Customer Loyalty Part 2: Simple Points Systems & Tier Systems

Customer Loyalty Part 2: Simple Points Systems & Tier Systems - Retention Science

Our last blog focused on how membership-based programs generate customer loyalty. Keeping the emphasis on retention, this week's post focuses on two more common and highly effective customer loyalty programs: the simple points system and the tier system. Utilizing a simple points system is the most common type of customer loyalty program. While this system can work wonders when it is, in fact, kept simple, it is important to refrain from turning a simple points system into an elaborate and confusing one. The classic example of a simple points system involves customers buying "X" number of items to receive "X" item free or at a discounted rate at a certain purchasing point. Assuming the quality and price of the products are the same, eCommerce customers will naturally gravitate towards the business offering the greater incentive. In addition, simple points systems can be easily adjusted to act in your business' self interest per specific products and specific competitors in a given market. That is, businesses can easily adjust the amount or type of reward offered if and when needed to perpetuate increased sales, retention, and revenue. Assuming quality and price remain constant for a given item, a greater incentive is likely necessary to retain customers in a highly competitive market verses a less competitive market. Tier systems perpetuate retention by offering gradual increases in rewards with increased customer loyalty. Credit card companies often use tiered systems to separate their customers into different groups based on factors such as credit history and amount of purchases. Superior rewards in the upper level tiers prompt customers to do whatever is necessary--helping businesses perpetuate desirable customer behaviors--in order to attain elite status. It is also vital to offer desirable and attainable rewards at both the initial and upper levels. The key challenge with tier systems lies in striking a balance between initial rewards and their ability to attract and retain customers, while still offering profitable, more substantial, and more desirable rewards at the upper levels. In addition to establishing customer loyalty through various incentives, simple points systems and tier systems are, similar to membership-based programs, useful in generating vital customer data. Rather than using an express checkout, customers are encouraged to create a free account, as will likely be necessary to receive his or her reward(s) or benefit(s). This allows businesses to harness basic yet important customer data. In addition, key data generated from simple points systems can perpetuate new paying members through increased use of the site and smarter, more individualized marketing campaigns. Similar to membership-based programs, the simple points system and tier system can be key tools in a business's arsenal to encourage customer retention. While rewards programs vary in method, the end goal is always the same: satisfy and retain customers at the lowest possible price.

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