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[20 comments]

Are loyalty program tiers overly confusing?

June 9, 2014

According to a recent study by COLLOQUY, instead of fostering loyalty, the traditional three-tier loyalty structure is creating confusion, particularly with lower-tier members.

The report, Fears for Tiers: 2014 COLLOQUY Study on Membership Status In Loyalty Programs, was based on a survey of 3,077 U.S. and Canadian consumers.

Included in the findings are that almost one-third of consumers do not know which tier they belong to in the loyalty program they use most. Of those who do, 42 percent never make it out of the lowest tier.

Moreover, 80 percent of those members in the bottom tiers are discouraged by the requirements needed to achieve top-tier status. One-third of lower-tier members do not think they are properly acknowledged, even though they participate in their programs often. Overall, only half of respondents said they increased spending or changed purchasing behavior to achieve a higher tier status.

"The traditional tiered rewards system is an outdated solution to the ongoing challenge of maintaining customer engagement," the report states.

Among the recommendations:

  • Clear the clutter: Benefits need to be "simple and clear cut." Successful loyalty operators focus on a "few memorable benefits at each tier level," such as complimentary upgrades for lower- and mid-tier members or access to exclusive events such as fashion shows and celebrity chef dinners for top-tier members. Lower-cost benefits across tiers can also "have value and impact."
  • Stop changing lanes: Part of the problem around engagement is that tier structures keep getting tweaked, working against the member's motivation to pursue a higher tier.
  • Continued education: Many programs are only explained in the sign-up stage to encourage short-term sales.
  • Recognize motivations within tiers: Tiers that group customers based their transactional value are "too broad" and "not sufficiently aspirational or attainable for customers." An internal segment strategy can find other motivators to support an organization's tier structure.
  • Segment out the middle: Successful loyalty programs are "setting up smaller, incremental goals between tier thresholds and then rewarding members for completing them. Today's technology easily enables this type of micro-segmentation."

 

Discussion Questions:

Do you agree that tiered loyalty program have become confusing and less motivating? What solutions do you see to make them more effective?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Which of the recommendations mentioned in the article to improve tiered loyalty programs will provide the biggest benefit?

Comments:

Fears for Tiers is a great "label" for how the average consumer feels about loyalty programs. There are too many, they are too complicated and the rewards aren't worth much anyway.

Delta Airlines recently sent me (Gold Status) information on how to access the Club lounges, then a week later sent me an email saying "error" - you pay $29 per visit to access the club. Way to make me feel like a lower class citizen.

I'm not sure the word loyalty even applies any more. It's more of a preference motivator, especially for non-airline programs. In grocery I use the cards if there is one, but it does not at all dictate where I shop or what I buy. I'd prefer a fair price and good service as an everyday standard.

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Anne Howe, Senior Vice President, Shopper Solutions, part of Acosta Mosaic Group

I agree that general tiers that don't provide a lot of recognition are going to be ineffective. However, I also believe that the baby shouldn't be chucked out with the bathwater. As the study found, "micro-tiers" can be highly effective. I would even go so far as to call it more of a "gamification" of loyalty, where people can collect badges and earn immediate rewards.

But there's also the status aspect of it. I like having my gold Starbucks card, even when other people rarely see me use it because I use the app to pay all the time. But it's simple, and totally transparent (the app tells me how many more transactions I have to go until my next free drink, and also until I can renew my gold status). I don't think that idea of status should get lost, especially when it is easily clear to all what it takes to reach that status.

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Nikki Baird, Managing Partner, RSR Research

Most loyalty programs, not just those that are tiered, are confusing and infective, and consumers are tuning them out. Successful programs need to target consumers' wants, offer a number of easily attainable perceived value rewards, and stop moving the goal posts.

Airline programs are an example of great programs gone awry. When they first started, upgrades and free seats were attainable for a reasonable number of miles. Now there are few free seats available and the airlines keep increasing the number of miles needed for rewards.

Retailers aren't putting butts in seats, but they need to be constantly refreshing programs and rewards to make them meaningful for consumers.

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Max Goldberg, President, Max Goldberg & Associates

How about just lowering overall cost and improving overall services?

