Case Study - What Makes Sephora's Loyalty Rewards Program Successful?

According to research by IRI Worldwide, in 2017, 74 percent of consumers chose a store based on a strong loyalty or discount program. Brands have no choice but to take their loyalty rewards program very seriously, in today's highly competitive framework. Tiered programs are a more advanced loyalty rewards system. After reaching a certain number of points, customer is upgraded to the next tier and receives exclusive benefits from that tier. Tiered loyalty programs are one of the most effective ways to motivate desired behaviors from customers, especially when the upper tiers convey a sense of exclusivity.

Let's look at a very popular tiered program from a leading beauty brand Sephora. Sephora's Beauty Insider loyalty program, attracts users with the ‘exclusivity' of each tier. Sephora Beauty Insiders earn one point for every dollar spent and earn free gifts as points accumulate.
Membership Tiers:

• Beauty Insider
• VIB (Very Important Beauty Insider)
• and VIB Rouge

Reaching these upper tiers makes customers feel like they've achieved elite status and encourages others to strive to reach it. The key here is, that the rewards must be in line with the brand.

Sephora Points System Overview

Beauty insider is free to join; the next 2 levels are unlocked after spending a certain value. Sephora customers who spend $350 in a calendar year are upgraded to the VIB program and receive extra benefits such as custom makeovers and free monthly gifts. The loyal customers, who spend $1,000 in a calendar year, are upgraded to VIB Rouge and get a private beauty advisor hotline, free 2-day shipping, along with invites to exclusive events.

Rewards Bazaar is the place to redeem points online at Sephora.  There are multiple products to choose from different price points. New perks are released in the Rewards Bazaar every Tuesday and Thursday from 9am-5pm US Pacific time. The releases of new perks follow a pattern. Sephora launched its first ever 50-point reward in July'18.

For any loyalty program to succeed, it's important to engage your customers. Here effective communication is critical. Brands need to study customer behavior (CRM analytics and data) as well as look into the demographics. Create offers that add value, reach out to them at the right time, and showcase the relevant products. This also helps personalize communications. Sephora leaves no stone unturned with personalized product recommendations for its Beauty Insider members.

Let's look at how Sephora Rewards Progam is leveraging customer information and preferences-

1. Brand Strategy, Welcome Gifts, and Points

Sephora's brand is all about luxury and exclusivity. Sephora differentiates itself from other beauty brands by offering products that can be purchased with points. These aren't just drugstore beauty products, these are quality, high-end products from known brand names.  Sephora offers high-end products for ‘purchase' with accumulated loyalty points rather than offering discounts.

They have not just created a customer ‘beauty profile' to capture customer information but are leveraging this information, to offer the free gifts tailored to a customer's precise beauty concerns through their ‘beauty profile'.

Other upper-tier rewards include free beauty consults, free makeovers, discounted or free shipping, and an online ‘beauty bag' to track purchases and beauty product collections.

Sephora is a brand that is truly making continuous and consistent efforts in knowing their customers and offering them products basis their profile.

2. Customized Rewards Promotions

As Sephora's loyalty program encourages shoppers to fill out their personalized ‘beauty profile,' the company delivers customized and personalized promotional emails.

Based on preferences and the shopping history, Sephora can create promos basis what will match with customers needs.  Sending exactly the right email, offerto the right customer dramatically increases the likelihood that they open the email, click through, and make a purchase.

The beauty insider profile page is interactive and grabs user's attention.

3. Program Offerings- More Than Just a Loyalty Program

Sephora is offering customers more than just a rewards program but enabling them to solve all their beauty woe's and helping them work on their beauty quotient! Instore beauty services, free beauty classes are other services they offer.

The program grants access to free makeup classes and an online community.

Benefits of the online community–

• It allows rewards members to join groups, browse makeup looks, and view Beauty Insider event calendar.
• Offering more value to customers than just points or gifts!
• Giving customers the advantage of being part of a community: share their questions, stay updated on the latest looks/ upcoming events, live chat, getting beauty inspiration from other members etc.

Customers like brands that connect with their needs, some of which may not be explicit. It's here that some brands are making their mark by impacting their customers' psychological needs. Emotional loyalty is critical for Sephora's Customer Rewards Program.

They also have a paid service ‘Play', this comes at $10 monthly subscription is a customized beauty box with 5 examples, video tutorials, make up bag, redeem instore 50 bonus beauty insider points, subscriber only event access to subscriber and a friend to meet their beauty experts. Play comes as an icing on the cake for those take beauty very seriously!

4. New Strategy Focusing on Exclusivity

Sephora is a brand that focuses on exclusivity and a step in this direction is ‘First at Sephora' that debuted in March'18at stores and online with their first run of exclusive products. Sephora teamed up with six of their best-selling brands- Benefit, Pat McGrath, Urban Decay, Tarte, Violet Voss and Natasha Denonato launch their newest items exclusively. For 30 days, these products did not sell anywhere, not even on the brands' ownchannels.

The psychology of tiered programs lies in the theory of gamification. Gamification is transforming business models by creating new ways to extend relationships, craft longer-term engagement, and drive customer loyalty. It works because it leverages the motivations and desires for community, feedback, achievement and reward.

For any loyalty rewards program to succeed, what matters most is the connect a brand is able to build with their customers. Just rewards and points cannot make a loyalty program successful. It's the personalisation, perks, customer interests/insights and the experiences brands offer that help augment their loyalty rewards program to make an impact and motivate customers to return back for more!