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What are Tiered Loyalty Programs & How Do They Work?
Tiered loyalty programs use a system of levels (or “tiers”) to encourage customers to engage more with a brand and increase their lifetime value. Typically, these programs have three tiers, but some businesses may have more—like five or even ten.
Customers usually start at the lowest tier (often called “Tier 1” or something like “Bronze”) and can move up to higher tiers by earning more rewards or meeting certain milestones.
As customers progress to higher tiers, the rewards become better and better—like exclusive discounts, early access to new products, or special services.
One of the key advantages of tiered programs is their flexibility. They allow businesses to subtly guide customer behavior through specific actions or “missions,” such as making purchases, referring friends, or engaging with the brand on social media.
This makes it more than just a transaction-based system like point-based loyalty programs. Point-based programs often focus solely on spending, but tiered programs can encourage deeper engagement and reward customers for interacting with the brand in many different ways.
This helps avoid the problem of dormant members—those who only sign up for the rewards but don’t actively engage. With a tiered system, customers are motivated to work their way up through the levels, building loyalty and strengthening their connection with the brand over time.
Here are some examples of ‘missions’ you can implement in tiered loyalty programs:
- Participate in Events & Promotion
- Refer Friends & Family
- Have Them Visit Your Physical Location
- Hit Minimum Spend Thresholds
- Etc.
Benefits of Tiered Loyalty Programs
Customer Stickiness & Higher Engagement
The biggest advantage of tiered loyalty programs is that they create stronger customer loyalty.
Based on feedback from our clients and our own data, tiered programs keep customers coming back more than other types of programs, like points-based or attendance-based ones.
Customers engage with the brand more often in a tiered system. In fact, the average engagement rate for missions in tiered programs is 48%, which is significantly higher than the 35% engagement rate seen with other types of loyalty programs.
Take Advantage of Sunk-Cost Fallacy
If you’re not familiar with the term, the sunk-cost fallacy is when people continue an activity or commitment simply because they’ve already invested time, money, or effort, even if it’s no longer the best choice.
In the case of tiered loyalty programs, customers often feel like they’ve put a lot of time and energy into reaching a higher tier, making it harder for them to switch to a competitor. They don’t want to lose the progress they’ve made, especially if it means starting over from scratch.
It’s like when you buy a movie ticket that turns out to be a disappointment. Even though you’re not enjoying the film, you might stick it out until the end simply because you already paid for the ticket.
Similarly, customers in the highest tiers of your loyalty program are used to the benefits and rewards they’ve earned, so the idea of losing all that progress and starting fresh with a new brand doesn’t feel good.
That said, you shouldn’t push it. If your product or service quality drops, the rewards aren’t worth it, or customer service goes downhill, customers won’t hesitate to leave—no loyalty program can make up for these basic issues. At the end of the day, these factors matter far more than any loyalty program.
Easy Customer Segmentation
Tiered loyalty programs simplify customer segmentation a lot. In marketing, customer journeys are often visualized as funnels, typically divided into the top, middle, and bottom stages.
In a loyalty program, these stages are usually aligned with membership tiers. The highest-tiered members are usually those at the “bottom” of the loyalty funnel, meaning they are the most engaged and loyal to your brand.
This tiered structure makes segmentation straightforward, especially for smaller businesses that may not have a robust customer relationship management (CRM) system.
It becomes even more effective if the program requires members to maintain their tier status by engaging with the brand or making a certain amount of purchases annually. This means that inactive or dormant members are kept to a relative minimum.
With easier segmentation, you can quickly and not to mention, effectively, target your highest-tiered customers with special promotions, perks, and rewards, further strengthening their loyalty and boosting overall customer lifetime value (CLV).
Most Versatile Type of Loyalty Program
We believe tiered loyalty programs are the most flexible option out there. Here’s why: they can easily be combined with other types of loyalty programs to create a more engaging experience for your customers. For example:
- Point-based loyalty programs: The more points customers earn, the higher their tier, which means more rewards and perks as they engage with your brand.
- Subscription loyalty programs: Customers who sign up for a monthly or annual subscription can unlock tiered benefits, giving them more value the longer they stay committed.
- Attendance loyalty programs: Encourage customers to check in or interact with your brand on a regular basis (daily or weekly), and reward them with tiered levels to keep them engaged.
- Referral programs: Customers who refer more people to your brand can move up in tiers, a strategy commonly used in multi-level marketing to boost growth.
In short, tiered loyalty programs can work on their own or complement your broader loyalty strategy. We often combine them with other types of programs to boost efficiency for our clients—and we’ll show you some examples in the next section!
Successful Tiered Loyalty Program Case Studies to Follow
Chow Sang Sang
Chow Sang Sang is a global jewelry and gold chain company headquartered in Hong Kong, with stores in countries like Japan, Indonesia, Singapore, and more.
In their largest market — China, including Macau and Hong Kong — they faced challenges in attracting and retaining customers.
