact the way your customers perceive your program as well. If you give a lot of points with each order they don’t seem as rare. Luxury brand shoppers prefer rare and hard to get. Reward a smaller amount of points that are worth more instead of a bunch of points worth a cent each.

Luxury brand shoppers prefer having fewer points that are worth more; this creates a sense of rarity.

Create Status-Driven VIP Tiers

My final tip for luxury brand loyalty programs is to include tiers. A tiered program is a way to reward more to your most loyal and profitable customers, while at the same time encouraging other customers to join them.

A tiered program for a luxury brand ideally has a tier that is only obtainable by a very select few, around 5%. This tier is highly motivating for a luxury brand shopper. They want to achieve the highest status they can, but they don’t want others to be there with brand loyalty tiers

Having multiple tiers that repeat customers can move through quite easily to build up the status they feel on your site. Just be sure that you have an elite status that they can strive towards and aspire to be a part of.

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What the Ideal Luxury Loyalty Program Looks Like

I hope this post has helped remove the myth of luxury brand loyalty programs. If you follow the strategies above you can create a very effective program that does not take away from your luxury image. The ideal luxury program would look something like this.

1. Creates Added Value to You and the Customer

Give your customers something rather than discounting an order.

2. Lets Shoppers Purchase Exclusive Items or Add-ons That They Wouldn't Otherwise Have Access To

This could be products that are not available in your traditional store or an experience such as tickets to an event or meet and greet.

3. Has a Creative and Premium Sounding Name for the Program and the Points

Be sure align names with your brand, what you sell, and the emotion you want customers to feel.

4. Uses VIP Tiers to Make Customers Feel Prestigious

Luxury brand shoppers love to be on top of the status pyramid, so give them a status based on interactions with your site/brand.

Despite the myth, customer retention is something luxury brands cannot ignore. According to Luxury Daily the majority of a luxury brands profits come from the top few percent of customers, but these brands fail to retain even half of their top customers each year.

Luxury brands are failing to retain even half of their top customers each year.
Luxury Daily

That is where a customer retention strategy fits in. A loyalty program is one of the many strategies you can use to retain more customers. You can become a retention expert with our “Ultimate Guide to Customer Retention”.

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