By Michael Greenberg | Director, Marketing
Tiers in a relationship marketing program run the gamut from a simple base/elite construct to a series of overlapping hidden and published tiers. Today I’ll spend a little time walking through some of the considerations and issues around tiers and their relevance to loyalty marketing.
What Is A Tier?
A tier is more than you think. A tier represents a predefined, stable group of customers with specific benefits and recognition. It has rules for qualification and rules for downward migration. In most cases, tiers are public but they do not have to be. Tiers are often marketed and published so customers know the rules, promoting behavior that reaches the next tier.
Typically if you have tiers, the core tier structure needs to be MECE – mutually exclusive and collectively exhaustive. That is, everyone is in one tier and one tier only. So the most basic tier structure should be hierarchical – there is a base tier and one or more tiers that are “better” than the base tier. Other options include parallel or multiple tier structures versus a single hierarchy.
Its worth noting that dollars spent or points earned don’t have to be the sole way to advance to a higher tier. Tier design is almost an art to itself, balancing the portion of the audience who will qualify and the method used to qualify them. For example, behavior analysis and research may show a natural inflection point in the top 25% of customers, but since this group accounts for (say) 60% of revenue, the cost of a 25% acceleration might be prohibitive. A more realistic design might offer recognition or first access on clearance product, with acceleration reserved for the top 5% of customers.
Tiers can be a great tool for lock-in and to drive incremental behavior. They establish a clear picture to end customers of the thresholds for advanced services and benefits. This becomes a powerful motivator when customers are close to qualification for the next tier, especially if there is a time deadline. Assuming your tiers offer a desired benefit, maintaining membership in a tier can be a tremendous motivator of loyalty.
The Problems With Tiers
The downside of tiers is primarily around funding. That is, customers expect an upgrade in benefits with higher tiers, which cost money. When designing a program, this incremental cost becomes a crucial input to the funding model, since most tiers target the highest spenders. So smart tier design (and overall program design) must account for this funding, determining the right balance of incremental expense to drive incremental customer spend and reduced attrition.
Tiers can also be difficult to eliminate. Once in place, you risk customer anger if your tiers are reduced or eliminated. While a better approach is often to swap out benefits, complete elimination must include some sort of financial offer to compensate for the loss of tier benefits.
Types Of Tiers
Most people understand elite tiers – spend more or do more, get elite status. Elite tiers often increase benefits, increase accrual, have special services and recognize customers as elites. Elite tiers are often used to deal with the desire to avoid rewarding behavior that would have happened anyway. Instead, elite tiers provide recognition and soft benefits that provide differentiated service without substantial incremental expense.
Hidden tiers are those not published to the general public. They may be elite or parallel. United Global Services is a (mostly) hidden tier that appears to be both elite (above 1K) and parallel (qualification seems to be based on revenue generation, not miles flown).
A more standard approach is a hidden “super-elite” tier which is invitation only, once someone reaches an extreme behavior threshold.
Parallel tiers exist alongside the main tier hierarchy or entail two or more main hierarchies. As a result, customers may belong to multiple tiers simultaneously. Until recently, this would have been handled with segments, but the advent of social and activity-driven tiers (as opposed to spending based tiers) now has sophisticated marketers structuring separate hierarchies to reward active but low-spending customers.
This just scratches the surface, but should give you a basic idea of how tiers work and how to approach design. In practice, the mechanics of tiers can be exceedingly complex, and good forecasting of customer behavior is crucial to determine qualification, benefit, recognition and downgrade elements.
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