How to Increase Customer Lifetime Value with Tiered Loyalty Program

Research shows that 43.7% of customers would be more likely to participate in a loyalty program that offers a VIP status or exclusivity-based perks. A tiered loyalty program helps you offer that exclusivity.

A tiered loyalty program is a type of incentive structure designed to reward customers based on how much they engage with (and buy from!) your store. 

The more your customers spend, the higher they’ll climb within your tiered loyalty program, unlocking exclusive perks and deeper discounts as they reach higher levels. As a result, they’ll be encouraged to make repeat purchases, driving up their Customer Lifetime Value (CLV).

In this article, we’ll dive deep into how tiered loyalty programs can boost customer engagement and increase Customer Lifetime Value (CLV), along with practical steps to create one for your business.

Tiered loyalty program vs. traditional loyalty program 

Here are the major differences between a traditional loyalty program and a tier system in a loyalty program:

How tiered loyalty programs increase Customer Lifetime Value

A customer loyalty program with a tiered structure is a great way to offer several benefits, but how exactly does it increase your CLV? Let’s find out: 

1. Encouraging repeat purchases

Tiered loyalty programs incentivize your customers to stay engaged and shop more frequently. As they strive to reach higher tiers and unlock better rewards, the sense of progress and access to exclusive benefits motivates them to return and make additional purchases.

2. Increasing Average Order Value (AOV)

Tiered loyalty programs typically set spending thresholds or levels that customers must reach to unlock higher tiers, motivating them to add more items to their cart and increase their order size. 

As customers advance, many programs offer premium recommendations and upsells, encouraging them to purchase higher-end products. To maintain their exclusive perks, shoppers tend to spend more in a single transaction, driving up your average order value (AOV).

3. Boosting brand engagement and loyalty

Your tiered rewards programs can gamify the shopping experience where customers can “level up” and earn rewards. It gives customers a sense of achievement, motivating them to continue engaging with the brand.

Personalized rewards in each tier make the customers feel appreciated. It shows that the brand values the shopper’s contribution to the business and is willing to incentivize it with thoughtful rewards. This deepens their emotional loyalty to the brand as well.

How to design a successful tiered loyalty program 

Step 1: Set clear goals for your loyalty program 

First, you must have a clear idea of what you want to achieve with your loyalty initiative. This will keep your efforts aligned with your short and long-term business goals, driving the exact results you want from the program. 

Here are some common goals of a tiered loyalty program: 

• Gathering more customer data for better personalization.
• Identifying your high-value customers.
• Maximizing CLV, i.e. the total revenue each customer generates over their relationship with your ecommerce store.
• Building strong emotional connections with your most loyal customers.

Step 2: Identify the target customer segments 

Different customer segments have different motivations. No matter how valuable your loyalty incentives are, they won’t appeal to the customers if they aren’t appealing to that segment.

Understanding your target customers allows you to design tiers and rewards that appeal directly to their preferences and shopping behaviors. For example, if your primary customer demographics are high-spending, they may value exclusive access to brand events as an incentive for higher tiers. On the other hand, budget-conscious segments might prefer more discounts as rewards. 

Use your loyalty software to analyze customer data and apply the REM (Recency, Frequency, Monetary) analysis: 

• Recency: When was their last purchase?
• Frequency: How often do they buy?
• Monetary: How much do they spend?

Then divide them into segments like "frequent buyers," "high-value customers," and "budget-conscious buyers." You can also create customer groups based on age, gender, income, location, and other demographic factors that influence shopping behavior and preferences. 

Step 3: Design the tiers and rewards

Once you have all the necessary information in place, it’s time to start structuring the different tiers and assign rewards accordingly. 

Decide the optimal number of tiers for your loyalty program members so that there is a balance between simplicity and effectiveness. Too few tiers may not offer enough motivation for the customers to engage in the long run. However, they need to be simple and straightforward.

Tap into your customer behaviour data and understand their purchase patterns to set achievable thresholds in your loyalty tiers. Here are some things to keep in mind while designing insider rewards:

• Make sure the lowest levels are easily achievable for your new customers.
• The highest tiers are reserved for the high-spenders and loyal participants. 
• Create at least four to five tiers so that your customers have something to look forward to. 
• The incentives you assign to each tier should be increasingly aspirational while also being relevant to the customer’s needs.

The most basic tier can include a welcome discount or a small voucher for their next purchase. Your top tier can have early exclusive benefits, access to special events, birthday gifts, bonus points, trial packs, gift cards, and more. You can also assign loyalty points to each tier along with other rewards. This way, customers will be more motivated to return and shop more to redeem points. 

For example, Ultra Football, a Sydney-based football retailer, partnered with Rivo to design their tiered loyalty program. The brand has four reward tiers, with the basic level offering only redeemable points. However, as buyers move up the ranks, they get additional incentives like discount codes, VIP shopping access, free customization, free shipping, and vouchers. 

