What Are Tiered Incentives, and Why Are They Effective?

It’s common for brands to utilize incentive programs for their sales rep, encouraging their sales team to put their best efforts forward throughout the year. While this is an excellent way to motivate your employees, it’s important not to overlook another key segment in this regard: your customers.

One of the most effective rewards programs you can offer your customers is a tiered incentive program. By creating different tiers based on the activity and engagement of a customer that results in increasingly appealing rewards, you can gain new customers, create loyal brand adherents, and increase your revenue.

Why are tiered incentive programs so effective? How can they benefit your brand? Let’s look at everything you need to know about this type of reward system.

What Are Tiered Incentives?

Tiered incentive programs are a specific type of customer loyalty program that places consumers in different tiers depending on their activity and rewards them accordingly. Customers can complete predetermined actions to advance to higher tiers and get increasingly valuable rewards through this kind of program.

Members are incentivized to keep moving up the pyramid of tiers to receive better perks. The best-designed tiered rewards programs can provide a number of benefits for your brand, including improved retention rates, increased referrals, and rising customer loyalty.

A Loyal Customer Being Rewarded

This can be a great type of program to use whether you want to make your existing customers even happier or acquire new customers. You can utilize this tactic in both loyalty marketing and referral marketing in the following ways:

  • Loyalty marketing: Customers who make it to your program’s top tier receive high-value rewards. This helps to encourage participation and engagement by your target demographic. Customers are incentivized to continue receiving benefits by sticking with your brand over the competition, helping you increase customer lifetime value and customer retention.
  • Referral marketing: You can use many different strategies to gain new customers, but ensuring plenty of loyal brand advocates out there is one of the most effective methods you can use. You can design a tiered incentive program where customers receive better and better benefits with every new person they refer to your brand. Rather than simply offering one reward for one referral, this powerful ongoing strategy takes standard referral programs to the next level.

The Benefits of Using a Tiered Incentive Structure

Tiered incentive structures offer a number of benefits, primarily that they encourage increasing participation and loyalty from your customers. Let’s look at the most significant perks of utilizing this type of incentive program to help you determine whether it’s right for your brand.

It Helps You Learn About Your Customers

A tiered rewards program is an excellent way to tap into exactly what motivates your customers to take action. By implementing new rewards based on a tiered structure, you can closely watch and analyze your customers’ activity to see how positively they are responding.

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Additionally, you might introduce a new reward that you expect will drive tons of customer activity and find that it falls short of your expectations. Even if it’s a bit disappointing at the moment, the truth is that this type of insight is truly invaluable in helping you design programs that motivate the highest possible levels of customer engagement.

Analyzing Customer Activity Data

This can help you to further fine-tune your loyalty and incentive programs down the road, helping to amplify the many benefits of this type of rewards initiative. Beyond that, though, this information can also be incorporated into your marketing efforts and product development. The more you know about your customers, the better you can serve their needs and provide solutions to their problems.

Not only do you learn more about your customers when you use a tiered rewards program, but it can help you better segment them into various categories. The tiers create natural segments, illustrating each customer’s level of involvement and engagement. According to research released by McKinsey, segmenting your customers based on behavior rather than demographics, values, or needs can open up new levels of insight and provide new opportunities for brands. Both customer satisfaction and customer acquisition can be positively impacted when you segment your customers by behavior and target them appropriately using this knowledge.

It Gives You New Ways to Engage With Your Customers

There are so many different brands out there competing for your customers, and introducing new and fresh ways to engage with them can ensure your target market always has you in mind. Few things motivate people quite so well as a little healthy competition, and tiered incentive programs drive your customers to continue climbing the ladder to receive the highest possible reward.

Many brands have found that gamifying their program helps increase engagement even more. You could do this by providing a points tracker, a progress bar, or another fun feature that lets customers see what actions they need to take to get to the next tier. Being able to visually see their progress can be a huge motivational force for people who are incentivized to work their way up and reap the most substantial reward you offer.

A Motivated and Engaged Customer

When using a tiered incentive program, it’s common to segment participants into different categories, such as enrolled, active, and redeemers. Redeemers are the most engaged and the most valuable out of these three segments, as they tend to spend more than both active and enrolled members.

It Motivates Customers to Spend More

When you have a well-designed tiered incentive program, customers can be motivated to spend more than they may have otherwise. They are compelled to reach higher tiers and gain access to higher rewards.

A Customer Making a Purchase

This can lead to an overall increase in revenue for your brand through increasing average transaction values.

Personalization and Data Collection

You can gain all sorts of valuable insights into your customers’ preferences and behavior through the data you collect from your tiered rewards program.

Analyzing Customer Preferences and Behaviors

You can use this information to personalize recommendations and offers, which helps to make your customer’s experience even more enjoyable and helps drive sales.

Do your sales reps need a little motivational boost? Take a look at our recent articles about 12 Types Of Commission Structures For Your Sales Team, Incentivized Training: How It Can Maximize Your Sales Potential, and The “President’s Club” Incentive: 12 Things That Set It Apart.

