Tiered Loyalty Program & Paid Subscriptions

Earlier, we discussed how loyalty programs can still be successful with the changing needs of modern consumers if emotional marketing is applied. This post extends that discussion by looking at how you may use loyalty tiers. A tiered loyalty program refers to a customer relationship marketing (CRM)-centric methodology that assigns customers to perks and benefits (rewards) based on their level (tier).

A tiered loyalty program exists in contrast to an 'earn & burn' program which typically rewards customers after a specified number of visits or amount spent. For instance, after 9 health shakes are bought, the program rewards the 10th free. 

A tiered program can even be a hybrid of different program types. For instance, a single brand's tiered loyalty program may have a lower level that has an 'earn and burn'  element that is free to join while also having another premium tier that requires paid subscription membership for exclusive status-related benefits. Common examples of paid subscription include Amazon Prime.

Uses & Benefits of Tiered Loyalty Programs

Here are key benefits for using tiered membership programs.

1. Tiered membership programs resolve the 'earn & burn' problem of frustrating customers who lost rewards they had already earned because the rewards expired before customers could use them within a limited period. Tiered programs allow best customers to retain those rewards versus needing to start over again from zero. Furthermore, from the brand's perspective, tier membership eliminates the risk of periodically opening an opportunity for customers to be back at square one with your brand so they can more easily switch to other brands.
2. As discussed below, the paid tier / premium tier of loyalty programs generally can motivate casual buyers to upgrade. The exclusivity of upper tiers should remain strictly intact so that members feel they have achieved something that others have not. Give top tier customers celebrity treatment.
3. They can potentially better engage customers by being more fun, like a game. A simple means is by using fun tier names that are meaningful to your brand. Read in greater detail on how to use gamification in your loyalty program.
4. They protect your brand from competition by making it unattractive to switch. If highly valued customers in tier X already have access to benefits (like free shipping, free consultations, etc), they are more likely to select your brand over the competition as the other brand is unlikely to offer the benefit immediately.
5. Tier programs provide market segmentation opportunities. Brands can use CRM datamining to analyze tier members' behavior and aspiration. Needless to say, using this for active segmentation marketing can provide customers with a more personalized and overall superior customer experience CRX.

DOs & DON'Ts

• Focus more or, better yet exclusively on tiers / tier status (ie over awarding and counting points). Strictly maintain the exclusive quality of the top tiers. Encourage members to feel they have achieved something that others have not. Furthermore, the exclusivity can be used to motivate aspirations among lower tiers. This is even more important if your brand aims to be 'high end'. Use scarcity marketing in the form of high entry barriers to minimize the membership to a select few, often about 10% of your customer base. The status of someone's current tier can also help to eliminate the hassle of managing a point system.

• Encourage top tier customers to brag ... to motivate feelings of aspiration. Sephora's tiered loyalty program continues to outshine others because not only does its USD 1,000 VIB Rouge subscription illustrate scarcity pricing at its best because few people can enter that membership, but it encourages members to brag. Customers are happy to talk about their activities with Sephora using the VIBRouge hashtag on Twitter.

• Use exclusivity-related social motivation emotional marketing to incorporate gamification into the program. Essentially, by encouraging customers to brag over social media so as to make lower tiers jealous, the ensuing aspirations for upward mobility essentially make tier membership itself the reward. 
• Be careful how you manage the point system within a tiered loyalty program because points could detract from the perceived value of a program, especially for higher level tiers and high end brands. For instance, discounts as rewards are not a good fit for high end brand. Example. Sephora's brand stands for luxury. Consequently, although the brand has a point system in their loyalty program, members of even the lowest tier do not get discount rewards. Instead, they get more products. Example. Rename the point system in a brand-appropriate way. 
• If possible, use progam and tier names that creatively reflect your brand rather than more generic names like bronze, silver and gold. Ideally, the names should make the relativity of each rank clear. Example, Klova's loyalty program is called 'sleep squad'. They sell sleeping patches that release melatonin and other natural sleep aid ingredients.
• Customer rewards should reflect the brand and tier groups in quality and style. 
• • Example, I was relieved and delighted when I once needed to use the special services my extended package covered for a computer. I am not very computer techie but was faced with very technical problems. The extended warranty package offered easy access to service that provided hand holding services, desktop sharing to allow technicians to remotely resolve some settings problems also.
• Tiered members are generally much more willing to provide personal data than otherwise. Use this to your full advantage with profiles that customers can fill and update with their preferences. Use data mining to personalize and therefore improve the customer experience.

Sephora allows customers to provide personal preferences that will later inform meaningful recommendations when profiled customers shop.

• Provide an experience of incremental achievements for each tier, all the while allowing customers to aspire for the next tier. To provide this sense of achievement, aim to satisfy the top 3 within Maslow's hierarchy of needs; ie social needs (like recognition), esteem needs (like insider status) and self-actualization needs (like customization).
• As counter intuitive as it often feels implementing it, introduce a fee-based status via subscriptions to offer high value rewards. A well known such program, Amazon Prime exemplifies the willingness to pay for something of high quality. Other examples include yearly subscription for nearby residents to have access to hotel facilities. There are several benefits.
• Customers enjoy instant gratification, indefinitely, ie rather than needing to wait until they accumulate points. This is a major difference between paid and unpaid loyalty tiers. Thanks to Amazon's lead with Amazon Prime, paid subscriptions are even a growing trend among other brands. Amazon continues to enjoy growing subscription, despite raising its price by 20%. Amazon did not even get much pushback.

• The customer's investment is likely to reduce 'customer churn', ie the rate of attrition or diminished interest over time. Behavioral science has shown people's tendency for 'loss aversion'. People prefer to act so as to prevent losing out on their investments. (They often prefer this even over acquiring gains).

• Customers self-qualify, likely as your most valuable customers. The investment implies that the customer is very serious about buying (versus when someone signs up because there was no financial or other commitment and then never engages with the brand). In short, pay very special attention to these customers. Paid loyalty makes best customers even more valuable. Marketers suggest that it is fair to assume that they have already volunteered themselves far through the sales funnel as being 1) ready to buy and maintain a relationship. 2) They seek and expect a good customer experience (CRX). 3) They will engage more regularly. For instance, research shows that they are likely to visit stores and purchase twice as frequently as non-members, even spending more. They are keen to get a return on their investment. 

• Collect data to best learn how to deliver customer perceived value. Take advantage of the fact that paid loyalty program members are generally willing to share lots of data with marketers. Always give them an opportunity to provide feedback. Use data-mining for insight into aspirations, satisfaction, personalization preferences, emotional triggers and so on. Example: Connect point of sale (POS) transactions to a customer's personal rewards point scoreboard. After all, research suggests that as many as 69% of customers feel disconnected if they do not have digital access to their rewards on their smartphone.
• Send personalized text messages to the telephones of customers to motivate sales. 
• Offer a wide variety of rewards of benefits, points and gifts. Aim to satisfy and delight customers. This is important because customers have been conditioned to consider price over loyalty. They have not fully emerged from this mindset. Variety may help. 
• Encourage higher aspiration. Use exclusivity emotional marketing techniques that ensure the higher tier members stand out and feel special for having invested more in the brand. As the airline industry case study of exclusivity membership illustrates, great effort is made to ensure that the haves and have-nots are aware of each others' relative experiences. The distinction may be made between paid and non-paid loyalty membership. Keep the non-paid version.

  

  Special membership into an exclusive club stokes the esteem needs with special 'insider status'.

• Differentiate. Make it as difficult as possible for customers to switch to competing brands. Invest loyalty fees into further benefits. 
• Explore all options for using the premium tier to motivate lower tier members to upgrade.
• When designing a loyalty program, check the following is true about it.
• Easy to understand
• Easy to enroll
• Easy to use and earn rewards
• Immediate and ongoing value, a must for the paid tier
• Exclusive benefits, a must for the paid tier
• Personalization options, especially for the paid tier
• .. 

CONTENT RELATED TO THE DESIGN OF A TIERED LOYALTY PROGRAM

• Must have elements for a successful loyalty program for modern consumers
• Exclusivity emotional marketing 
• Read in greater detail on how to use gamification in your loyalty program
• Satisfaction, customer experience and engagement are most correlated with the success of loyalty programs.
• Use spend-based loyalty rewards programs to give greater rewards to customers with the highest customer lifetime value (CLV) ... and reduce costs while you are at it.
• Loyalty or rewards programs cannot succeed easily if customers can not understand them. Explainer pages must be carefully designed to excite customer interest and easily explain the details.
• Measure the success of your loyalty rewards program.
• Incorporate a referral program into your loyalty rewards program. These 2 types of program complement each other. While the loyalty rewards program seeks to retain customers, referral programs seek to acquire new customers.
• Analyze how well your rewards catalog has been curated
• Gift card programs may be designed to be stand alone or an integrated component of your current referral and or loyalty rewards programs.