Latest / The CMO Podcast with Fexingo: Marketing Leadership, Budgets, and Executive Strategy / Why CMOs Are Marketing Through Loyalty Tiers
Transcript
- Lucas: So you walk into a Starbucks, you order your usual, and the barista says, 'You're just three drinks away from Gold status.' That little nudge — it's not random. It's the result of a deliberate marketing strategy that's quietly reshaping how CMOs think about customer loyalty. Luna: Right — and it's not just coffee. Airlines, hotels, even your grocery store app — they're all moving away from simple points for purchase and toward tiered systems where the reward is status itself. Lucas: Exactly. And the shift is bigger than a loyalty program tweak. It reflects a fundamental change in how brands think about customer retention. Instead of just rewarding transactions, they're trying to create an emotional investment. The status tier becomes something you don't want to lose. Luna: There's a behavioral economics term for that — the endowment effect. Once you have Gold status, losing it feels worse than never having had it. Lucas: That's exactly it. And the CMOs I've spoken with say the key is designing those tiers so the gap between tiers feels achievable but not trivial. If it's too easy, status has no value. Too hard, and you get the opposite — customers disengage. Luna: Delta's SkyMiles program is a perfect example. In 2024 they overhauled their Medallion tiers, switching from miles flown to dollars spent. That was a massive shift. Lucas: And it created real backlash. Frequent flyers who'd earned status with a few long-haul economy trips suddenly found themselves falling short. But from Delta's perspective, the change was about margin — they wanted to reward high-spend customers, not just high-mileage ones. Their CFO made it clear: the new system better aligned loyalty with profitability. Luna: So the question is — did it work? I know Delta's customer satisfaction scores took a hit initially, but their revenue per passenger has been climbing. Lucas: It did work, at least financially. And that's the calculus CMOs face. A tiered loyalty system can be a powerful lever to drive higher spend per customer. But it has to be managed carefully because status is a double-edged sword. Luna: What do you mean? Lucas: Well, consider the psychology. If you're a Delta Platinum Medallion member, you've spent a lot to be there. You're highly engaged. But once you achieve that top tier, the incentive to spend more actually diminishes — you've already 'won.' So smart programs create aspirational tiers above, or they add soft benefits like upgrade priority that keep you spending to maintain your position. Luna: Sephora's Beauty Insider program does that really well. They have three tiers — Insider, VIB, and Rouge. And Rouge members get early access to new products, free shipping, and exclusive events. It's not just points — it's access. Lucas: And that's the crucial insight. The best tiered loyalty programs don't just offer discounts — they offer privileges. Access, recognition, personalization. Those emotional rewards are harder for competitors to replicate than a simple 10% off coupon. Luna: Which is probably why we're seeing more brands adopt the model. Even grocery chains are experimenting with tiered perks. I read that Kroger is testing a paid loyalty tier that includes discounts on fuel and personalized coupons, but also free home delivery. Lucas: That's a good example. And the paid tier is interesting because it creates a recurring revenue stream for the brand while locking in the customer. Once you've paid $99 for the year, you're going to try to maximize its value — which means you're shopping there more often. Luna: It's like Amazon Prime. The subscription itself becomes the loyalty program. Lucas: Exactly. But here's where it gets tricky. If every brand you interact with has a loyalty tier, consumers start to experience what I've heard called 'tier fatigue.' You can't be a top-tier customer everywhere. So CMOs are now competing for a limited share of the customer's loyalty attention. Luna: That's where personalization comes in. With AI, you can actually tailor the tier thresholds and benefits to individual customers. Starbucks does this — they know your buying habits and can nudge you toward the next tier with an offer that's relevant to you. Lucas: Right. And the data gets incredibly granular. Not just what you buy, but when, where, and how often. A CMO at a major retailer told me they're using machine learning to predict which customers are at risk of churning and then offering them a micro-tier — like a three-month status boost — to re-engage them. Luna: That's smart. But it also raises questions about fairness. If two customers spend the same amount but get different status offers based on their predicted behavior, is that ethical? Lucas: It's a real tension. And the best CMOs are transparent about it. They're not hiding the fact that loyalty programs are dynamic. They frame it as 'earning your way' rather than 'we're giving you a different deal.' But the line can be thin. Luna: So what's the bottom line for a CMO thinking about redesigning their loyalty program today? Lucas: I'd say three things. First, status matters more than points. Design tiers that feel like achievements, not just math. Second, make the benefits experiential — access, recognition, personalization — not just discounts. And third, use data to personalize the path to the next tier, but be transparent about it. Luna: And don't forget: the cost of maintaining a tiered program can be significant. You need the technology, the data infrastructure, and the operational ability to deliver on those benefits. Lucas: Absolutely. It's not a plug and play solution. But when it works, it creates a loyalty flywheel. The more customers engage, the more data you get, the better you can personalize, and the less likely they are to leave. Luna: If today's conversation sparked something you might actually use, the way these episodes stay ad-free is through listener support. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, exactly. It's a small way to keep this resource going, and we really appreciate it. Luna: So back to loyalty tiers — one brand that's doing something unique is Marriott. Their Bonvoy program has lifetime status tiers, which is a whole different level of commitment. Lucas: That's a great point. Lifetime status is the ultimate retention tool. Once you've achieved lifetime Platinum, you're essentially locked into the Marriott ecosystem forever. And Marriott knows that — they calculate the net present value of that customer's future bookings and it's enormous. Luna: But it's also a huge liability. If you give away lifetime benefits, you're on the hook for those even if the customer's spending drops off. There's a balance. Lucas: Which is why most programs have moved to an annual requalification model. You have to earn your status every year. That keeps the customer active and gives the brand flexibility to adjust the program over time. Luna: I think the key takeaway for our listeners is that loyalty tiers are not just a marketing tactic — they're a strategic business decision that affects pricing, customer experience, and even product development. Lucas: Well said. And as AI continues to evolve, we'll likely see even more dynamic tiers — where the threshold to reach Gold adjusts in real time based on supply and demand. Imagine a hotel that lowers the tier threshold on a slow Tuesday to fill rooms. Luna: That's both exciting and a little scary. But it's probably where we're heading. Lucas: For now, the smartest CMOs are focusing on the fundamentals: creating real value in their tiers, making the journey feel earned, and using data to keep it personal. That's how you turn a loyalty program into a growth engine. Luna: And if you want to see how your favorite brand's loyalty program stacks up, just look at the tier names and benefits. If they're generic, it's probably an afterthought. If they're specific and exclusive, it's a strategic asset. Lucas: Great litmus test. Thanks for listening, and we'll catch you next time.