It Creates Loyal Brand Adherents

Gaining new customers is only one piece of the puzzle when you want to grow your brand. The other essential element is keeping your existing customers happy.

How can you build long-term loyalty to your brand? You can utilize many strategies, but one powerful method is tiered incentive programs. Customers are incentivized to keep doing business with your brand and are happy to do so because of the rewards they know they will receive.

A Loyal Customer Making a Purchase

This type of program can be a great way to get an edge over the competition. When a consumer is comparing products and services, the existence of a tiered rewards incentive could be a contributing factor to choosing you over another brand. Customers inherently understand the long-term benefits implied by this type of program, which can instantly make them a much more loyal adherent to your brand and products.

It Makes (and Keeps!) Your Customers Happy

Customers love to feel like they are valued, and a tiered incentive program is an awesome way to show them that they are important to you. Thanks to the data you’ll have access to through your program, you’ll also know which customers are the most valuable and have the opportunity to thank them for their loyalty and commitment to your brand.

Of course, how your program is designed can impact how successfully a tiered incentive program keeps your customers happy. It’s important to make sure that your most exclusive rewards are given to the highest tiers, motivating customers to keep moving up the ranks. Not only does receiving rewards for their engagement make your customers feel valued, but it also gives them a sense of status as they can gain access to all sorts of things that regular customers can’t. For example, members in the highest tiers might get invited to special events, free stuff with personal notes, access to new products, or more.

A Pair of Happy Customers

Happy customers are good for business in countless ways, and one of these is that your most satisfied customers will be glad to spread the word about just how great your brand is. This is particularly true when they can show off the truly special rewards they’ve received for engaging with your brand.

It Incentivizes Purchases During Slow Months

Tiered incentive programs can also be incredibly useful for withstanding your slowest seasons.

Slow Months of Sales

You can reduce or even entirely avoid the drop in sales you normally experience during your lowest-revenue months by incentivizing customers to spend during the off-season. You can point your marketing efforts toward promoting your rewards program when sales are slow, helping to fill the gap and keep the revenue rolling in.

It Gives You More Chances to Connect

Reaching out to your customers too much when you don’t have much to offer them is a great way to make them irritated. You really need a good excuse to stay in contact– you need something valuable to say– otherwise, you run the risk of having people unsubscribe from your site and email list.

A Customer Receiving an Email

Having a tiered rewards program is an awesome reason to keep in touch with your customers on a regular basis. This provides a natural opportunity for you to nudge them about how far they are from reaching the next tier, unclaimed rewards, and other useful tidbits of information.

Are you wondering how you can regain customers that have wandered away? Make sure you check out our recent post about the top five strategies to win back customers.

Why Are Tiered Rewards Programs Effective?

There are a number of reasons why tiered rewards programs are so effective for increasing customer loyalty and retention, enhancing customer engagement, and increasing revenue.

An Engaged Customer Earning Rewards

Let’s look closely at why this type of program works so well.

  • Psychological appeal: It’s natural for people to want to achieve goals and be motivated by the spirit of competition. Tiered incentives tap into the fact that customers are drawn to want to move up the ranks and achieve better perks.
  • Incentivizing customer loyalty: Customers gain a clear understanding of what they need to do to move up the ranks in a tiered incentive program. This encourages them to engage more deeply with your brand and continue being a loyal customer for years to come.
  • Allowing for customization: You can customize your program based on your specific goals, target market, and branding.
  • Providing a competitive advantage: Offering a tiered incentives program can seriously differentiate you from your competition. Customers who are on the fence between two brands are encouraged to select the one that offers exclusive rewards and benefits.
  • Creating brand loyalty: When a customer is participating in a tiered rewards program, they often feel a stronger sense of loyalty and attachment to the brand. This makes them more likely to refer the brand to other people and less likely to switch to a competitor on a whim.
  • Providing the opportunity for data-driven decision-making: The data you can collect from this type of program is truly invaluable. You can use it to inform your decisions regarding future rewards programs, product design, and marketing efforts.
  • Built-in flexibility: The sky’s the limit when it comes to designing your ideal tiered incentive program. You can continue to alter your program over time in order to find the optimal levels and rewards that encourage the highest levels of customer engagement.
  • Cost-effective marketing strategy: When compared to traditional marketing campaigns, offering a tiered incentive program can be an extremely cost-effective marketing strategy.
  • Customer segmentation: Brands can segment their customer base using tiered rewards programs based on spending and behavior patterns. This can provide a truly exceptional level of insight into how to most effectively target specific groups.

Is It Time to Reward Your Loyal Customers?

For nearly two decades, Level 6 has been a leader in custom incentive, rebate, and reward programs. Whether you are looking to reward your loyal customers, provide recognition to your employees, or incentivize your sales team, you’re in the right place.

Team Creating a Rewards Program

With fully customized software and cost-effective incentive solutions, we are committed to providing the best overall value in full-service incentive programs. To get started, schedule a call with us today!

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