VIP

VIP tiers are a tricky offering.

For those who offer them, it’s often to reward a brand’s most loyal customers. For those who don’t, it’s often rooted in the belief that a brand’s most loyal customers don’t need much more in the way of rewards.

It’s usually that simple: One side is more rooted in thanking customers; the other is more rooted in protecting the business. No one, in my experience, really spends much time wondering how much a VIP tier impacts a business. And there’s curiously little content (that I could find) about how valuable VIP tiers are.

The challenging part of this is rooted in a bit of selection bias. Customers in VIP tiers are already better than customers who aren’t. So, how do you start to measure the impact of the various benefits & perks associated with the tier itself? 

A couple weeks ago, I shared my excitement for our new Retention Insights section focused on cohort behavior, because that section quickly show brands how customer cohorts expand their spend over time. One of the things we didn’t discuss in detail, though, was how customer cohort graphs generally flatten over time. There is an initial upward trajectory that, on a month-over-month basis, flattens as the cohort matures.

A reminder on what that looks like: 

The foundational theme of cohort analysis, though, is an interesting way to explore the value of VIP tiers, because it can let you ask a question like “Do VIP tier rewards delay the flattening of the cohort’s trajectory?”

Though we have some work to do to visualize the answer, we have done the analysis. And the answer to that question is “Yes.”

About two-thirds of the brands we looked at saw improvements in purchase frequency and AOV from customers who redeemed points on purchases once in VIP tier when compared to customers who didn’t redeem points on purchases once in VIP tiers.

(You’ll notice we didn’t compare redeemers to individuals not in the program, like most loyalty vendors do. The reason for this is the inherent selection bias in that approach. Instead, we opted to use redemption as a proxy for whether someone remembers the VIP tier/loyalty program exists and “opts in” to continued participation in it, since we’re trying to understand the impact of the tier on customer behavior.)

The KPI-specific numbers are even more:

• 42% improvement in purchase frequency compared to VIP non-redeemers

• 18% improvement in customer revenue compared to VIP non-redeemers

There are, I think, two big takeaways from this. 

First, while it’s important to emphasize the disclaimer that not all brands saw this change in customer behavior, this is a big deal. If VIP tiers can slow the degrading value of your most valuable customers, it’s an immense lever to pull for retention efforts. Many brands never even consider a VIP tier. This data suggests that it should at least be considered as a merchandising lever.

Second, you’ll notice the disparity between the purchase frequency improvement and the customer revenue improvements noted above. While a number of factors are likely to be contributing, it stands to reason that VIP rewards may be more generous for the customer than necessary. So, if you do leverage a VIP tier in your loyalty program, it’s worth paying attention to how the extra rewards influence behavior among those who use them.

And, finally, a third piece not noted above: Among the brands analyzed, the median VIP redemption rate is 61% on a per-customer basis. It’s both surprising—and unsurprising (since we’ve been on this “loyalty is a merchandising lever” kick)—that there’s so much opportunity to get value out of VIP tiers via increased promotion to those within the tier.

Regardless, the data is pretty compelling: VIP tiers can help delay the flattening customer cohort curves. You’ll just need to make sure you promote it.