The Best Rewards Programs Give You More Than Points

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I have a confession: I am a Sephora VIB Rouge member. I am both very proud and also somewhat ashamed of this accomplishment.

Most people I know participate in Sephora’s multi-tiered Beauty Insider program, but to get to Rouge? That means you’ve spent over $1,000 on beauty products in a calendar year (or are just terrified that the only way to rectify the damage of time is with Dr. Jart+ products). To become a Rouge member is better than getting to the coveted 500-point mark, because a set of Tarte or Clinique minis will only go so far. I’ve unlocked something deeply powerful. I now have unfettered access to free makeovers, exclusive products, free two-day shipping, beauty classes, and events. All for being loyal to Sephora.

Obviously, Sephora’s isn’t the only loyalty (or rewards) program out there — they’re everywhere from drug stores to fancy department stores. According to a recent report from Forrester Research surveying 3,322 US adults, 72 percent of them belonged to at least one loyalty program, spanning industries. On average, people belonged to nine. Because why not? You get free stuff!

These rewards programs aren’t new. Emily Collins, an analyst at Forrester Research, says the earliest versions are those from airlines and hotels, with the first truly modern loyalty program being American Airline’s American Advantage program.

Obviously, loyalty programs work and are around for a reason. They’re a super-powerful marketing tool. But not all programs are created equally, and some sectors — namely, apparel — face challenges.

Apparel companies’ loyalty programs aren’t as popular as you might think: A study executed by Bond Brand Loyalty, which surveyed over 28,000 consumers, found that while credit cards ranked the highest for consumer satisfaction (52 percent were “very satisfied”), apparel ranked the lowest (31 percent felt that way). Separately, rewards and redemptions weren’t strong drivers of program satisfaction (only 18 percent).

“Everything a company does is an opportunity to reinforce or erode loyalty,” Collins says. It’s true. Think of how easily a misfire of a social media or advertorial post can lead to bad press and potentially steer people away from a brand, or how aligning with an unpopular political sentiment can do the same. It isn’t enough to just say, “You signed up for this, now — boom! — you’re loyal.” Customers are fickle as it is. And even a rewards program itself can create controversy — earlier this summer, Sephora announced its redeemable-for-samples loyalty points would have expiration dates, inciting uproar online.

The most common type of loyalty program is what could be referred to, in Collins’ words, as “earn and burn” — i.e., programs that allow shoppers to collect and eventually spend points (or cash), rather than being able to keep and benefit from markers of their loyalty long term.

But the fact that a lot of loyalty programs basically just offer more money back, or points, is part of the issue: It’s so commonplace that it’s not exactly a reward. “Promotions at a mass level have become so accepted that they’re almost demanded by consumers in order to shop in the first place,” says Nikki Baird, an analyst at RSR Research.

Given that consumers also have a desire to save money, it can make sense for an apparel company to dive into discounts as a way to amp up a loyalty program — buy-some-get-money-back is a pretty common type of loyalty program (like Loft’s Love LOFT rewards program, driven by its credit card, or American Eagle/Aerie’s program, which has some member perks, but primarily operates by redeeming points for cash and getting extra jeans or bras for buying a certain amount of said product) — but despite the potential perks or popularity, that could be just another mechanism for promotions, an already dangerous trend in the retail industry.

But what is there beyond discounts and the collection and spending of points?

Apparel companies might look to hotel and airline programs, because they’re “not just focused on the earn and burn,” Collins says. Think about it: Sure, you can get free miles and a free trip to wherever, but the real prize? Getting bumped to a new status — getting upgraded to a different class or boarding early. The hot-button word when talking about spending money: experiences.

Collins says there are two key components to securing loyalty: a behavioral facet and an emotional one. “Incentives like rewards do encourage loyal behavior,” she says, “but they don’t always reinforce the emotional part.” Not all brands are stepping up and figuring out how to elevate their loyalty programs.

“I haven’t seen a lot of innovation from traditional retailers when it comes to loyalty programs lately,” says Baird. “Most of them are still too much focused on delivering personalized promotions, rather than specifically delighting the customer or trying to build loyalty as an end goal. The goals are pretty standard: increase frequency of purchase, increase basket size, increase total lifetime value.”

