Loyalty programs are the perfect way to encourage long-standing relationships with a brand, reward customers for specific actions or purchases, and create ways to redeem points for products and services. Additionally, offering an elite membership within the loyalty program can further strengthen retention by incentivizing customers to increase their purchase frequency and grow their relationship with the brand.
Joy Lu, assistant professor of marketing at Carnegie Mellon University’s Tepper School of Business, believes that the benefits of a tiered system include giving customers a sense of goal progress or something to aspire to, and impart a sense of exclusivity that may tap into a customer’s sense of identity and relationship with the organization.
“Both may increase customer engagement and spending with the organization,” she said. “One example would be Sephora’s Insider/VIB/Rouge memberships, where customers may actually be motivated to spend more to maintain their status each year.”
With multiple tiers, companies can further segment customers and reward their highest value guests with exclusive benefits and offers.
The Parking Spot, for example, has a rewards program called the Spot Club, which helps frequent users save money while traveling. The company recently noticed that the original tiers of the Spot Club confused and deterred customers, so they are relaunching the program in early 2020.
The updated Spot Club will consist of two simple tiers: entry level and Platinum (VIP). The new, upgraded Platinum tier will easily identify customers who regularly use The Parking Spot and allow employees to seek ways of making their experience better (automatic upgrades to premium parking, car washes, first entry and exit, etc.).
Today, frequent parkers can qualify for one of three elite status levels based on their parking behavior. Each status level comes with meaningful recognition and benefits which help elevate a customer’s travel experience. These benefits include the ability to earn free parking, priority service, free upgrades, car care discounts, anniversary gifts, and more.
“Our customers appreciate being part of an exclusive club and are excited by the challenge of reaching the next status level,” Rocklin said. “We recently evaluated our program through customer research, and learned that more than anything, customers value simplicity, transparency, and recognition. While customers choose to park with The Parking Spot to enjoy the convenience of driving their own car and to save time and money while traveling, earning free parking and garnering recognition for their loyalty are important benefits that customers deeply value.”
When creating a tiered system, Rocklin noted that program rules and communication must be simple and clear enough for customers to understand how they can earn each benefit.
“Best in class loyalty programs have elite programs that allow companies to better segment customers based on behavior and preferences and to reward high value guests, both corporate and leisure,” she said. “Additionally, by setting aspirational targets for frequent customers, a company can create a ‘sticky’ factor that improves customer retention and grows share of wallet.”
Brock Misner, CFO and co-founder of the Indianapolis based marketing agency Marketing Divine, said that a two-tier VIP club is based on the principle of a value ladder.
“The importance of having a value ladder is simply to maximize profits,” he said. “Some people are willing to pay more than others. If you were to only have one product to sell, you will only capture that much of the market.”
Let’s say a new customer buys a lower-tier VIP membership. Once they become familiar with your brand and obtain value from their purchase, you can nudge them toward a second-tier VIP ticket.
“This also works because it is easier and cheaper to sell to an existing customer or someone that has bought from you in the past,” Misner said. “They know you, they like you, and they trust you.”
Ben Packard, CEO at Thrifty Points, said that multiple tiers can inspire users to earn more benefits.
“Creating tiers makes it easier to join the VIP club,” Packard said. “Not everyone qualifies for the top tier, but they want the benefits that come with it. By creating a lower tier, you make it easier for people to get in and you can create a system for them to work their way up to the higher tiers.”
Many airlines have mastered this concept. What started as a courtesy to first-class passengers, people who need assistance, and those with children, is now a VIP program benefit.
“Having a second tier for a VIP is a great way to get people interested in joining up,” Packard said. “Often, what we see, especially with airlines, is that the creation of these tiers lowers the barrier for entry. It makes it possible for people to start experiencing the benefits of being a VIP on a smaller scale, like by offering a slightly earlier boarding time than everyone else. It further incentivizes people to climb the ranks in the VIP club to get bigger and better bonuses.”
It also gamifies the experience. People get a taste of what life is like at one tier and want more, so they go through the necessary motions to increase their standings. This could mean getting a branded credit card, spending money at certain partner retailers, or simply upping the amount of spending they do with your brand – but either way, you stand to gain for it.