What should I consider when planning a loyalty program?

Consider the following when planning loyalty programs:

  • Number of tiers

  • Currency used to sort members into tiers

  • Tier entry thresholds

  • Time line for evaluating tier status

  • Scalability

Determine number of tiers

The three-tier hierarchy is the most common loyalty program. Having three tiers:

  • Creates a clear hierarchy between your most, middle, and least valuable members

  • Makes tier movement difficult but attainable, keeping program engagement high

The Koalla Retail program is an example of a three-tier rewards program. Members are sorted into 3 tiers based on how many points they’ve earned, and earn additional benefits for entering each tier. By having entry, middle and high level tiers, Koalla Retail bridges the gap between the highest and lowest levels. This hierarchy, as opposed to two-tiered program, makes it easier for members to find value at every stage of the program.

If you don’t want to run a 3-tiered program, you can still run a loyalty program with two, four, or even five tiers. Never use more than 5 tiers. It is complicated for your members to understand. This dampens engagement and participation rates, erasing a lot of the benefits that a loyalty program provides for your brand.

Determine how to measure engagement

Determine how you measure member engagement in your loyalty program. This measurement determines when members advance through tiers. Common measures include:

  • Points: Number of points earned over a specified time. Builds upon an existing point structure.

  • Dollars: Member’s spend value over a specific period.

  • Tenure: Enable members to reach a higher tier based on how long they have been a paying customer with you. Works well for subscription-based business models.

Determine tier entry milestones

A tier entry milestone defines a threshold that a member must achieve before they can advance to a specific tier in your rewards program. Points earned and dollars spent are the two most common thresholds.

To thrive, your loyalty program needs tier milestones that are achievable but challenging. Loyalty programs are less effective when even an occasional shopper can reach the top tier. You need to make your most loyal members feel like they’re part of a truly elite group. You want your most loyal members to feel like they’re only one of a few with exclusive program benefits while motivating your other members to continue working towards that goal.

Look at your member data to determine the most accurate milestones for your brand. For example, look at how much your members spend on average and how often they’re making purchases to determine the best milestones. Calculating milestones is not an exact science. As a result, tier entry milestones differ from brand to brand and industry to industry.

Determine time frame for tier evaluation

Determine how often members are evaluated to step up or drop down tier levels. Time frames include:

  • Since program start date: This time frame sorts members based on how many points they’ve earned since your program started. This maximizes their chances of achieving the highest status and ensures they’ll never lose it, making it highly effective for brands with low purchase frequency but higher average order values.

  • Calendar year: Calendar year milestones place members in tiers based on all of their activities with your loyalty program for one calendar year (January to December). Members can then enjoy all the benefits of that tier for the rest of that year and the following year, where they have the chance to earn points and re-qualify for their current tier. Note: Members who do not re-qualify are moved to the tier that matches how many points they have earned.

Ensure scalability

Make sure your loyalty program and tiers are scalable and can accommodate growth in the number of members and their activity levels. Consider factors like the cost of rewards, the capacity for personalized experiences, and the ability to track and manage member progress.