Do Top Loyalty Members Need Discounts?

Discounts can be a double-edged sword. They drive sales, but overuse can erode profit margins and cheapen the perceived value of your brand. So, when it comes to your top loyalty members, should you keep the discounts flowing freely?  And if not discounts, then what?

The Case for Continued Discounts

• Rewarding Loyalty: Top-tier members should to be rewarded for their continued business. What types of rewards are given can vary with this group, as noted below. However, people join loyalty programs to get discounts, so doing so every so often helps reinforce the desired behavior we’re looking from members.
• Driving Incremental Sales: Strategic discounts can entice even loyal customers to spend more, increasing their lifetime value. We are often tasked with using loyalty to drive incremental sales, and while the difference isn’t as great as less frequent members, the top members receiving offers are visiting more.
• Staying Competitive: It is unlikely that you are the only brand your top customer frequents within this category. If not number one, you want to at least be in their top 3 consideration set. Strategic use of discounts can help tip the scales in your favor and keep your loyalty program competitive.

The Downsides of Discount Dependence

• Profit Margin Erosion: For most this is the main concern with over-discounting top members—they were likely to have come in anyway, right? Well, maybe. We run tests versus a control group of top-members and look at visits post-campaign. For example, when running a points multiplier, do we see total visits after this campaign higher than those that were not included.
• Training for Price: Over time, members might become accustomed to discounts and expect them for every purchase. And while there may be valuable loyalty members only motivated by discounts, we don’t want that to be a primary driver of decision-making for top members.
• Devaluing Your Product: Constant discounts can send the message that your products aren’t worth their full price. This can hurt your brand’s perceived value, especially if you want to position yourself as “premium”. If giving discounts to top members, make sure you tell them why and how exclusive they are for them at that moment.

Moving Beyond Discounts: Engaging Your Top Tier

If not discounts then what? There are plenty of ways to incentive top loyalty members and to keep them happy. Here are a few:

• Exclusive Experiences: Offer members-only events, product launches, secret menus, or early access to new products or menu items. While creating a sense of exclusivity and value for top members, it can also be a cost-saver. In this case the program benefits ARE the reward.
• Tiered Rewards: Tiers are great for the motivated customer. The risk is how you incentivize the less-frequent member. You want to ensure the criteria is reachable, but that there are also worthy rewards for lower tiers as well.
• Focus on Recognition: Similar to tiers these are definitely more useful for top members. Highlight their achievements within the program, send personalized birthday greetings, or offer dedicated customer support channels. Exclusive brand swag is also a great reward option for the right business.
• Appreciation: These top members are already high-frequency, high-spend customers. They are doing their part in this two-way relationship. You don’t always have to give them something. Just acknowledge that you noticed and are appreciative. Be creative with how you do it and these types of messages could be something people look forward to. Then, every so often, slip a surprise reward in there.

Nurture a Mutually Beneficial Relationship with Top Loyalty Members

For many brands loyalty as a program really only applies to a small percentage of their customers. Anywhere from 10-20% typically. The rest of the known customer base are in the discount club. You’re either trying to keep their dollars coming to you or you’re identifying those most likely to be a top member and pushing them up the ranks. So how you treat your top members is true relationship management. It is just like any relationship be it dating, friendships, or marriage: it needs to be mutually beneficial.

At Response Labs we understand the value of the relationship with customers. Our mission is to help brands foster a more meaningful one through intelligent marketing and strategy. If you can do this with your customers, you can position yourself to be successful through loyalty marketing.

Cover image: © Galdric / Adobe Stock

Some content for this article was supplied by AI.