The value of VIPs in social games and social casino is now a truism, everyone realizes that less than 0.5 percent of players drive more than 80 percent of revenue in most social casino games. Given this reality, an effective VIP scheme is a strong tool to convince customers to be more loyal and learn more about all of your customers’ preferences to personalize further your communication strategy.

This truth has driven many companies to create VIP programs and VIP concierge initiatives. I am proud to say I built one of the first at Zynga, but in the social space the are often haphazard and do not incorporate the learnings from other industries. Many companies create the programs with little insight into what makes a truly great VIP initiative.

A new book from David Norton does a wonderful job of showing how to build a great rewards program (as well as other initiatives I will write about later), The High Roller Experience. Norton is the former CMO at Harrah’s (Caesars) and created its Total Rewards program, probably the most successful program in the casino space, so he knows what he is talking about.

While the value in building a rewards program is largely unquestioned, the challenge is underestimated. Norton points out that customers are on average in 18 loyalty programs, but only actively engage with about a third of them. This lack of use means that not only are companies wasting millions of dollars on programs by rewarding customers who do not value the rewards but actually incur a higher opportunity cost by not engaging many of their customers. These unengaged customers could potentially have a huge financial impact on the company. Norton points out several keys to building a successful loyalty program.

Make the currency bankable and under the customer’s control

A successful rewards program starts with bankable currency. The rewards system should create a currency that customers save up across multiple session, visits, applications, etc. and use however they want. For online and real money casinos, this currency represents a big shift, as compensation to high rollers is often subjective and disproportionally allocated to the most vocal customers. You should allocate a majority of your rewards/compensation budget to a points based program (Norton mentions Harrahs/Caesars put 80% of their $350 million budget to Total Rewards) that customers understand and control.

An effective program then allows customers to use the bankable currency the way they want to use it, so they get the most possible value (to them) out of the program. At Harrahs, the marketing around their Total Rewards program was “MORE”: more control for the customers, meaning they could use their comps for a broader variety of things than food— and could use them in more locations. To drive this point to customers, Harrahs supported the launch of the second iteration of Total Rewards with an advertising campaign that it called the 100 Million Reward Credit Giveaway with a broad set of prizes that were reflective of what was available in the program, including merchandise and experiences at its properties such as Jazz Fest in New Orleans or lift tickets at Heavenly in Lake Tahoe. This campaign showed all the different ways customers could potentially use their points.

Get customers engaged

If customers are not engaged with your loyalty program, nothing else matters. You can have the best loyalty program on paper, but you need to get your customers to engage. Given how many loyalty programs they are already members of; you must find ways to ensure they are interacting with yours. Harrah’s discovered that guest satisfaction with Total Rewards was much lower for those customers that had not yet redeemed any of their Reward Credits, the theory being that they had yet to have a positive experience with the program’s new currency.

To get customers more engaged and likely to redeem, you need to eliminate friction in the customer experience when customers interact with your loyalty program. Rather than having hurdles to redemption (which may save you funds in the short term), make the experience quick and easy. Also, promote as Harrah’s did the different rewards players can earn and notify those players who have outstanding points of the options they have. Get them to redeem and enjoy the benefits of your program.

Create multiple tiers

The next key to a successful loyalty program is multiple tiers. Tiers create aspiration and engender loyalty. Compelling tiers are a productive way to create aspiration from customers and have them give you more share of their spend.

With multiple tiers, you can maximize the return on rewards by providing the most to customers where you have the greatest opportunity to increase their lifetime value. Tiers must be meaningfully differentiated.; having meaningful differences in the benefits and services between tiers is critical.

The rewards spend also should be surgical, tied to incremental spend and behaviors, as opposed to programmatic, associated with purchases the customer would have given you anyway.

You also need to provide always aspirational tiers. People want to advance, make progress, so there must be a tier for them to strive for. Although you may not want to market the tier formally (you do not want to alienate other high tier players) but you do need to let your top customers know there is even a higher tier (possibly through your VIP hosts or targeted social media). I remember speaking to a VIP several years ago, one of our top spenders, and his biggest complaint was he was already on the highest tier so why keep playing (regardless of the fun in product and the benefits he was accruing).

Have aspirational levels

As just discussed, you should also ensure there are aspirational benefits in the highest tiers. These tiers provide benefits, experiences, and services that customers value, often more than points, and are a key part of successful loyalty programs. If developed properly, the cost to deliver differentiated benefits will not be directly correlated to the customer’s spend.

At Harrahs, one of the key changes they made to the Total Rewards program was adding the Seven Stars tier in mid-2004. According to Norton, “there were several reasons that led us to want to add a tier at the extreme high end of our customer distribution. First, we discovered that we were capturing only a 50 percent share from our Diamond customers, as many of them were trying to achieve the equivalent tier at a competitor much like a business traveler in some markets tries to achieve status in two airline programs to provide more choices to be upgraded when flying. We wanted to make the decision more difficult to try to attain a high status at a competitor. Second, we found that for our top 5,000 out of 10 million customers, there was significant revenue churn year to year at an individual level. That is one year a customer would spend $85,000 and the next $70,000. Given that this group was spending or losing $80,000 a year with us, a 20 + percent revenue drop from a quarter of them was significant. We realized that some of this drop was a matter of having less time or disposable income to gamble in a given year, but we also felt that a big reason for the variation year to year was that there was no transparent goal to attain.“ These reasons drove development of an ultra-exclusive tier for Harrah’s most valuable customers.

