16 Jul Customer Loyalty: Points Systems & Tier Systems
Membership-based programs were the focus of our last blog on customer retention.
Let’s take a closer look at retention by highlighting two more common and highly effective types of customer loyalty programs. These are simple points systems and tier systems. Utilizing a simple points system is the most common type of customer loyalty program. This system works wonders when kept simple. But it’s important to refrain from turning a simple points system into an elaborate and confusing one.
What’s a classic example of a simple points system?
Customers buy “X” number of items to receive “Y” 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 businesses offering a greater incentive.
Businesses can easily adjust the amount or type of reward offered. This can 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. This is especially true in a highly 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. They base these groupings on factors such as credit history and purchase amounts. Superior rewards in the upper-level tiers prompt customers to do whatever is necessary–helping businesses drive desirable customer behaviors–in order to attain elite status. However, it’s vital to offer desirable (and attainable) rewards at both the initial and upper levels.
The key challenge with tier systems…
The key challenge with tier systems lies in striking a balance between attractive initial rewards, while still offering profitable (more substantial) rewards at the upper levels. Simple points systems and tier systems are similar to membership-based programs and are useful in generating vital customer data. This is in addition to establishing customer loyalty through other incentives. Rather than using express checkout, customers are encouraged to create a free account, as it 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. This happens 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.