VIP has a nice ring to it, doesn’t it? Most loyal consumers would have to agree. In fact, 50% of consumers said they have changed their shopping behavior with a particular brand in order to reach a higher reward tier, or VIP status. While many brands have come to a collective understanding that loyalty is important in the age of the well-informed consumer, only a handful have adopted a tiered loyalty strategy. There are a variety of reasons for this, including increased operation costs and increased attention to planning and execution. In other words, these reward schemes involve more than a “set it and forget it” approach. Brands may be hesitant to adopt a more complex reward scheme, but the effect on the customer experience is tremendous. Investing in that experience encourages the customer, in turn, to invest in your brand. In 2015, cart abandonment rates reached 75.6% among retail, fashion, and travel. While the reasons for this are widespread, if a customer receives free shipping for being a VIP member, or if they must spend an additional $52 to reach VIP status, they are more likely to complete the purchase. Engaging customers in a unique and exclusive experience can be a key differentiator in their purchasing decision.
As human beings, we like to compare ourselves to one another and the same goes for loyalty status. A potential drawback of a VIP reward scheme occurs when customers are unaware of where they fall within the tiers. Therefore, customers should be able to see where they stand within your loyalty scheme as well as the added benefits of moving into a VIP tier. The effects can be further enhanced by showing the percent of people in each tier (i.e. only 5% of members have Platinum status). This results in customers spending more to achieve a higher status and solves the problem of customers forgetting about points because the time between purchase and redemption is too long.
A tiered reward system, while promoting repeat purchases, also establishes long-term value. The rewards offered through a VIP program should have a marked impact on the customer experience. Customers should feel exclusive and appreciated. While customers should be encouraged to spend more and achieve higher status, brands should be wary of maintaining exclusivity. The customer wants to feel valued and that they are receiving a premier experience. To do so, brands should be very clear about the benefits of the VIP experience. When customers feel valued, not only do they spend more money on a more frequent basis, but they become advocates for your brand. While your loyal customer base may return to your business, it is the VIP customer experience that can transform loyalty into advocacy.
While many may think that VIP membership and tiered reward structures are only for small, frequent purchases, brands are cashing in on this strategy for big-ticket items as well. Best Buy’s ‘My Best Buy’ reward program features three tiers, with the Elite and Elite Plus receiving additional benefits such as free 2-day shipping and dedicated customer service lines. While these incentives do not rank high in terms of monetary value, they provide a more convenient customer experience. Customers will then opt to purchase their electronics at Best Buy in order to achieve higher status. Southwest Airlines also has a tiered reward structure within their Rapid Rewards program. The A-List and A-List preferred statuses are reserved for those who fly with Southwest at least 25 times. Customers can then enjoy Priority Check-In, earnings bonuses, dedicated support, etc. In this case, customers are receiving an enhanced experience, and are able to showcase their status through Priority Check-In, motivating other Southwest customers to always opt Southwest in order to achieve the same status. We love to compare ourselves, remember?
Some retailers are able to charge customers for their VIP membership. This typically works best for business models that thrive off of frequent purchases. They are able to engage customers more often and collect more data, giving a unique and exclusive experience, while still seeing a high ROI for the rewards given. For example, Amazon Prime members pay $99 per year and have access to free 2-day shipping on select products, unlimited movie and TV show streaming with Prime Video, and the access to borrow books from the Kindle Owners’ Lending Library. While Amazon is constantly rewarding its Prime members, the ROI is still in its favor. Prime members spend $1,500 per year versus non-members who spend $625 per year. The VIP experience of free shipping encourages repeat purchases because customers want to ensure that they’ve gotten their $99 worth, but they also bring nearly 3x the amount of revenue as non-members.
Customers relish off of VIP treatment and are willing to spend more to achieve it. Brands also don’t have to spend a fortune to reward these elite customers. Most of the rewards previously mentioned cost little, but give customers a premier experience. To achieve a successful tiered, VIP reward scheme, brands should be very clear about the benefits associated with each and ensure that customers know where they stand.