Is simpler better for rewards programs?
A new university study finds that non-tiered customer rewards programs aren’t so hot at driving frequency or spending but highly effective at serving loyalty’s core goal of reducing attrition.
The study, “Can Non-tiered Customer Loyalty Programs Be Profitable?,” noted that tiered programs, best associated with airlines and hotels, increase rewards as program members reach higher thresholds of spending over time.
Non-tiered programs reward members with frequent, but not increasing, rewards such as “buy 10 get one free” and are more commonly used by retailers and service industry businesses.
Researchers collected data from more than 5,500 customers who first started purchasing from a certain business in the same three-month period and explored the outcome when some were automatically enrolled into the loyalty program.
Non-tiered customer loyalty programs were found to increase customer value by almost 30 percent over a five-year time period. Of the program’s total lift or effectiveness, more than 80 percent related to reduced attrition, while less than 20 percent was tied to increased frequency.
Arun Gopalakrishnan, a co-author and Rice University professor, said in a statement, “In the end, the primary value of a non-tiered customer loyalty program is not a means to increase frequency or spending. It’s a way to nurture a long-term and lasting relationship with the customer to reduce the defection of loyal customers over time. Non-tiered loyalty programs may provide psychological benefits that help cultivate such loyalty.”
With a one-size-fits-all appeal, non-tiered programs earn praise for being accessible. Multi-tiered rewards programs are often called out for making it overwhelming for lower-tier members to move up to higher tiers. Tiered rewards are also often criticized for being overly complex and confusing for consumers.
Many retailers in the fashion and luxury space, however, believe tiered programs are better structured to reward their most loyal customers.
Giant Eagle, last November, launched what it said was the first multi-tier loyalty program by a major U.S. supermarket. Once customers spend more than $2,500 over a six-month period, they join the myPerksPro tier that offers increased dollars rewards per spend, quicker redemption and other perks. Giant Eagle notes on its website, “The more you shop with us, the quicker you’ll be a Pro!”
- Do customer loyalty programs really help sellers make money? – Eurekalert
- Restaurant Chains Embrace Tiered Loyalty Programs – Restaurant Business
- Five Keys to Driving Membership in Advanced Loyalty Programs – Convenience Store News
- CVS, Walgreens, and Rite Aid Loyalty Programs Compared: How to Get the Best Deals (Without the Mile-Long Receipts) – The New York Times
- Loyalty programs boost businesses’ ability to keep customers – Washington University in St. Louis
- MyPerks – Giant Eagle
- Giant Eagle introduces myPerks, bringing its loyalty program to a new level – Supermarket News
- Are loyalty program tiers overly confusing? – RetailWire
- DoorDash tries tiered commission structure to deal with restaurants’ complaints – RetailWire
DISCUSSION QUESTIONS: Do untiered or tiered rewards programs work better for retailers? What are the pros and cons of each rewards structure?