To Tier or not to Tier: When Loyalty Programmes benefit

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Tiering is a way of offering differentiated rewards or experiences to your Loyalty Programme membership based on their behaviours. It is a more complex way of rewarding members for their loyalty but – when done well – Steve Burnstone, CEO at Eighty20 believes it can make for a powerfully engaging customer experience.

Retailers have used a slightly different approach to great effect. Woolworths WRewards, for example, allows members to gain access to additional benefits by opting into “clubs” – new parents, for example. Another approach asks members to pay a little bit extra to opt into special interest groups, thereby subscribing themselves to more personalised benefits and rewards.

Tiering uses transactional or non-transactional behaviours to differentiate and segment members more easily, and reward them accordingly. There are some very clear benefits to this approach. Being able to differentiate between high value and low value – or highly engaged or disengaged – customers means brands don’t have to give very much away to customers who don’t want to change their behaviour or who are not loyal. At the same time, it enables them to engage more effectively with those who do.

Tiering also creates opportunities to innovate within the programme itself and within the marketing and communications that support it. Lastly, tiering can add an aspirational element to loyalty programmes that encourages members to actively engage more.

Tiering isn’t for every programme though, and sometimes it’s better not to do it. Simple programmes, like Seattle Coffee’s “buy nine and get the 10th one free” programme, gain no benefit from tiering and are very successful just as they are. Another risk is that tiering can also cause some customers to feel undervalued, if moving up tiers is too difficult or too expensive.

In my opinion, it’s good to explore a tiering strategy when designing a Loyalty Programme. But if it is to add value to your brand and your customer, it’s important to include non-transactional behaviours as well. Focussing solely on transactional behaviours can leave extremely loyal customers out in the cold. Especially in South Africa, where we have such a large gap between high-income and low-income earners, transaction-based tiering can ultimately exclude lower-income customers simply because they can’t spend as much in a month as a wealthier customer is able to spend in one visit.

Ultimately, what a tiering structure aims to do is segment your customer base and encourage them to engage with you more. It gives you the ability to show your appreciation or loyalty towards your customer, in exchange for theirs, creating the sense of personalised attention that is becoming increasingly important to consumers today.

Customers at the bottom tier may well disengage from your brand, or opt out of your loyalty programme altogether, if the rewards are not worth it and they can’t afford to move up a tier. An approach that rewards customers not only for transactions, but for engaging with your brand, will go a long way towards retaining members and entrenching brand loyalty. For example, rewarding customers for non-transactional activities such as visiting your app and playing a game, rating a product, updating their personal details or tagging your brand on social media, helps include customers who may otherwise be unable to participate in a higher tier.

Increasingly, non-transactional engagement measures are being used to segment members, and it makes sense. This approach can drive tiering aspiration and lift across your entire customer base, instead of stretching or retaining only a small group of customers who can achieve a predefined spend threshold. We are seeing this trend across industries, where the likes of VodaBucks Shake Everyday, Vitality Active Rewards, UCount Goals & Gains, Clicks ClubCard’s Match to Win and others are all starting to use gamification and ‘micro-behaviours’ to drive increased rewards. The overall benefit to the business can be significant.

Your approach to tiering will need to be included as part of a broader programme design or evolution strategy, and must consider the factors that can make or break your programme. This ranges from considering whether the rewards match the effort required to access them, right through to how your business and staff are incentivised to support the Loyalty Programme. If a tiered approach to your Loyalty Programme is a good fit for your business, it’s important to look at both internal and external data to determine:

  1. If there are clear groups of customers that can be differentiated, how they behave and how best to engage with them
  2. What targeted behaviours you would like to drive to achieve your strategic targets
  3. What rules and benefits are most likely to encourage those targeted behaviours and the resultant financial impact.

Careful analysis is essential to determine the right tiering parameters. How many tiers do you need? Do you understand your customer well enough to design a programme that will make sense to them? What should your thresholds look like?

How to design tiering in your programme

At Eighty20 we follow a structured data driven approach to help answer these questions. Firstly we use internal data to create a single view of customers to understand the various customer segments. We then augment this internal view with imputed profiling variables, using tools such as our Eighty20 National Segmentation. This enables a clearer view of your business’s penetration into the broader market (share of wallet), but more importantly a detailed view of how your customers behave and how best to engage with them.

In addition we often use primary research techniques such as MaxDiff or conjoint analysis to understand customers preferences between different benefits and propositions. Finally, once we have landed on some proposed CVPs, we use financial models to understand the interaction between different rule and benefit sets and the resultant behaviour change they could drive. This modelling will show the minimum behaviour required to break-even and then secondly what return on investment is possible.

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