Learn how to create a tiered loyalty program that drives customer engagement, boosts spending, and builds lasting loyalty with key strategies and real-world examples.
Did you know that 81% of customers are more likely to stay loyal to brands with effective loyalty programs?
Tiered loyalty programs, in particular, are powerful tools for boosting customer engagement and retention. By offering escalating rewards based on customer activity and spending, these programs motivate customers to reach higher levels, creating a sense of achievement and exclusivity.
This article will explore how to design a successful tiered loyalty program that keeps your customers coming back for more.
Tiered loyalty programs are rewards systems where customers earn different levels of benefits based on their spending and activity.
As customers spend more or engage more frequently, they move up through the tiers, unlocking better rewards at each level.
How They Work:
Example: Sephora's Beauty Insider Program
Tiered loyalty programs effectively boost customer engagement and retention by leveraging human psychology and offering tangible rewards for loyalty.
Read more: How to build a loyalty program from A to Z?
Like any other marketing tactic, this type of rewards program is widely used because it’s based strictly on many psychological theories behind it.
Level-based loyalty programs fulfil customers' needs for esteem and self-actualization.
Example: As customers advance in Starbucks Rewards, they achieve Gold status, gaining exclusive perks like free refills and personalised offers, satisfying their need for recognition.
- Endowment Effect: Customers value rewards more once they feel they have "earned" them.
Example: Sephora’s Beauty Insider program makes members feel their rewards are special because they earned them by reaching higher tiers.
- Loss Aversion: Fear of losing status motivates ongoing engagement.
Example: Airline frequent flyer programs often include tier downgrades, prompting frequent travellers to maintain their status.
Customers compare their status with others, striving for higher tiers to gain prestige.
Example: In Nike's loyalty program, members see the benefits their friends have, encouraging them to engage more to reach those higher levels.
Cognitive dissonance occurs when a person's behavior and beliefs do not complement each other or when they hold two contradictory beliefs. It causes a feeling of discomfort that can motivate people to try to feel better.
So that a tiered loyalty program will help customers rationalise their engagement to reduce dissonance, reinforcing loyalty.
Example: Amazon Prime members continue their subscriptions, justifying the initial investment with ongoing benefits like fast shipping and exclusive deals.
These psychological principles explain why tiered loyalty programs effectively boost customer engagement and retention by leveraging human behaviour and motivations.
Tiered rewards systems offer unique advantages and disadvantages compared to other types of reward systems. Understanding these can help businesses decide if this approach fits their goals.
1. Enhanced Engagement:
Customers are motivated to spend more and engage frequently to reach higher tiers and earn better rewards.
Moreover, long-term loyalty is encouraged as customers strive to maintain or improve their status
2. Increased Spending:
Higher tiers often lead to increased consumer spending, boosting company revenue as the results.
3. Valuable Data:
These programs collect detailed customer data, enabling personalised offers and marketing strategies. Personalised rewards also enhance customer satisfaction and experience
4. Psychological Benefits:
Customers feel a sense of achievement and status as they move up the tiers, driven by psychological factors like Maslow’s hierarchy of needs as listed above.
1. It can be complex to Manage & Maintain
Designing and managing a tiered loyalty program requires significant resources and expertise. You also have to balance the difficulty of achieving tiers and the value of rewards. It's a very challenging job.
On top of that, it also needs constant updates and optimization based on customer feedback and performance metrics, adding to the operational burden unless you have the right tool to support this.
Like Influence.io, a loyalty program solutions that make setup, manage or update your loyalty program very simple.
2. Customer Frustration:
Lower-tier members might feel excluded if higher tiers seem too exclusive or hard to reach, causing dissatisfaction.
Fear of losing tier status can create anxiety among customers
3. Costly
High-value rewards for top tiers can be expensive. Businesses must ensure the program’s costs do not outweigh its benefits.
Ready to boost customer loyalty? Start designing a tiered rewards program today and drive repeat business with our expert tools and insights.
To make the most out of this type and avoid the weakness, ensure you have thinking over these criteria:
We are going into more details in the sections below. And we will give you an example of how you should align everything together once you have known the concept.
Start by identifying the primary goals you want to achieve with your loyalty program. These goals should directly support your broader business objectives. Common goals include:
Revenue Growth: Align the loyalty program to drive repeat purchases, increase average order value, and boost overall revenue. This might involve offering more valuable rewards at higher tiers to incentivize more spending
Customer Retention: Focus on retaining existing customers by offering perks that enhance customer satisfaction and loyalty. Long-term retention strategies should be at the core of the Ranked loyalty scheme.
Brand Advocacy: Encourage customers to become brand advocates by providing exclusive benefits that make them feel valued and special. This can include referral bonuses or social media engagement rewards
Integration with Marketing Strategies: Ensure the loyalty program complements other marketing efforts, such as promotional campaigns, seasonal offers, and new product launches. A cohesive strategy can amplify the impact of both the loyalty program and marketing initiatives.
These metrics will help you determine how customers move through the tiers and what behaviours to reward.
Cumulative Spending: Track the total amount a customer spends over a specific period.
