VIP Loyalty Programs Explained: What it is, benefits, and examples

In the fast-paced world of e-commerce and retail, customer loyalty is more valuable than ever. One of the most effective tools for fostering and maintaining this loyalty is the VIP loyalty program.

Brands have long used VIP programs to enhance customer retention and engagement by offering personalized benefits and incentives to their customers. These programs hook customers by creating a sense of exclusivity and privilege, driving repeat purchases and deeper brand loyalty through tailored experiences.

This comprehensive guide will explore what VIP loyalty programs are, their structures, benefits, common setups, considerations, and highlight five exemplary programs.

What is a VIP Loyalty Program?

VIP loyalty programs are structured marketing strategies designed to do two very important things:

1. Reward a brand's most loyal customers so they stick around and spend more money

2. Give newer customers a clear path and incentive to become loyal

Why is creating more loyal customers so important? Because loyal customers spend on average 2.5x more than their non-loyal counterparts. At Raleon we see even further lift within the "loyal customer cohorts" where those that are engaged in loyalty spend an additional 20% more. In other words, loyal VIP customers are valuable!

The big question then becomes, how do you structure a loyalty program to both create more loyal customers and keep your loyal customers?

How to Structure VIP Loyalty Programs

The structure of a VIP loyalty program can vary widely depending on the brand and its objectives. However, some common elements and structures include:

1. Tiered Systems: Customers are placed into different tiers based on their spending, engagement, or other criteria. Each tier offers increasingly valuable rewards and benefits. For example, a tiered system might include Bronze, Silver, Gold, and Platinum levels.

2. Points-Based Systems: Customers earn points for purchases, social media engagement, referrals, and other actions. These points can then be redeemed for rewards or used to move up tiers.

3. Revenue-Based Tiers: Customers are placed into tiers based on their total spending within a certain period. Higher spenders receive more exclusive rewards.

4. Engagement-Based Tiers: Customers who engage more frequently with the brand through actions like sharing on social media, writing reviews, or participating in events can move up tiers.

5. Premium Membership-Based Tiers: Customers pay a monthly or yearly subscription to get access to benefits. Usually it's just a single tier - the paid tier, but sometimes you may have more than one. Costco is a great example here.

6. Hybrid Systems: Many programs combine elements of the above structures to create a more comprehensive and engaging experience.

Now, I know what you're thinking - how do I know what VIP structure is best? I wish I had an easy answer. What I can tell you is it's about designing it so it doesn't feel like a one-off program, but something that feels like an integrated part of your brand experience. Kith does an exceptional job at this, which we'll get to later in examples. The biggest thing I can say is to make sure you avoid the common pitfalls we cover.

What are the Benefits of VIP Programs?

Like many, you are probably wondering - do VIP loyalty programs actually work? The short answer is, when designed well, yes. We've read through a lot of research on the topic that shows they do. Not to mention our own data that shows they do. The tricky part is making sure know how to measure loyalty program effectiveness.

VIP loyalty programs offer numerous benefits for both customers and brands:

1. Increased Customer Retention: By rewarding loyalty, these programs encourage customers to keep coming back, reducing churn rates.

2. Higher Customer Lifetime Value (LTV): VIP members often spend more over their lifetime with the brand, leading to higher CLV. In fact, a loyal customer that's engaged in a VIP loyalty program spends more than a loyal customer who is not.

3. Enhanced Customer Engagement: Personalized rewards and exclusive benefits drive deeper engagement and brand advocacy.

4. Data Collection and Insights: VIP programs provide valuable data on customer behavior and preferences, which can be used to further refine marketing strategies.

5. Competitive Advantage: A well-executed VIP program can differentiate a brand from its competitors, creating a unique selling proposition.

Avoiding Common Pitfalls - Must Read

If you read nothing else, make sure you take this section to heart. There's a handful of common pitfalls we see really hurt the impact of a VIP program. These are mistakes often repeated because a brand sees other brands doing it, so they think they should as well.