The program is simple but effective and drove results like: 

• $800K+ loyalty revenue in under 6 months.
• 7% of all revenue is driven through loyalty.
• 150% boost in Ultra Rewards member AOV.

Another example of a successful tiered loyalty program is Rareform, a brand selling everyday handbags by repurposing billboards. They launched a tiered loyalty program with Rivo. Here’s how their tiers look like: 

Their program drove results such as:

• 27% increase in the repurchase rate.
• 725+ loyalty members joined within weeks.

Step 4: Create a seamless onboarding

Customers must be able to participate in your tiered loyalty program without a fuss. Too many steps or very complex rules will frustrate and keep them from joining.

So, your loyalty program onboarding needs to be simple and straightforward. Here are some elements it must have:

• A clear "What's in it for me?": Detail what they can get beyond generic discounts. Highlight the exclusive VIP perks your higher tiers have. 
• Simple sign-up process: Make sure the shopper doesn’t have to fill in too many fields to join your loyalty program. 
• A welcome message reward: Start strong with a personalized message to the new joiner, welcoming them to your loyalty program. Engage them early on with a welcome discount or voucher. 
• Detailed and comprehensive program rules: Keep a dedicated section on your loyalty program onboarding page where every rule and guideline is detailed. Outline the reward structure, spending threshold, choices of incentives, disbursal time, and other regulations of your program. 
• A quick way to check the points and rewards: Offer customer portals where buyers can check their earned points and available rewards. 

For example, Teapressa, a gourmet tea brand, collaborated with Rivo and built a seamless loyalty program onboarding experience. 

The page details exactly what actions will earn them how many points, so that the shopper joins the program with clear expectations. 

The page also illustrates the tiers, assigned rewards, and spending threshold to reach each one. With just two fields in the sign-up form, joining is easy as well. 

Step 5: Make it easily discoverable

If your loyalty program doesn't have proper visibility, customers may just shop from you once and never return. So, here are the steps to make your loyalty program easily discoverable:

• Feature your loyalty program on your homepage, product pages, and checkout pages prominently. Many customers may not actively search for a loyalty program. So, placing it in visible, high-traffic areas increases the chances of them noticing and joining.
• Use banners, pop-ups, or call-to-action buttons to highlight the program’s perks.
• Set up email campaigns to promote your loyalty program. Make sure the emails have a clear CTA button. 
• Include program information in welcome emails, promotional emails, and post-purchase follow-ups.
• Promote the program on social media with posts, stories, and ads. Highlight the benefits and rewards.

Step 6: Track the analytics of your program 

Monitor program KPIs through your loyalty platform’s analytics. The generated insights will pinpoint the gaps and let you adjust your program to maintain continuous success. 

Here are some of the metrics you should be tracking: 

• Customer retention rate
• Redemption rate
• Points earned
• Total generated sales 
• Retention Revenue
• Incentivized Revenue
• Conversion Revenue
• Average Order Value
• Customer Lifetime Value 
• Returning Customer Revenue
• New Customer Repurchase Rate

Rivo’s analytics dashboard lets you monitor all of these metrics in real-time so that you can be on top of everything and take action faster.

Conclusion

A tiered loyalty program may be a bit intricate to design at first. But if you follow our loyalty program best practices, steps, and automate the process with a reliable loyalty platform, you can yield improved retention, CLV, and AOV without any hassle. Make sure the rewards are personalized, the onboarding is simple, and the program is easily discoverable.

Looking for a tool that will simplify this journey? Our platform Rivo can help you out. 

With Rivo you can customize an on-brand tiered loyalty program that will be up in just a few minutes.  

Book a demo today and see for yourself!

Frequently asked questions 

Why is gamifying a loyalty program with tiers useful for a Shopify store?

Everyone likes that sense of achievement, and getting satisfaction from completing tasks and receiving rewards. 

Therefore, adding gamification elements in tiered loyalty programs for your Shopify store taps into this trait. It encourages customers to keep shopping to avoid missing out on high-value rewards, increasing repeat visits and purchases.

How to track the success of a tiered loyalty program?

To track the success of a tiered loyalty program, you must monitor relevant qualitative and quantitative KPIs. Tracking these metrics will give you tangible insights into the success of your tiered loyalty program, paving way to constant refinements.

Rivo offers a detailed analytics dashboard where you can track crucial KPIs like redemption rate, points earned, AOV, and CLV.

Which loyalty software should I use? 

While there are several loyalty apps or softwares available in the market, you need one that’s reliable, scalable, and offers the exact features that can address your specific business needs and goals. 

Rivo lets you automate your loyalty program, keep it aligned with your goals, and grow with your company. It is a fully customizable loyalty platform where you can create a tiered loyalty program, tailor rewards according to customer segments, and automate the entire process in just a few minutes.

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