I’ve been facing relegation recently and I don’t feel good about it. My football club is having a terrible season and languishes in the red zone at the bottom of the league table. The prospect of an end-of-campaign drop looks ominously likely.
Now I find out that the airline I’ve consistently preferred for long haul flights over the last few years is taking away my Gold status and threatens me with Blue oblivion. There’s more. The petrol station I often used last year has expired the points I collected because I haven’t filled-up there lately and they advise me to start again from scratch. About £20 in shopping vouchers disappearing in a puff of lead-free exhaust.
What a loser!
As someone who designs and develops loyalty programmes, I know exactly how they work. So I really shouldn’t be surprised when a tiering strategy bites me in the backside. After all, the tiering of benefits – bronze, silver, gold, and so on - is a tried and tested way to “reward the behaviour you seek”. The more you buy and the more frequently you do it, the more points you earn and the higher your membership status. It’s pure behavioural economics, a nudge mechanism to drive the customer’s ambition and participation.
And it demonstrably works.
The airline frequent flyer programmes invented tiering, or at least were the first to deploy the technique on an industrial scale. Most FFPs award bonuses to premium-cabin passengers and to elite-status members based on their tier status. For example they may offer double elite-qualifying miles (EQM) promotions, which enhance the member's status retention or accelerate promotion by reducing flight mileage requirements. Tiering keeps the highest spending passengers loyal to the brand as they chase their miles and strive to keep their status. And it waves a carrot in front of aspiring frequent flyers who crave the next level of recognition.
Payment card giants like Amex have spent decades refining their own smart versions of tiering. Fashion retailers are on the journey too, like MAC cosmetics who have become ninja masters with their Select programme, rewarding customers with 'Seduced, Devoted and Obsessed' recognition levels.
All of them do it because the results are unarguable. Intelligently constructed tiering drives sales and improves repeat purchase rates. For consistently engaged customers it’s a big motivator. They get more back and they get to feel special. More importantly they get to feel like winners. And we all like to feel like we’re ahead of the game.
But what goes up, can go down. The problems arise when the brand has to take benefits and status away when a customer’s shopping habits change. If there are no consequences for reduced customer engagement the logic of the tiering technique no longer works. Not to mention the financial model. After all, extra generosity is only sustainable if it is supported by incremental revenue.
So if you want to avoid creating disappointed losers among your customers, it falls to how you communicate the rules of your tiering game:
- Make it very clear at the outset what you expect the customer to do to win and maintain a higher status.
- Give timely warning if they are in danger of losing their status or the benefits they have accrued
- Make the possibility of relegation a positive call to action, “here’s how easy it is to retain your benefits”.
- DON’T let the customer fail by accident; e.g. falling into lower status or losing rewards, so they only discover they have lost out when it’s too late to do anything about it.
Terry Hunt, founding partner, The Future Customer