Let's look at airlines. The mega mergers have created tiering that doesn't work even for good customers. I can't tell you how many Platinum flyers are jammed into coach seats on every Delta flight, but their constant grousing drowns out the noise of the jets.

The same thing with many retail plans where customers -- rightly or wrongly -- feel they are overpaying by specific degrees unless they are in the highest tier. This spirit of, "You're punished for not participating rather than being clearly rewarded for joining," problem is starting to creep into a number of tiering programs.

A backlash is inevitable.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

Confusing - yes. Motivating - no. Trying to figure out the requirements to be in a higher tier are time consuming and frustrating. Stories of people in the high tier not being able to use their benefits also discourages people from wanting to make the effort to move up.

If companies want to motivate customers to use the tier system, they have to do two things: make it much easier to move from the bottom tier to the next level AND make it easier to enjoy the rewards of being in a higher tier. If it is so difficult to get to the next level that it seems impossible, and if getting rewards is a problem, there is no motivation to be loyal and work one's way up.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

The only tiered loyalty programs that I am aware of and involved in are the airline programs and while personally I don't have any confusion around the tiers, if customers are saying a company's tiered program is confusing, then companies should take that feedback seriously and review to see how it could be simplified.

For a loyalty program to successful there has to be real value offered to its members. For each company there will be some differences, so knowing thy customer is critical and many companies could use some improvement there, IMO.

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Bill Davis, Director, MB&G Consulting

Part of the problem here is that there are loyalty programs that aren't well thought-out. What's the desired result?

Now that we're in generation five or six of loyalty programs, it's time to step back and consider what the goals are, look at the amount of effort required by the company and its customers, and and recalibrate.

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Cathy Hotka, Principal, Cathy Hotka & Associates

Loyalty programs - tiered or not - need to shift from a company-based perspective to one that takes the consumer's perspective. That means you don't need a PhD to figure out the variables and timing and categories to earn x (credit cards and airlines); or forcing me to locate and add items on an app when I'm in your store so I can get a higher discount (grocery).

The Colloquy research is great but it stays within the existing loyalty paradigm. What is needed is a complete makeover versus how to make current thinking and programs less confusing and more motivating.

Focus on the customer, understand their motivation. Not everyone has the same disposable income or grocery preferences. That requires a fresh look at how you combine existing technology with new business thinking. It's about the customer, not the company.

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Mohamed Amer, Vice President, Global Integrated Retail Unit, SAP

With the ever evolving high-tech society today, everybody is now become involved with some form of loyalty program. Many of them are tiered to encourage more purchases to get to that next level, and most of them fall short of providing the satisfaction consumers feel they deserve.

I am a simple man, and if someone wants my loyalty, make it simple to understand, and provide incentive at any level, and make sure there is no confusion in the fine print. There is way too much jumping through hoops to gain a useless extra perk that you don't want or need.

I go to a local restaurant in my town, and they created a VIP discount of 15% across the board on anything we eat or drink there. It is simple, and the VIP discount is given out to loyal repeat customers like me, and whoever dines with us gets the same deal for that evening. Simple, and appreciated, without any fine print. As the mobile tech grows, the companies who win the battle will offer a simple way to save, and make their customers happy by NOT making it difficult to get to another tier.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

There may be more value to the retailer through the use of engagements and promotions directed at the members of each of the tiers in their multi-tier systems. Along with using the higher tier as an incentive, use promotions and engagements directed at each tier-level members that you know are never going to make it to the next tier.

I belong to a number of hotel rewards programs, and because I thankfully no longer travel as much, I am unlikely to move to the top tier regardless of the incentive. But knowing my tier should give the hotel chain some insight and allow them to sell me more things at the hotel on the stays I do make.

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Larry Negrich, Vice President, Marketing, nGage Labs

When you've been saving up your top tier "points" for a specific "free" thing, and then that free thing is removed from the program and replaced by other free things you have no interest in just before you get there, it is infuriating. It doesn't help when you keep getting "thank yous" from the company for being a "valued" top tier customer. Yes, I'm looking at you, famous beauty supply company.

'Liatt'

Yes. I have nothing to add: Tiered loyalty programs have become confusing and less motivating. Solutions? Follow and fulfill ALL the recommendations described in the article. And, let me know for whom the loyalty programs exist - the customers, or the retailers, for whom the dinner bell tolls.

