Why most VIP programs fail
Let me cut to the chase. Most VIP programs fail for one of two reasons.
They do not provide people with any real value
They allow too many people to become a “VIP”
Why these two reasons? Well, it's because brands tend to cheap out on the value they provide top customers. Looking at short term costs instead of profitable long term benefits like higher LTV and purchase frequency.
If they don’t have the above problem, they actually have the opposite. They see how valuable these VIP customers become and start to add people to this group too quickly, and if everyone is special… nobody is. Your customers will see straight through the bullshit.
When a VIP program is done well, the VIPs end up being about 8x more valuable and the top 25% end up driving 80% of your store's revenue. But, you have to avoid the pitfalls below to get there.
The VIP program provides marginal or no incremental value
Imagine you just crossed the threshold to become a VIP at your favorite brand. You spent the last 6 months working towards it. The perks are 25% off once per month and free shipping on all orders. Not bad… but.
The following week your friend sends you an email they received from the same brand. They are having a sale and it's 40% off everything this weekend. WTF is likely the first thing to cross your mind. You feel cheated, betrayed, used. What was the point in working towards that VIP status?
How to avoid this VIP pitfall:
Never run “first time” only promotions
These promotions always have the best of intentions, but in my experience they do way more harm than good. They usually start with someone at your brand asking the question “how much would we pay for a brand new customer?” Followed by “lets run a promotion for that amount, but only allow it for new customers.”
In theory… not a bad idea. But, what if that made everyone of your loyal customers upset. They want this killer deal you are giving all these other people who have done nothing in the past. These almost always come with a ton of backlash, if you are running these you better be prepared to offer it to your existing customer base (or lose some customers).
If you are running a VIP program. Please, please, please don't offer these promotions. It is the fastest way to devalue your program and upset VIPs.
Don’t run a promotion that is more valuable than what VIPs get
If you are offering discounts to your VIPs, make sure that you are not creating better offers outside of your program (unless you are going to let the offers stack). Your VIPs worked hard to get to where they are, don't undermine all that work by giving anybody who comes across the site the same benefits.
I always recommend that no offer should be within 20% of what your VIPs are given for achieving that status.
You need VIPs to feel like they are getting the best perks you can offer, and if those perks are discount oriented it is really easy to compare the VIP experience to the normal shopping experience.
I try to avoid too many “discount” related offers in VIP programs, but they are the easiest way to get started. If you are offering discount perks to VIPs make sure they are getting at least 20% more than what you would offer other shoppers.
Use non-monetary VIP rewards
Instead of focusing your VIP program around discounts and ongoing “deals” I always recommend building value in ways that can’t be compromised by non VIP shoppers. These are almost always based around events, access, or exclusive products.
Here are a few ways to build value for your VIPs without needing to rely on discounting/monetary rewards:
First access to new products and promotions
Free shipping on all orders
Access to exclusive products or catalogs
Access to exclusive events
Monthly talks with the founder
Invites to industry events
Access to member-only areas
Gifts included in each order
Sticker of the month
Sample of the month
There is always a way to create additional value without relying on discounting. If you need some help thinking of creative ways to make VIP members feel special, feel free to reach out to me on Linkedin. I also highly recommend checking out the psychology at play in VIP program.
No one is actually a VIP
Imagine you just became a VIP. You tell all your friends about the achievement, only to have most of them message you back to say “I'm a VIP too.” That feeling of achievement quickly turns to disdain and distrust when you realize how many others are VIPs.
If everyone is special.. No one is! It is not enough for someone to win, others must lose. We are by nature a very competitive society and VIP programs in ecommerce essentially create a competition out of shopping. Be sure that it actually feels like “winning.”
How to avoid this VIP pitfall:
Create the right distribution of VIPs
Creating the best distribution of customers in your program really depends on how many tiers of VIP you are looking to create. I am going to give you my go-to recommendation for 2 and 3 tier VIP programs because I personally think that anything more than that creates too much confusion.
If you are looking for a traditional 2 tiers VIP program you should be striving for 25% of customers to reach the VIP tier. If you elect for a 3 tiered program you should be looking for 30% of your customers in the second tier and only 5% in the top tier.
In a 2 tier program look for 25% of customers in the top tier, if you have a 3 tier program you should look for 30% in tier two and only 5% in the top tier.
After looking at the results of hundreds of VIP programs while working at Smile.io, I found that these ratios kept people motivated while also keeping that top tier exclusive.
Set the VIP criteria such that the correct distribution is achieved
There are almost infinite possibilities for what the milestones will be for your VIP program. For example, customers could earn VIP status for: dollars spent, referrals, loyalty points earned, or number of purchases. Let’s use dollars spent to show how to set the correct milestone.
Before we go too far though, you might be asking “what is a milestone?” A milestone is what a customer will need to achieve to be considered a VIP. In the below example from Sephoar’s VIP program the milestones are set at $350 and $1,000 spent in a year. I should do a case study on Sephora’s program, because it really is world-class for more than a few reasons (soon!).
If you want a certain percentage of your customer to be a VIP there is a very easy way to set what this milestone should be. Let’s use dollars spent in a year for simplicity. Above I said that in a standard VIP program you want 25% of your customers to reach VIP.
Take your customer data and find out how much the top 25% of your customers spend in a year. Set your milestone at that amount. I really like VIP programs that are based on yearly spending. It motivates customers to always be looking to maintain and not just earn the status. It also lets you launch your program without upsetting current power spenders since it is from the time of launch for the next 365 days.
Don’t fall victim to these common VIP program issues
So many brands toss away their VIP programs before they have ever given them a chance to succeed. They become impatient and end up doing things that focus on new customers that usually come at the expense of the VIPs.
For your VIP program to work you need to set it up right, commit to it, let it grow, and most importantly avoid the pitfalls that get your VIPs questioning how important they really are.
Make sure new customers are not getting more value than your VIPs
Make sure that VIPs feel special and different from regular customers
If you need help structuring your VIP program please reach out. These projects are my absolute favorite!
The above was a lot, I get it! That is why I will always include the key takeaways for you to grab at a glimpse.
VIP programs fail when people don't feel important
Avoid giving VIPs less than new customers
Make sure VIPs are actually achieving some form of status
Give non-monetary rewards to VIPs
Structure with the 75/25 rule