Customers who spend more are likely to be your most valuable. Rewarding them with higher tiers encourages ongoing engagement and larger purchases.
Frequency of Purchases: Monitor how often customers make purchases.
Frequent buyers are more engaged with your brand. Rewarding them can help maintain their buying habits.
Customer Lifetime Value (CLV): Measure the total value a customer brings to your brand over their entire relationship.
Customers with higher CLV are more profitable in the long run. Rewarding these customers with higher tiers can boost their loyalty and spending.
Profitability: Consider the profitability of individual customers based on the margin of the products or services they purchase.
High-margin customers contribute more to your bottom line, so prioritising them in tier advancement can be financially beneficial.
Engagement Levels: Track customer activities like participating in surveys, writing reviews, or engaging with your brand on social media.
Engaged customers are more likely to stay loyal and advocate for your brand. Rewarding these behaviours can encourage ongoing interaction.
Referral Actions: Measure how often customers refer new business to you.
Referrals bring in new customers at a low cost. Rewarding this behaviour can lead to more referrals and increased customer acquisition.
Creating a well-structured tier system is crucial for the success of your loyalty program. Here's how to approach the process:
Basic Structure: A simple structure with three to four tiers is usually effective. This provides clear distinctions between different customer levels, motivating them without causing confusion or overwhelm.
Customized Approach: Depending on your business and customer base, you might need more or fewer tiers. If your customers have varied spending behaviors, additional tiers could help cater to different segments.
Clear and Achievable: Ensure that the criteria for moving up tiers are straightforward and easy to understand. This could involve setting clear spending thresholds or tracking specific engagement activities.
Progressive Rewards: As customers advance, the rewards should become significantly more valuable, motivating them to strive for higher levels.
Exclusive Perks: Offer benefits that are exclusive to each tier, such as early access to sales, invitations to special events, or VIP customer service. These perks should feel special and unattainable at lower levels.
Personalized Rewards: Customize rewards based on customer preferences and behaviors within each tier. Personalization enhances the value of the rewards and increases customer satisfaction.
By structuring your tiers logically, with clear criteria and valuable rewards, you can create a loyalty program that motivates customers to engage more deeply with your brand, driving both satisfaction and long-term loyalty.
Creating a balanced tiered loyalty program involves carefully managing how customers access different tiers and the rewards they receive at each level. This balance is crucial to keep customers engaged and motivated throughout their journey.
Encourage Participation: The first tier should be easily accessible to all customers. This encourages broad participation and allows everyone to experience the benefits of your loyalty program from the start.
Maintain Motivation: Design your program so customers see a clear and achievable path to higher tiers. Avoid large gaps between tiers to ensure steady progression and sustained engagement.
Drive Aspiration: Reserve the most valuable and exclusive rewards for the highest tiers. This exclusivity motivates customers to strive for higher levels within the program.
Recognition and Prestige: Publicly recognize and celebrate high-tier members. This can include awarding special badges, mentioning them in communications, or inviting them to exclusive events. Recognition not only boosts their status but also motivates lower-tier members to aspire to higher levels.
Gamification adds a dynamic layer to tiered loyalty programs by making customer engagement more interactive and fun.
It leverages game-like elements to motivate customers, turning their loyalty journey into an enjoyable experience that encourages regular participation.
Gamification should be seamlessly integrated with your tier structure. For example:
For example: Nike’s app allows customers to earn badges for completing workouts, which can also contribute to their overall status within the loyalty program.
Ulta Beauty, a leading retailer in the beauty industry, has created a highly effective tiered loyalty program known as Ultamate Rewards. This program is designed to reward customers based on their spending and engagement with the brand, encouraging higher spending and deeper customer loyalty.
Goal: Ulta Beauty aimed to increase customer retention and average spending per customer by offering a tiered rewards system that incentivizes frequent purchases and deeper engagement.
Implementation: The Ultamate Rewards program is structured to reward customers more generously as they spend more, which aligns with Ulta’s objectives of boosting sales and fostering long-term customer relationships. By creating distinct tiers with increasingly valuable rewards, Ulta encourages customers to spend more to access higher levels of perks.
Spend-Based Metrics:
Activity-Based Metrics:
Number of Tiers:
Criteria for Advancement:
Tier Access:
Rewards:
Gamification Elements:
Example: Ulta runs special events like 21 Days of Beauty, where customers can earn extra points and access exclusive deals, adding a gamified element to the shopping experience.
By following these steps, Ulta Beauty has successfully created a tiered loyalty program that not only increases customer spending and engagement but also strengthens the emotional connection between the brand and its customers.
The Ultamate Rewards program is a prime example of how to effectively design and implement a Tter-based loyalty system that drives both customer satisfaction and business growth
Read more case studies: How SHEKO Combats High Acquisition Costs Using Referrals
An online customer loyalty program platform like Influence.io provides a comprehensive solution for designing and managing a tiered loyalty program that meets your business needs. Here’s how Influence.io can help:
Ready to elevate your customer loyalty? Try Influence.io or book a demo with us to see how we can help you build a powerful tiered loyalty program.