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Naomi K. Shapiro, Strategic Market Communications, Upstream Commerce

In a world where people are trying to simplify their lives, loyalty programs seem to add unwanted complexity.

Tim Cote, VP of Marketing, Plaid Pantry

The only customers who care about the tiered loyalty programs are the ones that are truly loyal to the company. COLLOQUY research has proven that most people who sign up for a loyalty program barely remember that they've done so. They just sign up and that's it.

There is a need to recognize people who are truly loyal to a company. Identify those people and then create the higher levels of the program for those that care, which as the research shows, is a small amount. Yet, as small as that percentage may be, that is a very important group to focus on.

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Shep Hyken, Chief Amazement Officer, Shepard Presentations, LLC

Every loyalty program is different. I am on three airline loyalty programs. None are anywhere like the other. I like what Tony said about a 15% discount to loyal customers. The old KISS method...Keep It Simple Stupid. But then how many jobs will be lost because simplicity eliminates the confusion and fog created by those creating ways not to get the discount or perk the loyalty program offers?

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

Whenever a program change is implemented, it risks adding to confusion. Loyalty operators that introduce change should alert members in advance with a clear, easy-to-follow description of the changes and how they will affect membership standing. Inviting feedback also is a good idea. If we want our members to get to that gold or platinum level, we should be guiding them and sharing the journey.

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Bryan Pearson, President and CEO, LoyaltyOne

Designing loyalty programs has become a high-risk endeavor for many brands. Forester's 2013 Loyalty Report illustrated that less than half of customers choose to join offered programs, and of those that join, only 16% are actively engaged so as a broad statement on the appeal of loyalty programs in general, clearly there is a lot brands must consider to "get it right."

Tiers are just one structural component of a program that can be effective, but only if designed correctly. Simply, tiers must do two things: (1) Clearly provide increasing, compelling value at each "higher" tier level, and (2) clearly articulate why a customer "deserves" the next level status. When customers understand why they are eligible for higher rewards/benefits, and see the value they can achieve at the next level, the basic elements for influencing customer behavior have been addressed. The devil is in the design details, of course, and where many brands fail is in the execution of these two basic principles either the logic behind "earning" the increased level of status is unclear or doesn't align to customer thinking, or the value achieved is simply not great enough to be compelling.

Finally, timing is also a key component if a customer feels it takes too long to reach the next tier, they will often disengage as it becomes apparent it's not worth their time or effort.

Our Loyalty white paper from earlier this year discusses some brands that have done a good job with a tiered program.

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Martin Mehalchin, Partner, Lenati, LLC

Most importantly, "Clear the clutter" as the article states. I believe higher tiers are necessary to drive deeper shopper interaction and true loyalty. However, keep it simple, with defined milestones. We can learn much from airline and hospitality programs. Some of them are the very best across all industries.

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Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM

Loyalty programs have become confusing, not just because of the Fear of Tiers. The best program isn't worth its weight in gold if consumers won't subscribe/enroll. Retailers need to take a step back and evaluate where the pain points are, rather than assuming and making sweeping changes.

There are tools available to change the dynamics of loyalty programs to better align with consumer demands, but retailers seem hesitant to stray from the norm. Eventually a leader will step up and look for ways to better engage the consumers, even it it's outside of the tiers.

Tiena Manypenny, CMO, LOC Card

Tiers in loyalty programs, whether published or unpublished, aren't necessarily confusing. But loyalty programs that are poorly designed and delivered are not only confusing, they lead to dangerous generalizations like this one.

Sorry but giving all "loyal" customers a flat discount is dilutive and a terrible financial decision. It's analogous to mass marketing and by definition that means investing the same amount in all customers regardless of their value. That's a similarly terrible decision.

Properly designed tiers create reasons for customers to shift their spend and concentrate in one brand over another. They should uniquely reflect the brand and the business with their benefits and likewise should not necessarily be about more discounts, but rather a better and differentiated experience.

Such a differentiated and better experience is proven to be more valuable to customers and result in those customers paying a premium, not looking for more discounts. That's how profits get generated, how stock prices go up, and why smart loyalty isn't for every business.

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Phil Rubin, CEO, rDialogue

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