Editor’s Note: this post was originally published in November 2014 and has been updated for accuracy and comprehensiveness as of September 15, 2016.
Tiered programs are customer loyalty programs that give different rewards based on what tier a customer is in. The tiers are set with milestones that a customer must pass in order to be part of the next tier.
Typically these milestones are measured by dollars spent, but they can be anything. We have seen retailers use the number of orders or number of referred friends, and an increasingly popular one is total loyalty points earned. By setting milestones based on loyalty points earned, your customers are encouraged to interact with all aspects of your program instead of only those aspects that a milestone is based on.
Benefits of a Tiered Program
Tiered programs are a great way to differentiate your loyalty program, and come with a few great benefits. That being said, simplicity is key when starting a program, and tiers are usually added to an existing program rather than as a starting feature.
However, whether you choose to start with tiers or introduce them later, here are 4 benefits of tiered programs:
1. Tiers Increase Customer Engagement
Tiered programs are a great way to boost your program’s customer engagement. By adding tiers to your program you are challenging customers to reach these new levels and are adding an element of gamification to your loyalty program.
A customer’s motivation to reach the next tier in your program is twofold: for one thing, they want the additional rewards offered, but they also desire the social status that comes with that next tier. Science has shown that it’s natural for humans to want to know where they stand relative to others, and this desire is what fuels our desire to strive to reach new tiers. This need to compare is sometimes referred to as the Local Ladder Effect.
As humans we are constantly comparing ourselves to those around us. That is why we obsess over leaderboards when we play games, want to know what our co-workers make annually relative to us, and why we want to compare ourselves to stated averages.
A tiered program plays on the idea of the “Local Ladder Effect” because it lets your customers see where they stand in your program. You can even supercharge a tier’s effectiveness by showing what percentage of your members are in each level. Just make sure that your top tier is reserved for an exclusive minority!
2. Exclusivity Makes Customers Feel Valued
Your tiered program also has the benefit of making your most valuable customers feel, well, valued! By giving more rewards to customers in your upper tiers you are showing them that you value their business more so than a regular one time shopper.
When customers feel valued they are much more likely to become brand advocates. A brand advocate is someone who loves your company so much that they want to tell everyone about it.
Top tier loyalty members are often also brand advocates. Their exclusive status in your program makes them feel “special” and “valued” and they will want to tell the world about it.
Starbucks and Sephora have done a fantastic job of developing exclusivity within their programs, and people are constantly talking about it on social media. In many ways, this social status is the best reward your customers can receive.
3. Offer the Best Rewards Only to Those Who Earn It
A tiered program ensures that you are only awarding expensive rewards to those who are providing the most value in return. This value can be in the form of money spent on your site or sharing actions that are driving new business.
What ever metric you decide to set your milestones on, be sure you know the value each customer in that tier is providing. This way you can reward loyal customers with rewards that reflect the value they are providing to your store.
4. Give Rewards Based On Where a Customer Is In Their Customer Journey
Customers value different rewards and incentives based on where they are in the customer journey. The customer journey is an outline of all the stages a customer goes through when interacting with an ecommerce site.
By having a tiered program you can have different rewards for each tier that reflects where that group of customers is in their journey. This ensures that your rewards are relevant and effective for each tier you have.
Tiered Program Examples (Online)
Now that you know the benefits of a tiered program, let’s look at some examples of loyalty programs that are putting tiers to use. We will start with some online examples and then move onto a few retail ones.
e.l.f. Cosmetics’ Beauty Squad
This first example is e.l.f. Cosmetics, a New York-based makeup retailer. e.l.f. sets their tier milestones based on the number of loyalty points a customer has earned, and has divided their customers into three groups: glow getters, rising stars, and a-listers. Customers earn points for every dollar they spend, and can achieve a-lister status after spending $400 within 12 months.
Beauty Squad is an excellent example of the “reward only your best customers” principle at work. While customers at any level can receive a birthday gift and dollars-off discount on certain purchases, only the most loyal customers are given access to new products, early access to sales, and additional gifts.
Ecodiva Beauty’s Loyalty & Love
Ecodiva is another cosmetics brand making effective use of tiered programs. The Loyalty & Love program was designed as a way of rewarding customers committed to using environmentally friendly beauty products, and each tier has clearly been designed with a consistent loyalty brand in mind.
Setting tiers based on orders is a great way to encourage customers to return and purchase again. Every order brings them one step closer to more rewards. In Ecodiva’s program, customers are able to earn more points per dollar at each tier. This means that customers get accelerated rewards when they place more orders.
Switch Kiteboarding’s Switch Rewards
This last example is from Switch Kites, a New Zealand based kiteboarding company. Switch Kites also sets milestones based on loyalty points earned (known as Switch Rewards). What makes Switch Kites’ program unique is the amount of tiers they have.
Customers progress through the tiers by obtaining loyalty points. The number of point to get to the next tier is as follows, to get to recruit you need 15K points, charger 30K, master 50K, and to reach legend you need 80K.
Similar to the Pixi example, customers are rewarded accelerated points for moving to the next tier. This means that the more points a customer earns, the faster they will earn them in the future.
Tiered Program Examples (Retail)
While tiered programs have become very popular in online loyalty programs, there are also some great examples in the retail space. These two programs are considered leaders in retail customer loyalty.
Sephora’s VIB Rouge & Beauty Insider
Sephora’s VIB program is one of the best examples of a tiered program in retail. The program sets milestones based on dollars spent in a calendar year. In order to achieve VIB status you must spend $350 in the year, and to achieve Rouge status you must spend $1,000.
This program does a fantastic job of establishing exclusivity, and makes customers feel special and valued. One of the ways Sephora does this is with the rewards they offer at each tier.
When a customer becomes a VIB they begin to get exclusive rewards. These loyal customers get early access to new products, advance access to promotional events, and VIB-only gifts. All these rewards strengthen the status a customer feels when moving up a tier.
Starbucks’ Starbucks Rewards
Another premier example of a tiered program is Starbucks Rewards. The Starbuck’s rewards program is consistently regarded as the leader of in-store loyalty programs.
To enroll in the program, customers must register for a Starbucks card or download the rewards app. Once they have registered they are able to collect “stars” by paying for purchases with the card or the app. This is genius because it reduces the amount of transaction fees that Starbucks pays.
Customers are automatically added to the Green level when they register with a card or within the app. They then require 300 stars to move to move to Gold status. There are many benefits given at each level, but the most prestigious has to be the coveted Gold Card.
Costing Starbucks next to nothing to offer, this reward is viewed by many as a prestigious measurement of social status. This card makes a customer feel entitled and special and is a great way for Starbucks to increase visibility, making the value of this reward double-sided.
Tiered Program Summary
In summary, tiered programs are a great way to differentiate your program. They provide a number of benefits like increasing customer engagement, controlling expenses, and offering targeted rewards.
Above all, it is important to remember that tiered programs are a great way to enhance a program, not start it. If you are looking to start a program, there are many great resources available to help you get off the ground running, and when you do you’ll be well prepared to start designing your own amazing tiered strategy.