4 Things Restaurants Can Learn from Loyalty Programs at Amazon, Nordstrom, and Sephora
At LevelUp, we distinguish between “capital L” Loyalty – the love and commitment brands earn from their customers thanks to a good product and experience – and “lowercase l” loyalty: the structure and mechanics behind a loyalty program that increases engagement among existing customers. We are constantly evaluating best-in-class loyalty programs within the restaurant space and outside the industry to help restaurants develop the most effective programs.
The retail industry is famous for their loyalty programs, particularly because many retailers represent some of the first businesses to implement programs that drive customer retention. Let’s take a look at a few examples, why they succeed, how they can improve, and what we can learn from their experience.
Sephora Beauty Insiders
Sephora’s program offers three status levels that include “Beauty Insiders,” “VIB (Very Important Beauty Insiders),” and “VIB Rouge.” At the entry level, customers earn 1 Beauty Insider point per dollar spent. VIB members earn 1.25 points per dollar spent, and VIB Rouge members earn 1.5 points per dollar. Customers can then cash in their points at the “Rewards Bazaar” for different in-store bonuses.
- Effective use of status levels and points accelerators: As mentioned above, Sephora segments shoppers into three groups. With an annual spending “fee” of $1,000, VIB Rouge status is tough to reach but still attainable, especially with the 1.25x points that VIB members earn on their way to reaching VIB Rouge. The social status associated with joining this elite group is incredibly motivating. In fact, you’ll often find people bragging about their VIB Rouge status on social media.
- Personalized beauty recommendations: With their Beauty Profile platform, a shopper simply needs to provide information about their hair and complexion for Sephora to generate recommendations specific to each customer. Personalized, recommended products create a positive association with the Sephora brand, motivates customers to purchase more products (that Sephora knows they will like), and encourages shoppers to become brand advocates.
How could they improve?
- Poor explanation of benefits: Sephora does a great job at explaining the overall program and tiers, but it’s difficult for a customer to understand how to earn or redeem points.
Nordstrom’s loyalty program offers two ways to participate: standard membership and card membership. For every 2,000 points, customers earn a $20 note – essentially 1% back.
- They adapted their program for inclusivity, and it now includes all customers: In 2016, Nordstrom updated their rewards program to allow all customers (not just Nordstrom credit card holders) to earn rewards. The brand does a fabulous job of being inclusive while giving cardholders bonus experiences. They track non-card members by phone number, an experience that’s simple for customers and foolproof for employees to execute.
- They incentivize customers with non-monetary rewards: Cardmembers get early access to the Nordstrom Annual Sale (the online lifestyle blogger event of the year), as well as other benefits like free alterations.
How could they improve?
- Inconsistent use of multi-channel rewards: They have since discontinued this program, but Nordstrom used to offer up to 6% cash back to Ebates users – regardless of rewards program participation. This not only allowed customers to “double dip” on benefits but also devalued aspects of the loyalty program itself.
For an annual subscription fee, Amazon Prime offers the core benefit of free two-day (or better) shipping, among other rewards.
- They have a clear value proposition: Two-day shipping is a clear incentive to sign up for Amazon Prime, especially for frequent shoppers.
- They strategically add on other benefits: Since its inception in 2005, Amazon has done a phenomenal job phasing in new benefits for Prime Members. Most recently, with the acquisition of Whole Foods, Prime Members can earn 10% off some items while grocery shopping. Amazon also added free features like Prime Video and Amazon Music.
How could they improve?
- There’s no real motivation to spend more: Unlike many other loyalty programs, Amazon Prime members don’t receive increased benefits or discounts based on how much they spend. The program also removes the need to bundle shopping trips together to hit free shipping minimums, increasing Amazon’s costs.
- Increase and clarify promotion around new benefits: As Amazon has added new features and bundled packages (e.g. Amazon Prime + Netflix), it has become increasingly complex to promote the benefits of the program – and new add-ons are easy for customers to miss.
What can restaurant brands learn from all this?
- Without “capital L” loyalty, no “lowercase l” loyalty program will work. It is critical to perfect the guest experience first and foremost. Create a brand guests will fall in love with, and they’ll want to join your loyalty program instantly.
- Make sure your loyalty program is on-brand. While Sephora offers personalized hair and makeup recommendations to loyal customers, Nordstrom gives their most loyal guests free alterations. Understand why customers fall in love with your brand, then tailor your loyalty program accordingly.
- Make sure your loyalty program promotes the behavior that’s right for your business. While Nordstrom’s program encourages customers to spend more to get to the next tier and earn rewards, Amazon’s program encourages purchase frequency with free shipping on every single order. Think through your brand’s goals and tailor your loyalty program accordingly.
- Ensure your tiers, rewards, and instructions for participating in a loyalty program are clear and simple. Direct, simple, and enticing messaging is key to encouraging guests to enroll in your program. As your loyalty program matures (and your guests get used to it), add better benefits that retain customers.
LevelUp’s Client Strategy team – led by former sweetgreen Head of Product, Theresa Dold – uses guest data to help our restaurant partners develop loyalty programs that fit their specific goals and needs. Our segmentation and campaign engine also allows brands to target rewards, offers, and messages to specific customer segments based on past behavior. Read more about how Kung Fu Tea, Dunn Brothers Coffee, and Bobby’s Burger Palace developed their loyalty programs and campaigns in a new case study: