CUSTOMER LOYALTY

How Tiered Rewards Programs Can Double Your ROI (Again)

by Emma Kimmerly

January 9, 2023


A tiered rewards program is a powerful way to increase customer retention and revenue. By creating different levels of rewards based on customers' spending habits, businesses can incentivize customers to spend more, while also providing exclusive benefits to their most valuable customers. 

Such programs can increase customer loyalty and drive repeat business, helping businesses achieve their revenue and growth goals quickly.

Let’s explore what a successful tiered rewards program looks like, and how to start your own.

Jump ahead:

 

What Is A Tiered Rewards Program?

A tiered rewards program is a specific program that rewards consumers differently depending on the tier they’re in. Customers can advance to higher tiers — and receive more valuable rewards — after completing predetermined actions.

Since the rewards program is typically set up similar to a hierarchy, members are incentivized to reach higher tiers. Upper tiers elevate their social status and reward them with special perks.

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When executed properly, tiered rewards programs can boost customer loyalty, increase referrals, and improve retention rates. 

Whether you’re looking to acquire new customers or simply keep the existing ones loyal, tiered rewards programs can be used in both referral marketing and loyalty marketing to scale your rewards programs and keep customers happy. 

  • Referral Marketing. Advocates are your key to new customers, and you can encourage them to refer even more Friends by offering better benefits. Allow Advocates to advance to a higher tier and receive greater rewards based on the purchase amount of their Friend or by how many Friends they convert. This elevates any standard referral program because it motivates Advocates to continuously refer, not just claim one reward and stop.
  • Loyalty Marketing. Tiered loyalty programs give high-value rewards to those at the top, encouraging customer engagement and participation in the process. Since each action they take will result in some form of reward (gaining points to reach the next tier), customers will stick with your brand to keep receiving benefits. A tiered loyalty program is a great way to increase customer retention and customer lifetime value.

 

The 6 Benefits Of Using A Tiered Structure

In short: A tiered structure can take your already successful referral or loyalty program to the next level. 

Here are 6 of the top benefits you get from choosing a tiered structure for your next rewards program.

1. Understand Your Customers Better

You can learn what your customers respond to and what excites them once you have a tiered rewards program. If you introduce a certain reward for a tier, and customers respond positively by completing the actions to reach that tier, you have a solid understanding of what they respond to. On the other hand, if customers don’t try to reach that tier, you have valuable information on what kind of rewards they don’t want to see.  

This valuable information can not only help inform your marketing efforts but also product development by seeing which products are redeemed the most.

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A tiered structure also allows you to improve segmentation. Customers naturally fall into segments depending on the tiers they’re in. Use this information to identify which customers are most engaged or spending the most, and target them appropriately. This insight into customer behavior is extremely valuable. 

It’s key to segment customers by behavior rather than needs, values, or demographics, research by McKinsey proves. When you segment by behavior, you can see customer acquisition increase from 10% to 20% and customer satisfaction and engagement increase from 20% to 30%.

2. Introduce New Ways To Engage Customers

Everyone loves a little healthy competition, and a tiered reward program is one way to invoke your customer’s competitive spirit. Use that spirit to drive customers to other platforms, like social media or newsletter signups, or to engage them differently, like redeeming rewards. 

With a tiered rewards program, they’ll be motivated to engage more if that means leveling up to a higher tier. 

The key: make sure the greatest ranking has the greatest prize, so customers are incentivized to reach it.

A tiered rewards program that is designed creatively can offer a win-win situation for both the business and customers. 

One way to make the program more engaging for customers is to gamify it by adding elements such as a progress bar or points tracker. This will allow customers to visually see their progress in the program and how close they are to reaching the next level, which can be more motivating than a program that only advances based on money spent. Additionally, this allows them to compare themselves to their peers in the rewards program, creating a sense of friendly competition.

It's also important to understand that not all members are created equal. We can break them down into segments like enrolled members, active members, and redeemers. Out of these groups, redeemers are the most valuable as they tend to spend more. 

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In fact, active members typically spend 10% more than enrolled but inactive members, while redeemers spend 25% more. To maximize the impact of your loyalty program, focus on increasing the number of redeemers as it can lead to greater sales increases than simply tracking membership numbers.

These increased levels of engagement can transform into increased levels of customer loyalty and customer happiness, both crucial metrics to your brand’s success. 

3. Build Long-Lasting Customer Loyalty 

Focusing on existing customers is crucial for building long-term loyalty. According to research, 75% of customers who are part of successful loyalty programs are willing to change their behavior to benefit the business. Tiered reward programs are a great way to achieve this kind of loyalty by giving customers incentives to continue doing business with your brand. 

With so much competition in today's market, it's important to make your brand stand out and a reward program can be a great way to do it. By providing special rewards and the ability to advance through program tiers, customers will see the long-term benefits of staying loyal to your brand.

4. Keep Your Customers Happy 

Customers are drawn to status, and they also appreciate feeling valued. Since you can identify your most valuable customers based on which tier they’re in, you have a great opportunity to show them how valuable they really are.

Your highest program tiers should be your most exclusive ones, meaning it takes high levels of engagement and spending to reach them. Reward exclusivity by setting truly valuable rewards for these tiers. Customers want to feel special, and you can do this by offering early access to new products, an invite to special events, or personal notes with freebies.

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When customers are happy, they want to shout it from the rooftops. Upper tier program members will gladly show off their unique rewards, which means more word-of-mouth marketing for you.

5. Withstand “Slow” Seasons 

Companies dread slow seasons, but with the right strategies in place, you can avoid those undesirable months altogether. Ecommerce businesses largely see summer as a bad time for businesses, with July generating 30% less activity than December. A tiered rewards program is your key to circumventing this drop in sales.

While there’s not a societal pressure to spend like one would in the holiday months, your tiered rewards program can stand in as this form of incentivization. Identify your “slow” season — it might not be summer depending on your product/service — and make sure you're promoting your tiered rewards program during this time.

With enough members, your program can fill the gap during this otherwise “slow” period. Keep up the rewards and keep increasing engagement, and you should steer clear of a damaging slow season.

6. Create Additional Opportunities To Connect 

Customers don’t appreciate excessive communication when it’s unwarranted. A tiered program is the perfect excuse to stay in constant communication with your program members naturally. 

Send automated email campaigns that update them on the rewards they can claim, what they need to do to advance to the next tier, and how they rank among other customers. This encouragement might be what they need to move up to the next tier. And, in the meantime, you’re increasing your revenue.

 

Tips For An Effective Tiered Rewards Program 

When you’re running a tiered rewards program, you’re giving out valuable perks and rewards — but in exchange, you’re receiving invaluable benefits like increased engagement, increased revenue, and more customers.

An effective tiered rewards program saves the best rewards for the best customers. Even better, you’re giving them the blueprint on how to be the best customer, while still rewarding them along the way.

Here's a few tips for launching a successful rewards program that’s attractive to your newer customers and your most loyal customers:

  • Make It Simple For Customers To Sign Up. A rewards program can’t function without members. Advertise your tiered rewards program far and wide by offering complementary points when new customers sign up, including a call to action on your home page, or sending out an email blast to already loyal customers. Make signing up accessible through email or text and include some sort of incentive for joining in the first place.
  • Make Program Rewards Easy To Understand. Now that you’ve got members signed up, make it clear what rewards are available for which tiers. Many brands do this by designing a visual table that illustrates this information. If you want program members to move up tiers, they need to understand what rewards they can achieve.

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  • Name Membership Levels To Increase The Feeling Of Belonging. Not only is it catchy, membership names further cement a customer’s feeling of importance in your loyalty or referral program. Make sure the name of the tier reflects the status, and name the highest tier something prestigious that customers will want to achieve. “Icon,” “rockstar,” and “trendsetter” all sound more fun to be a part of than simply “tier 4.” Get creative with the names, and have these statuses reflect your product or your customer’s ideal self.
  • Introduce Diversified Rewards. Customers have to think the reward is valuable for it to actually be considered a “reward.” Don’t keep the same reward throughout all tiers of your program and reserve the more unique ones for the higher tiers. If you offer a free product for one tier, let them choose which product they want out of a selection of 3. This added choice lets them determine what’s valuable for them, and gives you important insights into customer behavior.

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  • Increase Customer Engagement Through Gamification. Keep things fun and interactive by gamifying your tiered program. Add badges and leaderboards to bring out their competitive spirit. Make redeeming rewards exciting by incorporating a prize wheel they can spin. Boost your other platforms by encouraging and rewarding social sharing. A good gamified rewards program will have an app to cater to customers that want to engage on their phones. 
  • Make It Easy To Earn Rewards By Tailoring Loyalty Offers Around Purchases. While you definitely can — and should — use your tiered program to engage other platforms, don’t only focus on that. At the end of the day, sales are still one of your most important goals, and consumers should receive rewards for every purchase they make. This incentivizes customers to keep buying from your brand, and it also keeps the tiered loyalty program simple. Don’t over-confuse things by making it difficult to earn reward points.
  • Best Benefits For Your Best Customers. Don’t give all your best goodies to the mid-tiers. Make sure your highest tier is the most desirable one. The customers who reach that level are your most engaged, loyal customers — and they deserve the best benefits. This will make them feel appreciated and valued.
  • Personalize Emails Based On Customer Tiers. You have valuable insights regarding your customer’s behavior based on the tiers they’re in. Send out personalized emails that are related to the rewards program. Maybe they have points they can redeem or just need to complete a single action to advance to the next tier — tell them in an email.
  • Build Emotional Connection With Experiential Rewards. If you really want to stand out from your competitors and create an emotional connection with your valued customers, give out more than transactional rewards. Experiential benefits are exclusive to your brand, meaning customers can’t go to your competitor to duplicate the experience. Invite them to in-person product launches or holiday product parties and they’re sure to think of your brand fondly.
  • Don’t Forget About Mystery And Hidden Tiers. Want to spice up your program even more? Consider adding a hidden tier, available only for the top 1%. When members are invited to join this unadvertised tier, it adds an additional layer of exclusivity and specialty. A hidden tier can also be used to segment influencers or brand ambassadors where you can set up different rules and rewards for this group.

 

Cost Of Using Tiered Levels In A Referral or Loyalty Program

One hesitation brands may have before starting any kind of rewards program is how much it’s going to cost them. Is the investment worth the return? For tiered rewards programs, it is

Brands with tier-based loyalty programs report a 1.8x higher return on investment compared to programs with no tiers. Customer acquisition is important, but customer retention is perhaps more vital. Customer retention reflects how well your brand is keeping existing customers happy — and tiered levels in referral or loyalty programs are a proven way to keep them satisfied.

When starting a tiered rewards program, keep the amount of tiers relatively low. You can always add tiers, but taking them away introduces complications. Save your most valuable rewards for the customers who deserve it, and don’t go giving everything away to anyone who participates.

 

Examples Of Tiered Loyalty Programs

Some brands have really figured it out when it comes to tiered programs and how to make them successful. Whether you’d prefer to keep it simple or go all-out with various rewards and tiers, we’ve got an example for everyone. 

Here are some tiered loyalty program examples to inspire your own.

Cora’s Tiered Referral Program

Cora introduced a tiered referral program that allows Advocates to advance to higher tiers depending on how many Friends they refer. While referring just 1 friend places them in tier 1 and rewards them $5, they have the opportunity to unlock additional tiers and even more money per Friend referred.

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As soon as an Advocate successfully refers at least 6 friends, they’re rewarded $10 per friend instead of the original $5. Many referral programs give out money per referral, but the introduction of tiers incentivizes Advocates to keep referring so they can achieve higher status and better rewards.

This type of program not only brings in more customers through referral marketing — it increases customer loyalty. Advocates are going to have a positive relationship with Cora and keep coming back since they’re accumulating more credits.

Interior Define’s Dual Tiers

As a way to encourage larger purchases, Interior Define started a dual tier program. For the highest tier, when a Friend spends more than $2,000 on an order, they get a $300 discount and the Advocate that referred them gets a $150 discount. 

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If a Friend’s order is less than $2,000, then both the Friend and Advocate receive a $100 discount. With these 2 tiers and 2 rewards, Advocates have a reason to encourage larger purchases and Friends are also incentivized to spend more.

Nuuly’s 3-Tiered Rewards Program

Nuuly has a similar program to Cora where they allow Advocates to receive better rewards if they refer more Friends.

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Advocates can advance to the second and third tier if they refer a second and third Friend. If they accomplish this, they enjoy an increase in discounts — from $10 off the first friend to $30 off the third friend. In total, they can get $60 off if they advance through all 3 tiers.

Sephora’s ‘Beauty Insider Benefits’ Program

Sephora boasts a highly successful tiered loyalty program in the beauty sphere. It’s structured into 3 different tiers — Insider, VIB, and Rouge. They make it very clear what each tier rewards, and how to unlock higher tiers. 

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As you can see, the rewards get better depending on what tier you fall into. While Insider tier members — customers who can join the loyalty program as free members — enjoy 10% off seasonal savings events, Rogue customers can take 20% off. 

They do a great job with exclusivity, saving their best rewards for their highest value customers, those who spend $1000/year. These tier members get special benefits like the Rogue Reward, and first access to products.

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Southwest’s ‘Rapid Rewards’ Tiered Program

Southwest airlines implemented a tiered loyalty program that allows program members to accumulate loyalty points they can use for flights. 

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Members join the first tier when they take 25 one-way qualifying flights. They advance to the second tier if they take 50 one-way qualifying flights. This loyalty program is smart because frequent flyers will opt to fly with Southwest so they can earn more points and advance tiers.

Southwest also offers the option to gain points by making Rapid Rewards credit card purchases. Plus, once program members take 100 qualifying one-way flights, they earn the Companion Pass. It’s not considered a tier, but it allows members to take one person to fly with them for free whenever they purchase or redeem points for a flight.

Marriott Bonvoy 6-Tiered Program

With 6 different tiers — 5 that come with elite status and 1 that’s free to join — Marriott has a variety of rewards for all of their program members. 

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Pictured above, the Silver Elite tier is the second tier and is achieved when a member stays 10 nights per year at Marriott. The first tier is available to anyone, from those who spend 0-9 nights per year. Marriot does a great job offering diverse rewards, from late checkouts to free wifi to room upgrades and more.

They offer a few ways to earn points that can be redeemed as well. Members accumulate points from credit card spending, dining with affiliated restaurants, hosting events, and staying nights. Marriott lets members redeem points for everything from gift cards to flights to car rentals. It’s a truly diverse program, meaning there’s likely to be something of value for every member.

Closing Thoughts

A tiered rewards program is one way to stand out from the sea of competitors surrounding you. Make your customers feel valued and give them an exciting, modern way to connect with your brand and forge a strong relationship.

Ready to start your own tiered rewards program? Friendbuy can assist you with every step and help you launch your own loyalty program or referral program that rewards Advocates and Friends automatically, while also preventing fraud.