The main issue was that they lacked a strong system for collecting customer data, personalizing experiences, and utilizing digital tools effectively.
To address these challenges, we helped them implement several key strategies:
- We synchronized their membership database to streamline customer data.
- We introduced a tiered loyalty program that combined points with other interactive missions, making the program more engaging and not just strictly about transactions.
- The loyalty program was divided into different tiers, each offering rewards like discounts on gold, early access to new models, and premium benefits.
As a result of these changes, Chow Sang Sang was able to attract over 8 million new members across mainland China, Hong Kong, and Macau.
Not to mention, they saw a remarkable 40% increase in revenue in the quarter following the program’s implementation!
Telecommunications Companies
Telecommunications companies (telcos) don’t have traditional loyalty programs, but they use similar strategies for their service plans.
For example, basic benefits like unlimited internet, local calls, or SMS are offered across all service tiers.
However, higher-tier plans, usually with a higher monthly fee, provide extra perks like the latest smartphones, smart TVs, or subscriptions to popular apps like Spotify, YouTube Premium, or Netflix. Some plans may even include gift cards.
This approach also has some aspects to coalition programs, where telcos partner with other platforms and services to offer greater value to their customers.
While it may seem odd, these added perks are exactly what younger millennials and Gen Z are looking for. There’s a reason companies are investing billions into such value-added services. Telecom companies worldwide have seen steady revenue growth from 2017 to 2024, and this trend is expected to continue, with even bigger increases projected through 2028.
To run a successful tier loyalty program, companies must adapt their marketing strategies to cater to different generations, even if it means investing more in targeting specific consumer groups.
Service tiers can be based on factors like spending power, user preferences, activity levels, or even profile status. After segmenting their customer base, companies can create targeted marketing campaigns to ensure maximum effectiveness.
Important Tips for Tiered Loyalty Program Success
Be Clear on the Tiers & Rules
Tiers are only as important as you make them, so it’s essential to clearly define the differences between them. This way, your members will understand what they’re working toward.
One simple way to do this is by displaying the tiers in a table, with each one listed side by side for easy comparison. You can make it even clearer by using checkmarks and crosses to show what benefits each tier offers.
When it comes to the rules, it’s important to refine your guidelines for upgrading and downgrading. Moving up a tier can be straightforward — you might allow members to level up by spending more, completing missions, or a combination of both.
The tricky part is the downgrade penalty. A well-placed penalty can create a sense of urgency and encourage members to engage more with your brand. However, be careful — if the penalties are too harsh, they could discourage people and cause them to give up.
We usually recommend limiting downgrades to situations like inactivity over a set period (e.g., 3 months). This balance tends to work best for most programs.
Optimize Your Reward Structure
Many companies make the mistake of overcomplicating their reward structures with 5 or even 7 different tiers. This approach usually backfires because it can make each tier feel less meaningful and less rewarding for users.
In most cases, 3 tiers are more than enough — unless you know what you’re doing. The rewards should remain fairly consistent across tiers, with the base rewards not changing too much. We recommend keeping the most popular rewards the same at all levels.
Moreover, your reward structure should feel exclusive. You should avoid offering the same rewards across multiple tiers, even if you have plenty to give away.
For example, don’t offer gold-level rewards to silver or bronze members. Each tier should feel unique and special.
Work Around the 80:20 Rule (Pareto Principle)
If you’re struggling to separate rewards and tiers effectively, try applying the 80:20 rule. This rule comes from the Pareto principle, which states that 80% of your results often come from just 20% of your efforts.
In this case, it means that 20% of your top members are responsible for 80% of your revenue. If you’re not sure how to allocate rewards, you can’t go wrong by giving 80% of your benefits to that top 20%.
Once you’ve identified your top 20% of members, designing rewards for them becomes much easier, and you’ll have a clear return on investment (ROI) for this group.
With a higher profit margin from these members, you can invest more in their tiers and rewards.
However, if you’re having trouble identifying this top 20%, it’s likely because your tier entry threshold isn’t ‘difficult’ enough to properly categorize your members.
Make Tiers Achievable Yet Rewarding
To spark a little obsession among your members, you have to make sure your tiers and missions are both rewarding and achievable.
Tiers are a form of gamification, similar to leaderboards, where members often compare themselves to others. This creates a mentality of friendly competition and encourages users to engage more over time.
By designing tiers that are rewarding yet attainable, you can positively shape your members’ behavior.
And who knows — if your program is well-designed, your members might even help recruit new people to complete their missions and level up!
Looking for a Tiered Loyalty Program Provider?
At KlikNGo, we’ve worked with businesses across many industries to create loyalty programs that really work. With our powerful software and years of expertise, we’re here to help you build a loyalty program that will deliver real results for your business.
Want to learn more? Just click the button below to reach out or check out the features of our loyalty programs. We’re here to help!