1. Don't Give Aggressive Discounts to High Tiers: One of the most common mistakes in a VIP program is offering overly generous rewards to already loyal customers. This erodes profit margins. Often times more loyal customers convert based on status more than discount. Save that margin for earlier stage customers.

2. Stop Giving Away More Points: I cringe every time I see point multipliers per tier. Usually it looks something like "Gold Tier gets 2x points, Platinum Tier gets 3x points". This falls into rule #1. If you want to give more points to higher tier customers, let it be as a reward through engagement, like filling out a valuable survey that improves your advertising.

3. Lack of Personalization: VIP Programs started, in part, as a way by which loyalty programs were "personalized". A means of making punch cards more targeted. But VIP programs are still largely generic, which reduces their effectiveness. If you're not doing personalized loyalty, even within VIP tiers, you're leaving money on the table. Personalized rewards based on customer preferences and behaviors are far more effective.

4. Complexity: Overly complex programs can confuse and frustrate customers. The program should be easy to understand and participate in. One trick we like to do here is make sure each tier has an "automatic" reward. This is also an easy way to keep customers engaged that may forgotten.

5. Neglecting Lower Tiers: While it's essential to reward top spenders, neglecting lower tiers can alienate other loyal customers. Ensure each tier offers meaningful rewards.

6. Pick Rewards That Matter: One of the biggest downfalls of any loyalty program, VIP or not, are rewards customers don't care about. An easy way to figure it out? Ask customers, and then test it with personalization.

4 Common Considerations for VIP Programs

When planning VIP tiers, most brands jump straight into the tiers and benefits, but they neglect to consider some of the more nuanced parts of a VIP program, like whether tiers reset. These are important decisions because each of these aspects of a VIP program create additional opportunities to re-engage. For instance, before a tier reset is a great time to reach out to a customer.

Here's 4 factors important to consider:

1. Tier Resetting: Decide whether tiers reset annually, semi-annually, or remain static. Annual resets can motivate customers to maintain their status, while static tiers offer long-term rewards for loyalty.

2. Tier Downgrading: Determine if customers will drop a tier if their activity or spending decreases. This can encourage continuous engagement but may also lead to customer frustration.

3. Lifetime Tiers: Consider offering lifetime tiers for long-term loyal customers. This can provide a powerful incentive for sustained engagement.

4. Reward Structures: Ensure rewards are meaningful and desirable at each tier. Avoid lazy approaches like simply offering 2x points, which can erode margins.

5 VIP Loyalty Programs That Crush It

Examples of existing VIP Loyalty programs are always helpful. We wanted to cover a few lesser known ones, but that do an incredible job.

1. Sephora Beauty Insider: Sephora's program offers three tiers: Insider, VIB, and Rouge. Members earn points for every purchase, which can be redeemed for products and experiences. The program also offers exclusive events, early access to sales, and personalized recommendations.

2. Kith: While a little newer, Kith does a masterful job of avoiding all the pitfalls mentioned above - especially around giving away too much margin. In fact, we have a whole writeup on Kith's loyalty program.

3. Mecca Beauty Circle: Mecca beauty is putting on a master-class in why automatic rewards and very clear tiers is so powerful.

4. Nordstrom Nordy Club: Nordstrom's program offers four tiers based on spending. Members earn points for purchases and receive benefits such as early access to sales, exclusive events, and personalized styling services.

5. NikePlus: Nike's program offers members exclusive access to products, events, and workout content. Members also receive personalized training plans and rewards for engaging with the brand through its app.

Conclusion

VIP loyalty programs are a powerful tool for fostering customer loyalty and driving business growth. By understanding their structures, benefits, and common considerations, brands can design effective programs that reward their most loyal customers without sacrificing profitability. With the right platform for personalization, and great execution, VIP loyalty programs can create lasting customer relationships and provide a significant competitive advantage.

If you would like assistance on setting up your VIP program, or even an audit to it, let us know!