Retail loyalty programs add tiers to reward big spenders
Taking a page from airline programs, more retailers are adding elite levels with extra perks to their loyalty packages. But shoppers may find membership nearly as pricey as a first-class airline ticket.
In July, Sephora relaunched its Beauty Insider program, adding a reward level with free shipping, early access to new products and sales as well as VIP event invites for shoppers who spend $1,000 or more in a year. Around the same time, flash-sale site Gilt.com introduced its Gilt Insider Program, awarding shoppers five points per dollar spent and weekly bonuses for interacting with the brand. Tiers with extra benefits such as exclusive sales and a VIP customer service line kick in at the 5,000-, 10,000- and 25,000-point thresholds.
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"To make it fair we crafted a program that rewarded engagement, i.e. site visitation and social interaction, in addition to purchasing, so that members could advance up tiers as they earned points," said Elizabeth Francis, Gilt.com's chief marketing officer.
They're not the only retailers to add extra perks for big spenders in recent years. Nordstrom and Best Buy beefed up their tiered rewards programs last year, and Starbucks, Gap and DSW are among the companies that also divide loyalty rewards by spending level.
When pretty much every retailer is offering a program with points per purchase, tiers offer that extra incentive to choose one over another, said Jeff Berry, senior director of knowledge development for LoyaltyOne. "It almost has become the overall scorecard for customers, so they understand where they are relative to where they could be," he said.
It's one that's attractive to wealthy shoppers. "A lot of the loyalty programs these days are less about points and more about special access," said Milton Pedraza, chief executive of research firm Luxury Institute. "It's about special treatment."
But going for elite status requires forethought. Thresholds to get elite benefits are usually high enough to force shoppers to consolidate their spending, he said. (At Nordstrom, making it into the upper tiers requires $2,000, $5,000 or $10,000 in annual spending; at Best Buy, Premier Silver status goes to those spending at least $2,500.)
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"It's like airline miles," said Michelle Madhok, founder of sale site SheFinds.com. "The goal is always to focus on just one or two programs."
Even then, Madhok said, there's a significant risk of overspending. Shoppers gunning for elite status aren't necessarily hunting for sales at competing retailers. Plus, most programs require members to hit annual spending goals to maintain their status,which can prompt an unplanned spree when that year-end deadline looms.
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Of course, it's also important to assess whether the rewards are worth chasing. Retailers' main elite perks are early sale access and invitations to exclusive events, which are a far cry from the free upgrades, faster check-in and security lines and lounge access that airlines offer elites, said Berry. "It's hard for a retailer to bring enough value to the table," he said.
—By CNBC's Kelli B. Grant. Follow her on Twitter @KelliGrant.