The Michaels Companies Inc. made significant updates to its rewards program in 2022. The changes were in response to consumer feedback, which asked for a simpler program with more customization, says Heather Bennett, executive vice president of marketing and ecommerce at Michaels.
Michaels ranks No. 111 in the Top 1000, Digital Commerce 360’s ranking of the 1000 largest online retailers in North America.
A tiered loyalty program allows better targeting
The crafting retailer created Michaels Rewards, which allows all members to earn 3% back in rewards for all purchases. It’s free to join, and customers who spend $300 or more in a year can earn 6% back in vouchers that can be used at the retailer.
“Convenience and personalization are the most important elements in any membership program,” Bennett says. “Loyalty programs should not be developed with a one-size-fits-all approach, which is why we offer three tiers in our program.”
A tiered reward system allows a retailer to offer the greatest savings to the most loyal customers, who will likely return to make more purchases in the future, Bennett says. That’s why Michaels added a credit card in the latest round of updates to its program, which comes with 9% back in rewards. Members without the credit card can reach a maximum of 6% in rewards. The credit card was something customers asked for when they gave Michaels feedback, she says.
“This benefit of 9% in rewards is really meaningful for those customers who are stocking up on supplies frequently or run their own creative businesses,” that require craft supplies, Bennett says.
Loyalty program membership is growing
Bennett says the program has “tens of millions” of members. Membership is growing 9.75% year over year. Plus, more than 50% of Micheals customers are rewards members, she says. She declined to share a specific membership number.
“Members in the Rewards program are more likely to add more items to their baskets and make purchases more frequently than those not in the program thanks to the benefits of stacking up rewards points,” Bennett says.
For example, customers who reached the 6% reward level spend on average 2.8 times more than members in the 3% tier. Credit card holders in the 9% tier spend an average of four times more than customers without credit cards, she says.
Retailers can use rewards strategically
Retail chains are good examples of retailers that can effectively use loyalty programs to their advantage, says Neil Saunders, managing director of retail analysis firm Global Data.
While tiered programs like those employed here aren’t “strictly necessary,” Saunders says, they make a lot of sense.
“Retailers want to give the best rewards to those who spend more so they can ensure their loyalty. They also use tiers to encourage people to spend more so they can move to a higher tier and get better rewards or benefits,” he says.
The potential downside is that consumers in lower tiers may not feel as valued. However, personalized rewards like a birthday gift can combat this and keep consumers engaged, he says.
Loyalty programs in the Top 1000
Fewer than one-third of Top 1000 retailers have a loyalty program. The number of Top 1000 retailers with loyalty programs has grown 16.8% since 2019, according to Digital Commerce 360 data. The majority of the growth took place in 2020, and has remained nearly flat since.
Though not strictly necessary, “rewards programs can be very useful for retailers both because they enable them to gather information about customers and drive certain behaviors,” Saunders says.
If a retailer does choose to use a rewards program, it must have a clear purpose, he says.
“Is it to increase loyalty, to stimulate consumers into spending more, to gather data, to improve price perceptions, and so on? Knowing the purpose is vital as it then allows retailers to work out the cost of a scheme versus the potential reward,” Saunders says.
Retail chains are far more likely than other merchant types to have loyalty programs. 48.1% of retail chains have a free loyalty program. That’s compared to 26.5% of consumer brand manufacturers, the next highest merchant type. Retail chains with loyalty programs generated $164.47 billion in web sales for Top 1000 retailers in 2022, 46.8% of total sales in the category.
This high penetration of retail chains having loyalty programs could be because they are more likely than other types of merchants to have the resources and finances to implement an effect rewards program, Saunders says.
“Chains have a very large base of customers, so rewards schemes make sense in terms of allowing them to gather data and use incentives to encourage more buying,” he says. Because these programs are so common among retail chains, consumers are also more likely to expect them, he says.
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