Issue #16: Tierable Mistakes

Most loyalty trends start in the travel industry, then make their way to other sectors. It makes sense. Travel’s been doing loyalty for decades and at enormous scale, successfully.

But not all trends are worth following, and I’m going to add a new one to the list: Tiers.

Call it whatever you want… tier-happy, tier-obsessed, tier-giddy. Too many brands think adding more tiers is better for their program and better for consumers. It’s not. More often, it’s frustrating high-spending members who can’t quite reach the top level, while adding unnecessary layers of complication (and higher point costs) that brands now have to communicate and deliver.

Travel brands typically have 4–5 tiers, but that structure has arisen from necessity. It’s the easiest way to rank boarding order or seat/room upgrades. Travel brands are also fighting hard for share of wallet from road warriors. There is a natural ceiling on how often someone can fly or stay in hotels annually, so handing out higher status was an extra layer of insurance to capture that share of spend.

But across many other sectors, this complexity isn’t necessary. There is rarely a cap on benefits.

Yet the number of brands with three or more tiers keeps growing every year. Fanatics has five. Adidas and Expedia have four. Lowe’s, PetSmart, Ulta, Sephora, Taco Bell, and American Eagle/Aerie all have three. Most recently, Starbucks announced a three-tier structure with Green, Gold, and Reserve.

A recent CX Dive article noted that “even smaller benefits at lower tiers can make the loyalty relationship feel special,” which is true. But the article also points out that tiers “can be too complex for customers to follow.”

And that’s where the drawbacks start to add up.

Benefits often aren’t meaningfully different. Small earn-rate bumps and marginal perk improvements are unlikely to achieve the desired effect of driving customers to spend more.

Then there is what I’ll call Middle Child…um…”Middle Tier Syndrome”. The Jan Brady’s of loyalty. They want to be your favorite, but never will be. This creates disappointment among a cohort that likely generates more sales than 95% of your customer base. There is a reason silver medalists are often more disappointed than bronze medalists. The near-miss regret is real. Do we really want that dynamic inside our loyalty programs?

Adding new tiers can also backfire. Starbucks is dealing with this now, as Reserve requires $2,500 in annual spend — enough for many customers to say, “hold my coffee.” Adding new tiers can further alienate your previously self-described “top” customer.

Naming also adds unnecessary friction. I wrote about confusing tier names back in Issue #4. Here are a few tier structures in alphabetical order. Can you determine the hierarchy?

Not so easy. None of the above is in the correct order.

Some brands, like Adidas and American Eagle, use numbered levels, but how does a consumer remember if Level 3 is the bottom, top or the middle? (It’s the top for AE, not for Adidas.)

Tiers also too often become the default personalization strategy. Brands divide members into a handful of buckets and communicate to each tier the same way. Messaging becomes focused on “how to get to the next tier” rather than encouraging the behaviors that actually drive engagement and value.

And let’s not forget the emotional downside of downgrades. The January reset email telling customers they are now back to base tier could be doing more damage than brands realize. The downgrade often feels worse than the upgrade feels good.

So with so many drawbacks, why are more brands doing this? Partly because tiers are a relatively easy way to introduce new benefits. Partly because consumers do respond to achievement structures. Tiers create excitement and give programs something new to promote. And partly because brands feel pressure to keep pace with competitors who also have tiers. Everyone is following everyone else, but no one is really leading.

For many brands, two tiers (one base, one upgraded) can work perfectly well. Dunkin’, DICK’s Sporting Goods, and Ann Taylor are good examples. A simple structure creates clarity and provides a clean line of differentiation between your best customers and everyone else.

What is the spend level you need from less than 20% of your customers, but that likely drives closer to 50% of your sales? That is probably where your higher-tier threshold should sit.

And many strong programs have 1 Tier that everyone sits in. McDonald’s, Pizza Hut, 7 Brew, Dutch Bros, Burger King, Lego, Domino’s, Abercrombie, and Kohl’s have all grown their programs without multiple tier structures. I admire how these brands have resisted the trend and focused on fundamentals. Many may introduce tiers eventually, but building the program, learning, and analyzing before adding complexity is a smart approach.

There are many ways to differentiate customers without expanding your tier structure.

Tiers, when done well, can be powerful. But they require careful cost-benefit analysis, as well as thoughtful consideration of the emotional impact on customers. They are not a shortcut to engagement.

Sometimes the best loyalty strategy is knowing what not to publish. Fewer ladders. More restraint. More relationships.

What’s your perspective on Tiers? When do you see them working well, or not? Drop them in the comments.