But some companies do get it, Baird says. “I’ve been looking at beauty loyalty programs, though, and I think that’s where things can get more interesting,” she says. This, in part, is what makes Sephora, arguably, a brand with a quality rewards program. It lets you unlock levels of achievement, giving you the opportunity to propel yourself to a whole new tier, a new status, if you will. Getting to the Rouge level (as, reminder, I have) is like getting bumped to the business class of buying makeup. Baird agrees, also specifically referencing Glossier, which has a super-loyal following and a Slack channel for its elite members.

What Sephora and Ulta Beauty — the latter of which has over 25 million members, according to the company — do right, Collins says, is that they “started with a simple program and have layered on additional benefits and tiers over time.” Also, they focus on those samples.

The barrier to entry to the beauty category is lower, explains Michelle Palmer, an account director for beauty and retail clients at Bond Brand Loyalty. A teenager can buy a lipstick and gain access to a program. Beauty, she says, is an affordable luxury, with a “lower cost of entry.”

Another challenge clothing retailers face that make their programs potentially less popular than, say, beauty? That you can get so much of what they sell anywhere. There’s no reason to be loyal to a company. Palmer says fast-fashion brands like H&M and Zara have played a huge part in this. Those companies don’t have loyalty programs, she says, and they don’t need them — all they have to do is churn out the clothes people want and focus on manufacturing the apparel. Older brands, like Abercrombie & Fitch or Gap, operate on a different model and have relied on promotions to retain customers. Therefore, a loyalty program that focuses chiefly on giving people promotions in exchange for shopping there isn’t going to do the trick.

But some apparel brands are getting it. Consider Madewell, which has its Insider program (disclosure: I’m a member). The program is divided into three different tiers: Insider, Muse, and Icon. You get free shipping, a free birthday gift, free monogramming and hemming, and more perks the more you spend, including a special semiannual gift once you spend $1,000 and hit the Icon level.

Nordstrom has similar benefits, but the majority come when you sign up for Nordstrom’s credit card. The more you spend on the card, the more you unlock. Spend $10,000 or more in a calendar year, and you’ll end up with unlimited alterations, early access to the anniversary sale, invitations to special events, and more.

Nordstrom does let people sign up for the program without signing up for the card, but the rewards are considerably less: just one point per dollar, which can be exchanged for Nordstrom “notes” — which is fairly standard.

This sheds light on another interesting part of loyalty programs: It’s smart to woo people who are not willing to sign up for a credit card (“you’re missing out on identifying the customers who are super loyal to their American Express and never want to open [a] store credit card,” Collins says). But what makes a loyalty program mutually beneficial (and thereby sustainable) is that it incentivizes the customer to give something to the business. Obviously, sales are one thing, but the second thing is… data!

Like it or not, retailers are tracking your purchases; they want to understand their shoppers. Collins points out as you open up a private-label credit card, benefits tend to get richer — but it’s important to note that the stores can also identify your transactions much more easily. Having data on a given subset of customers will help them hit the bullseye. Eric Messerschmidt, senior vice president of marketing at Ulta Beauty, says, “The Ultamate Rewards program allows us to collect rich data about our guests to better understand what’s important to our members. In turn, we offer more personalized communications and offers that are tailored to our guests’ unique beauty needs.”

What he describes is a symbiotic, mutually beneficial relationship, which has to be at the heart of any loyalty program. You give them sales and information, they give you… stuff. But when stuff is no longer enough, it’s back to those special experiences.

“In general, I'm big on the idea of treating ownership as membership, treating the purchase as the beginning of a relationship and opening up more of the brand experience to your customer over time,” Scott J. Lachut, partner and president of research and strategy at consulting firm PSFK, says.

Oset, a 24-year-old from Boston, tells me she especially likes Madewell’s program “because it means free shipping and free returns. I don’t live super close to a Madewell, so this makes me much more likely to purchase things there.” She says she likes using her Sephora points because she earns free samples of products she wouldn’t have tried on her own. This might illustrate the paradigm of loyalty programs in the beauty and apparel sectors: It’s a hell of a lot easier to entice customers with a beauty program, but you’ve got to make shoppers feel special.

In fact, when it comes to Madewell, unlocking the next tier is not her highest priority. “I haven’t bought more at Madewell with the goal of unlocking more rewards,” she tells me, “but I signed up for their Insider program for free shipping and returns, and the free monogramming on leather goods definitely makes me buy more of their leather than I would elsewhere.” The earn-and-burn reward might be less powerful here, but it seems that if it were a club, it would be one that appears to be desirable and worth joining. After all, it’s a club with free monogramming, for crying out loud.