Points or Tiers? How to Choose the Right Ecommerce Loyalty Program

I believe implementing an effective loyalty program is one of the best ways to increase customer lifetime value. The question is how do you know whether a points-based or a tier-based model is better for your ecommerce business? In short, there are pros and cons to each approach, which I will highlight here so you can determine what kind of program will best fit your needs.

Points-Based Programs Drive Immediate Gratification

Points-based programs reward customers by allowing them to accumulate points for different actions, like:

• Making a purchase
• Writing product reviews
• Referring friends
• Engaging with the brand on social media

The more points members earn, the bigger discounts and perks they can redeem, which is an immediate payoff. Here are some advantages you get with points:

• Members feel gratified winning points, so they return to keep collecting them
• It incentivizes customers to interact with your brand frequently
• Awarding points is easier to manage versus complex tier requirements
• Provides flexibility in setting point values and redemption rules

For smaller ecommerce businesses with less transactions, I feel point-based systems are simpler to execute. You can motivate engagement through creativity in how points are earned and used.

Tiered Programs Encourage Long-Term Loyalty

In tiered programs, customers reach higher membership levels by meeting certain requirements over time, for example:

• Spending a total dollar amount annually
• Making a number of repeat purchases
• Being a customer for a certain period

The longer someone remains loyal to your brand by shopping consistently, the more elite status benefits they obtain. Some perks of tiered programs are:

• Higher tiers distinguish and reward your very best customers
• Exclusivity spurs customers to keep engaging to reach the next level
• Allows you to offer special services to VIPs only
• Gives members something to work towards continuously

If you have a large customer base and want to focus on nurturing long-term relationships, a tiered structure creates aspirational and differentiated loyalty.

Blending Points and Tiers for Maximum Impact

From my experience, the most successful approach combines points-based redemption with tiered recognition. Here are some tips to get the best of both worlds:

• Offer points that taper based on tier – Top tiers receive bonus points per dollar to reinforce status
• Give tier milestones point awards – Reward customer progress with lump point gifts to inspire loyalty
• Require points + purchases for tiers – Points show activity, but dollars signify meaningful customer value
• Create exclusive redemption options per tier – Additional merchandise or experiences make tiers more valuable
• Hold special events for high-tier members – Treat your VIPs to experiences that money can’t buy, such as concerts or sporting events

This blended model provides members short and long-term incentives, thus fueling continuous engagement with your brand.

Let’s walk through an example for Outdoor Gear Co, a fictional ecommerce retailer to convey the power of blending both points and tiers into a reward program. They design a program with:

• 3 Tiers:
  • Explorer (0 – $500 annual spend)
  • Adventure (Over $500 spend)
  • Elite (Over $2000 spend)
• Customers earn 1 point per $1 spent
• Additional points awarded:
  • Adventures earn 1.1 points per $1
  • Elites earn 1.25 points per $1
• 500 points can be redeemed for a $20 discount
• Elite members get early access to sales
• Adventure members get free shipping
• Explorers get free returns

With this mixed structure, all buyers are rewarded with points to redeem discounts. We then use additional points and specialty perks to make reaching the higher Adventure and Elite tiers more rewarding. With this, customers are incentivized to keep engaging with Outdoor Gear Co all year to become VIPs.

Key Things To Consider For Your Brand

Choosing and customizing the best loyalty model entails factoring in your:

• Customer demographic – Buying habits may warrant points, tiers, or both
• Profit margins – Ensure rewards still keep transactions profitable
• Brand size & industry – Smaller brands may lack resources for complex tiers
• Existing retention strategy – Enhance other engagement channels
• Business & marketing objectives – Align program goals & metrics with these

Make sure to track loyalty KPIs over time regardless of structure – signups, activity rate, churn, etc. Understanding program performance is critical for maximizing lifetime customer value.

In Closing

In closing, layering a points system (for tangible redemptions) over tiered status levels (yielding special privileges) can be extremely effective. Bringing out the best of both models leads to recurring purchases in the short-term and strengthened brand affinity over the long run.