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Incentive Marketing Case Study: Zappos Rewards

When it’s time for a new pair of shoes, where do you go? If your solution involves opening up your computer and googling “buy shoes”, chances are that you’ve stumbled across Zappos.com.

Zappos, the #1 online footwear retailer and clothing shop, has much to be proud of. Based in Las Vegas, the company has 1,500 employees, over 1000 partner brands, and a talented CEO (Tony Hsieh). In 2009, they were acquired by Amazon for $1.2 billion and now see annual revenues of approximately $2 billion. So, where did this success come from?

Many people attribute the company’s success to two important factors: (1) the Zappos corporate culture and (2) their intense focus on customer satisfaction. The corporate culture at Zappos is primarily achieved by taking care of their employees in accordance with their mantra “Happy Employee = Happy Customer”. When not working, employees have access to a gym, library, snack stations, sleep pods, and even life coaching. Furthermore, Zappos proudly features “Zappos Insights,” a culture-training platform aimed at educating other businesses on creating their own employee-centric cultures. By providing safe and comfortable communities, turnover rates decrease and worker productivity increases.

Zappos also prides itself on its dedication to customer satisfaction. As seen in their mission statement, Zappos aims to provide the “absolute best service online” and therefore attempts to delight their customers in every part of their buyer’s journey. Zappos employees use the company’s “WOW” philosophy (going above and beyond) to please their customers, which can be seen in their outstanding online service: 24/7 friendly customer support, free 2-way shipping, and a 365-day return policy.

Beyond exceptional service however, customers still expect to see more tangible benefits to engaging with a brand. That’s where the company’s innovative rewards program comes in.

 

What is Zappos’ Rewards Program?

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Image from Zappos

Launched in October 2016, Zappos Rewards is a free rewards program available to any U.S. resident over the age of 18. A customer can easily enroll in the program by creating a Zappos account or logging in directly through Amazon.com. Zappos Rewards offers three main benefits: free expedited shipping, points for spending that can be turned into rewards, and early access to sales through email notifications.

The most commonly used aspect of the program is the general points system. Members can earn points through three avenues: spending money on the website (10 points for every $1 spent), logging into the Zappos website on a computer or mobile phone (50 points per day), or leaving a product review (100 points). Once a customer has at least 1,000 Rewards Points in their account, they can redeem it for a $1 discount on their next purchase. Sounds simple, right?

However, what’s most interesting about Zappos Rewards is their four-tiered loyalty system.

 

What is This Seemingly Complicated Tier System?

Zappos Rewards offers a unique tier system in which they reward their customers based on their engagement in the program. It’s basically like an online country club split into four tiers: Silver, Gold, Platinum, and Elite. Each level requires a certain number of points to reach and membership lasts one calendar year. Let’s break each tier down to see what they offer.

Silver (0-1,199 Points): If a customer recently signed up for the program or doesn’t make a lot of purchases or other point-earning actions, they fall into the Silver Tier. As a Silver Tier member, customers have free expedited (2-day) shipping, access to earning points for discount codes, and a dedicated support line to answer any questions.

Gold (1,200-5,999 Points): If a customer is slightly more engaged in the program, they fall into the Gold Tier. Members of this tier enjoy the same benefits as the Silver Tier with two main upgrades. They receive free expedited (1-day) shipping as well as early access to products, special events, and sales by email. Still, they are third in priority for the email notifications behind the Platinum and Elite members.

Platinum (6000+ Points): To be in the Platinum Tier, a customer needs to be frequently participating in the program and spending money on Zappos.com. Once in this tier, in addition to all previous benefits of the Gold Tier they have the ability to suggest their own rewards and have free UPS pickups for returns.

Elite (Invite-Only, but at least 6000 Points): A customer must be extremely dedicated to Zappos to receive an invite to the Elite Tier. Generally, customers need to be earning at least 6000+ Points to be invited. Elite members have all the Platinum benefits plus free returns beyond the 365-day policy and a dedicated, personal support line.

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Image from Zappos

Pros: Why is this loyalty program so effective?

After launching the program in October, the company reported 60,000-70,000 signups in the first two days. Why does the program work? The main pros include:

Encouraging Active Involvement: Zappos prides itself on customer satisfaction at all stages of their buyer’s journey including their existing customers. Through this multi-layered loyalty program, Zappos is able to reward consumers based on their active involvement with the brand. The top spenders on Zappos are the most highly rewarded. And these rewards stretch much further than solely monetary gains–the company offers support, the ability to suggest your own ideas, and early access to deals–all which increase consumer’s trust and loyalty to the brand.

Rewarding Everyone: It’s free to join! Even if a customer isn’t making many purchases, just joining the program has its benefits. Currently, according to Business Wire, Zappos is the only retailer offering “free 2-business day and free 1-business day shipping on all orders with no membership fees or minimum order values.” So regardless of a customer’s participation in the program, they are rewarded and feel special.

Being Consistent With Their Brand: Zappos is famously known for their customer service which can be seen through their #1 core value: delivering “WOW” and going above and beyond to please their customers. Their loyalty program aligns well with this philosophy. Their tier-system rewards everyone, but also incentivizes the most engaged customers. This system is just another way to please their customers and continue their outstanding service.

Understanding Consumer Preferences: By participating in the program, a customer is actively showing Zappos their preferences through interacting with the website. Customers provide data including their login preferences (mobile device, computer), reviews of products, and overall engagement in the loyalty program. By gathering and analyzing this data, Zappos can better understand their average customer.

 

Cons: What do critics find troubling with the loyalty program?

Of course every program has its drawbacks. The main cons include:

A Confusing Tier System: People argue that the four tiers may confuse shoppers who may not understand the point values, ways to earn points, etc.. This misunderstanding may result in less overall engagement.

Too Much Work, Too Little Reward: Other people argue that the program requires too much effort for such a little reward. In practice, if consumers solely earned points through purchases, they would need to spend at least $100 to earn a $1 discount code, therefore earning only 1% back for their purchases. Compared to other loyalty programs, the consumer gets very little back financially.  

These concerns are valid and the program still has a few obstacles to overcome. That being said, the Zappos Rewards program is very strong overall; it utilizes a four-tiered loyalty system to reward highly engaged customers, offers various non-monetary rewards, and makes every customer feel special—all which help drive customer engagement and repeat purchases.

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Image from Preferred Limousine

How Can I Implement an Idea Like This into My Loyalty Program?

So how can you take what we learned from Zappos and apply it to your own loyalty program?  We’ve put together a few suggestions to help you construct a program that fosters a strong customer-merchant relationship like Zappos’.

  1. Be customer-centric. Zappos prides itself on its devotion to customer satisfaction and you can too. Consider involving your customers with more than just discounts. Create a rewards program that offers various non-monetary benefits from being involved. Like Zappos, including free or discounted shipping, early access to deals and sales, or a special support line can greatly increase participation in your program.
  2. Consider using the tier system. But before you do, make sure it’s in your company’s best interest. Create a cost-benefit analysis of using a tier system. Possible drawbacks include resources needed to create the program (money and time) and education required to make your customers understand your program. Benefits include more incentives for increased loyalty, insights into your most dedicated customers, and the possibility for a successful ROI.
  3. Continue learning from and revising your loyalty program. As much thought goes into creating loyalty programs, there always needs to be revisions. After a few weeks of running your program, take a look at its performance. Ask yourself what’s going well and what you need to improve on. Consider A/B testing or other useful methods to strengthen your program and improve conversion rates.

Do you know of a company that has its own unique or innovative rewards program? Comment below or email us and we’d love to take a look and consider writing a case study.

 

 

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Noam Kahn • July 6, 2017


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