What is a tiered loyalty programme?

In today's hyper-competitive market, brands are constantly seeking innovative ways to cultivate customer loyalty. The question is, how can these brands create a sense of achievement that motivates customers and drives loyalty? One excellent way is through tiered loyalty programmes.

Incentive Smart describe tiered loyalty programmes as ‘structured systems designed to reward customers for their loyalty based on their level of engagement or spend’. These structured systems are designed to reward customers based on their level of engagement or spend. 

What’s a tiered loyalty programme?

It’s not as simple as: spend more, earn more.

Tiered loyalty programmes aren’t simply rewards for spending; these organised structures are designed to cultivate emotional loyalty and customer engagement as much as they encourage purchase.

Typically, these programmes have multiple reward levels with different names and requirements. They operate on a structural basis, with each level offering increasingly valuable rewards. Imagine a ladder where every rung represents access to a new level of rewards. Engage more, spend more, and up you climb.

Examples of rewards can include exclusive discounts, early access to sales or personalised offers. Moving up a level could unlock further offers such as complimentary upgrades, VIP access to events and perhaps even custom gifts.

If driving loyalty is one of your brand goals, then you should consider implementing this kind of system. Tiered loyalty programmes make use of psychology to inspire and motivate behaviour, creating excitement for users and making them more likely to engage.  A report by Capital One Shopping reveals that 64% of shoppers adjust their shopping habits to maximise programme rewards. This just goes to show how far customers are seeking to get the best possible value from their spending. By offering appealing rewards you can satisfy customers and drive engagement at the same time. 

Emotional Engagement and Achievement

The psychology behind tiered loyalty programs taps into several human behavioural principles.

From a behavioural science perspective, tiered loyalty programmes leverage the principles of motivation and reinforcement to influence customer behaviour. By creating multiple levels of rewards, these sorts of programmes tap into our innate human desire for progress and achievement. Tapping into this natural tendency is often referred to as the ‘goal gradient effect.’ The way it works is that, as customers move up the tiers, this ascent inspires a sense of accomplishment. This feeling reinforces the behaviour, encouraging further engagement. Additionally, the exclusivity associated with higher tiers plays on the social need for status and recognition, motivating customers to strive for more. By structuring rewards in this way, brands effectively incentivise continued loyalty and increased spending, aligning consumer behaviour with their business goals.

This dynamic is further reinforced by the dopamine release associated with the reward system, which makes customers feel good and encourages repeat purchases. The exclusivity and status felt when reaching higher tiers appeal to the human desire for social recognition, while competitive elements like leaderboards stimulate our instinct to outperform others.

The sunk cost fallacy ensures that once customers have invested in reaching a certain tier, they're more likely to stay loyal to maintain their benefits.

A report by Nielsen found that 83% of consumers trust recommendations from friends and family over advertising. We can imply that if customers see others being rewarded and recognized through a loyalty program, they are more likely to join and engage with it themselves. 

The benefits of tiered loyalty programmes

The primary purpose of tiered loyalty programmes is to offer an incentive for members to stay loyal and level up, in hopes of gaining better rewards.  If these rewards feel worthwhile, then engagement will only increase - a huge win for both the brand and the consumers. Here are a few of the benefits attached to these programmes.

• Staying connected with customers: Tiered loyalty programmes can serve as a source of motivation for customers to stay connected. As they strive for more points to get to the higher levels, they can look forward to unlocking better rewards and benefits.  

• Gamified means fun: There is a gamified nature to this type of loyalty programme. Visual progress can create a sense of anticipation to reach the next tier. Achievements and badges awarded for reaching certain milestones can give customers a sense of accomplishment. Challenges like spending on certain goods, sharing on social media or interaction within apps can add an element of fun and competition.  

• Increased long-term value: It’s a great opportunity for segmentation. You gain valuable insight into your customers' behaviour, preferences, and spending patterns. This means marketing can be more relevant and you increase your potential long-term value.

There’s also evidence that this setup does work. Antavo's 2022 Global Customer Loyalty Report found that organisations with a tiered loyalty program reported a 1.8x higher return on investment than those without tiers.

Another key benefit of loyalty programmes is the opportunity for surprises and additional rewards. According to Forbes, having a ‘hidden’ or ‘mystery’ tier can add an extra layer of exclusivity, exciting customers even more. When existing customers enter this tier, it won’t only surprise them but also impress them, potentially building greater brand affinity.  

Brand Examples

Many brands have successfully implemented tiered loyalty programmes, motivating their customers to engage further and climb up the tiers. 

• British Airways Executive Club:  As well as collecting Avios, members flying with British Airways also earn Tier Points with each flight booked. The varying benefits within the tiers include the number of checked bags, longer upgrade windows, free wi-fi onboard and more. Its wide range of rewards and exclusive offers are what make this programme appealing and encourage members to engage and earn. 

• Marriot Bonvoy: The well-known hotel chain offers its members various rewards to elevate their experience. Points can be earned through hotel stays and credit card usage, and can then be redeemed on a range of things. Entry tiers have rewards like bonus points and priority late checkout, whilst higher tiers include welcome gifts, flexibility on check-in times and full lounge access.

• Elf Beauty Squad: This beauty-focused loyalty programme is widely popular among its customers. Names like Fan, Pro and Icon help differentiate between levels. This one is quite interesting as you can earn points through completing activities on the app and website too, and this is known through research to drive increased engagement. 

Starting off right

Before jumping onto the tiered loyalty bandwagon, there are a few things to consider for the best chance at success.

Clarity on what rewards each level will offer is crucial. Overcomplicating the process can cause disengagement, whereas if levels are easy to understand and rewards are clear – as well as how to redeem – customers will feel more confident in spending and earning. Equally, rewards shouldn’t feel too hard to access. If rewards feel unreachable then eventually the desire to earn dies, which consequently can lead to disengagement. And no brand wants that.

The most successful tiered loyalty programme providers can monitor their programmes to see where to make improvements by listening closely to their customer base. Identifying what behaviours you want to encourage and what kind of rewards would be most appealing to your customers is a good place to start. As well as this, setting goals and monitoring feedback for improvements is key.

For more advice from IAGL on how your brand can leverage tiered loyalty programmes for greater success, please feel free to contact us here.