Avoid the January refresh: Four options for tier qualification in loyalty programs
On January 13, Delta emailed me my 2016 year-end SkyMiles statement. I had just started using the SkyMiles program a few months before, and had earned about two-thirds of the miles and spend needed to achieve “Silver” status. Of course, on January 1, anything I’d earned toward status was erased. In this context, the email’s message became: Look at all the qualification miles you just lost!
Yes, Delta’s year-end review was poorly timed, too late to add an incentive for me to buy miles to close the gap in December. But aside from the timing, this email raises one of the key problems with the strict calendar-year rules in loyalty programs: Clearing status progress every January removes a major reason to stay loyal to a company, especially for new customers. It can even create a new point of frustration, underscoring how difficult it is to achieve status in your program.
Earning status from January 1 to December 31 is a very common rule used in loyalty programs, but it’s important for loyalty marketers to understand that it’s not the only option. Here are a few reasons—and cautions—for using different timeframes for earning status.
Calendar Year: Refresh progress each January 1
- Pros: This timeframe is most familiar to customers and is easiest to execute from a business perspective.
- Cons: Losing progress toward status at year-end can add to customer frustrations. This is particularly true of retailers, whose customers often have the biggest spend (and get closest to earning status) at the end of the year. For some industries, consumers do not spend on a calendar-year timeframe, so customer purchase habits do not align to the loyalty program rules.
12 Months from Enrollment Anniversary: Earn toward status for the 12 months following enrollment, refresh on enrollment anniversary
- Pros: Starting the clock at time of a customer’s enrollment in a program gives new members a better opportunity to earn status. (Think someone who joins in September, who would lose her progress toward status three months later if she were on Calendar Year.) From a business perspective, it allows for personalized messaging around a customer’s specific anniversary, and it’s straightforward to execute.
- Cons: Although it can be better than Calendar Year for new members, it can be confusing to existing members, who might have joined years before and don’t attach meaning to their enrollment anniversaries. Also, it’s a less common timeframe for earning status, and the newness can add complexity for customers who are unfamiliar with the approach.
Rolling 12 Months: Earn toward status within any consecutive 12-month period
- Pros: This can be one of the most customer-centric approaches to earning status. This method helps drive customers into tiers, where the company can deepen customer rewards at the moments when customers are most engaged.
- Cons: The biggest complexities are related to business needs, regarding program rules, implementation, and added complexity to the technology platform and customer messaging.
Lifetime Spend: Earn toward status throughout an entire lifetime with the company, beginning with enrollment
- Pros: This approach can help loyalty programs in industries with a slow buying cycle, such as those with big-ticket items like cars and electronics. It rewards a company’s longest-term customers, and often stands out from a competitive set because it’s a rare option.
- Cons: From a business perspective, a Lifetime Spend tier threshold creates a risk of overfilling top tiers, and it requires long-term commitment. From the customer side, it can intimidate new customers, who feel the best rewards are too far away.
The design of your company’s program depends on your customers’ needs and your business needs. Choosing the right timeframe to earn status (if earning status is right at all) requires a detailed assessment of customer drivers, business capabilities, and ROI impact. It’s not a simple task, but it is essential to improve customer lifetime value.
Learn more about designing the right rewards program for your business.Tags: Customer Loyalty, Delta, Loyalty Program ROI, Loyalty Programs, ROI Simulator, SkyMiles, Tier Program Design