Latest / The DTC Marketing Podcast with Fexingo: Direct-to-Consumer Brands, Shopify, and E-Commerce Growth / How DTC Brands Use Loyalty Tiers to Boost Repeat Sales
Transcript
- Lucas: Luna, I've been digging into how DTC brands are structuring their loyalty programs, and there's one shift that keeps coming up: moving from flat points to tiers. Luna: Tiers, as in bronze, silver, gold? I feel like that's been around forever with airlines. Lucas: Exactly, but the DTC world is finally catching on. And it's not just about status. I was looking at a skincare brand that introduced a three-tier system and saw repeat order rate jump by thirty percent within six months. Luna: Thirty percent is huge. What did the tiers actually look like? Lucas: So they had a base level where you earn points, then a mid-tier that unlocked free shipping, and a top tier with early access to drops and a birthday gift. But the key is how they set the thresholds. Luna: Before we go deeper, Lucas, I want to mention something. You know we keep this show ad-free by design, and that's thanks to listeners who support us directly. Lucas: Right, we don't run commercials or sponsored reads, which means we get to talk about whatever we find genuinely interesting. If that's valuable to you, the link is buy me a coffee dot com slash fexingo. Luna: Yeah, it's a simple way to keep this going. But back to tiers—what's the psychology behind them? Lucas: It's the endowed progress effect. When people get close to a threshold, they buy more to cross it. The skincare brand set their mid-tier at a point that felt attainable—about two orders in—while the top tier was aspirational, maybe four or five orders. Luna: So you're balancing the carrot and the stick, but without the stick feeling like a penalty. Lucas: Exactly. And the rewards have to be meaningful. Free shipping is a big one because it removes friction. Early access taps into exclusivity. But you also have to watch your margins. Luna: How do you keep tiers profitable? I imagine some brands give away too much. Lucas: That's the classic mistake. A friend at a supplement company told me they initially gave twenty percent off at the top tier, and it crushed their margins. They had to dial it back to ten percent plus a free sample, which still felt rewarding but didn't kill their bottom line. Luna: It's a delicate balance. What about the thresholds themselves? Is there a formula? Lucas: You want to look at your order frequency and average order value. The mid-tier should be achievable by your best customers within a few months, so they feel motivated. The top tier should be a stretch, but not impossible. Luna: I've seen brands that make the top tier so high that nobody reaches it, and then it feels pointless. Lucas: Exactly. You need to have a percentage of customers actually hitting it, otherwise it's just a carrot on a stick that demotivates. One pet brand I know has a diamond tier that only two percent of customers reach, but those customers generate like twenty percent of revenue. Luna: That sounds like the Pareto principle in action. So how do you communicate tiers without confusing people? Lucas: Simplicity is key. The skincare brand used clear names like Member, Insider, and VIP. And they showed progress bars on the account page and in emails. That visual cue is powerful. Luna: Progress bars are a nice nudge, but do they actually drive purchases, or is it just a nice to have? Lucas: There's data on that. One study from a loyalty platform showed that members who see a progress bar are twenty percent more likely to make a purchase in the next thirty days. It's that loss aversion—people don't want to lose the progress they've made. Luna: That makes sense. But what about the flip side—tier fatigue? I've heard some consumers get annoyed by constant emails about their status. Lucas: It's a real risk. You have to be thoughtful about frequency. The skincare brand sends a monthly status update, not a weekly one. And they only send targeted offers when someone is close to a threshold. Luna: So it's about being helpful, not spammy. Do you have any examples of brands that crashed and burned with tiers? Lucas: I remember a food delivery startup that launched a tier system with five levels. It was way too complex, and customers couldn't figure out what they got at each level. They ended up simplifying it to three tiers and saw engagement go up. Luna: Sometimes less is more. What about the technology side? Can Shopify brands easily set this up? Lucas: There are apps like Smile.io and LoyaltyLion that have tiered options built in. You can set rules based on spend or order count, and they integrate with your Shopify storefront. It's not a huge lift. Luna: So any DTC brand on Shopify can potentially do this. What's the one thing they should get right first? Lucas: I'd say defining your desired customer lifetime value. Work backwards from what a repeat customer is worth to you, then set thresholds that nudge people toward that value. And make sure the rewards don't eat into that margin. Luna: That's a practical starting point. But what about brands that already have a points program? Is it worth the switch? Lucas: It can be, but you have to migrate customers carefully. You don't want to reset their points or status without communication. One athletic wear brand did a clean transition where they converted points to tier status, and they communicated it clearly. They saw a fifteen percent increase in repeat orders post-launch. Luna: Fifteen percent is solid. So tiers seem to be a no-brainer for many DTC brands, but there's a lot of nuance. Lucas: Absolutely. The key is to test and iterate. Start with a simple three-tier model, measure the impact on repeat purchase rate and customer lifetime value, and adjust thresholds or rewards as you learn. Luna: I'm curious about the emotional side. Does reaching a higher tier actually make customers feel more loyal, or is it just a rational calculation? Lucas: There's definitely an emotional component. When people achieve a status, they feel a sense of accomplishment and belonging. That's why brands often celebrate tier upgrades with a special email or a small surprise. It reinforces the emotional connection. Luna: That's a nice touch. I've seen brands send a handwritten note or a small gift when someone reaches the top tier. It creates a memorable experience. Lucas: Exactly, and those experiences get shared on social media, which is free marketing. So it's not just about the tier itself, but the story around it. Luna: Given all this, what's your takeaway for our listeners who are thinking about implementing tiers? Lucas: I'd say start with a clear goal, keep it simple, and use data to guide your thresholds. And remember, the goal is to increase customer lifetime value, not just make people feel good about a badge. Luna: That's a solid note to end on. Thanks for breaking this down, Lucas. Lucas: Anytime, Luna. If you're a DTC marketer, I'd love to hear how your loyalty tiers are working. You can find us on social or leave a comment on the show notes.