There are three common program structures:12
- Frequency reward programs
It takes the form of “buy X amount (or collect Y points), get a reward”. It is more common for businesses that encourage frequent purchases and are transaction-focused (e.g. grocery stores)
- Customer tier programs
It takes the form of “buy X amount (or collect Y points) over a period of time, qualify for a tier”. Customers in different tiers are entitled to different benefits and may earn different point amounts per dollar spent. A tier program is more common for high commitment, higher price point, and relationship-focused businesses (e.g. airlines, hotels, and insurance companies).
- Reward and tier hybrid program
Redeem rewards based on points, and also get additional privileges as you rise through the tiers. This is a good choice for businesses that want more ways to segment and incentivize customers.
Which program structure should my dispensary use?
We recommend the reward and tier hybrid program. Dispensaries are in general transaction-focused businesses, so frequency reward should be the foundation of a dispensary loyalty program. That being said, tiers are a very versatile tool you should also aim to incorporate in your program.
Tiers can help in the following ways:
- Enable segmentation of customers by profitability
Customers in higher tiers tend to be more profitable than those in lower tiers. With this in mind, we can design a unique benefit scheme for each tier. The benefits of the lower tiers should aim to increase purchases and visits, while the benefits of the top tier should aim to give recognition and exclusive treatments to your best customers.
- Provide goal-achieving motivations
Research shows that consumers accelerate their purchase speed as they approach a particular reward threshold.13 Each tier serves as a desirable goal that customers strive to achieve.
Tier structure FAQs
What’s the optimal number of tiers?
Research shows that three-tier programs develop higher satisfaction among all members than do two-tier systems, because having the third tier enhances feelings of status for elite members and allows for a clearer understanding of relative position for lower-tier consumers.15
How do I determine tiers from points?
The simplest method is to use the customer’s total life-time points as the qualification criteria. However, counting only a rolling period may be more effective, as it creates a sense of urgency and helps stimulate more purchases. Most major loyalty programs use a rolling period counting system. You can count points accumulated over the most recent quarter, past 6 month (e.g. Starbucks), past year (e.g. Nordstrom), or a custom period (e.g. Marriott tiers are good for the rest of the year plus an additional 14 months).