Differentiate service to loyal customers

The next key to a successful loyalty program is differentiating the services customers experience. If built properly, the perceived value of premium service is much higher than the actual cost of delivering the service. The additional revenue the special services creates will not be linear to the additional revenue it generates.

By providing unique and better services as customers move up tiers, your loyalty program will have a stronger impact. Norton points out “airline programs do this very well with their tier benefits such as early boarding, the chance to be upgraded, and shorter security lines that enhance the travel experience. A mix of service items and access to unique “priceless” experiences should be developed as part of a three- to four-tier program depending on the size and distribution of the database. “

There are several ways this can be achieved in games. You can provide players with early access or unique content, allow them to attend VIP experiences (visits to your office or special events) or even provide special badges.

Transparency is important

For the loyalty program to have its strongest impact, particularly driving customers to try to move up tiers, you need to be transparent. Let your customers check their status where and how they want to: online, on a mobile site or in an app. Wherever they see their status, also remind them of what they need to do to attain or retain a status, especially as the earning time frame approaches its end.

So is profitability

While it is important to be transparent, the key is to build a program that increases profitability. Norton points out that “While there is a need to have an earning process that is easily understood to members, points earning should be tied to profitability and, ideally, to incremental behavior even though it adds a level of complexity.” In the case of Harrah’s, customers earned points tied to how much profit (not simply revenue) they generated. If they played slot machines that had a lower return to player than other slots, they would earn more rewards for playing those slots.

This approach also allows you to drive behavior that in the long-term is strategically beneficial. If you are launching a new business or game, you can provide extra points for consuming the new product. This provides a more cost effective way of launching a new business or testing a new game.

While it is hard to convey to players how exactly they are earning points, Total Rewards overcame this problem by clearly showing players the rewards they had and what they just earned. The additional benefit from this approach is that players who are rewards driven learn what activity generates the most points and then focus on that activity. If the activity also generates the most profits, then that is exactly the outcome you want.

Downgrade status

Another hotly debated topic is whether you should downgrade status or if customers who earn a high status keep it for a lifetime. I have been in many “debates” about this point, with the argument for status being permanent being that you do not want to insult a top customer or give them a reason to move to a competitor (because their status has been downgraded). Norton, however, makes a compelling case that status should be earned on an annual basis.

First, the desire to maintain or increase status is compelling, and often drives the behavior you want at the end of the status period. Second, it separates customers who will spend at a low level regardless of whether there is a loyalty program, so you do not waste resources on rewarding players who do not value the rewards.

Start with less

When you are building and rolling out your rewards program, it is best to start with the minimum viable product. You can (and should) always add features and benefits but it is very challenging to take away something once you give it to a customer. Launch with a small number of meaningful components that you can execute and that customers can understand, but realize it is always better to add elements than it is to have to take them away.

Monitor and model rigorously

Loyalty programs can have a great impact on customer behavior but also a great cost. Successful programs require rigorous financial analysis that includes models of customer behavior. The key is to understand the incremental behavior the program generates against the costs of the program for each customer segment. The more granularity you build into the segmentation, the easier to optimize as you can discontinue rewards to segments where there is not a positive ROI, change the mix to segments where there is a low ROI and accelerate efforts where you see a strong ROI.

Innovate and iterate

You can always improve your reward program. Even if you do everything right at launch, your customers are unique and different elements of the program will resonate more with customers. You need to identify those elements and build off of that, as competitors will always be launching new loyalty initiatives to win over your customers. Even with Harrah’s Total Rewards, Norton writes, “despite our many accolades, we at Caesars never stopped evolving, testing, and tinkering with Total Rewards, making it great for customers, but also for us.“

Integrate rewards and CRM

The final, but possibly most important, key to a successful rewards program is integrating it with your CRM. Loyalty schemes and CRM should work together to drive optimal customer behavior. Tiers in loyalty programs provide the clear goals that encourage loyalty, and CRM activities give incentive in between the tier hurdles. Additionally, the loyalty program provides great insights into customer behavior. It shows you where they spend their time and what their aspirations are. You can then feed this information back into all of your CRM campaigns to ensure they have the greatest impact.

Do it, but do it right

To succeed today, you have to have a loyalty program and that needs to be your first priority. Just having one, however, does not ensure success. Most people are in many loyalty programs but only a few influence their behavior. For you to have a truly effective one and get a strong return from it, you need to follow the steps above.

Key takeaways

1. Service benefits are an economical way to add real value. Creating compelling differentiated benefits and experiences is a very economical way to add value to a loyalty program and deepen relationships with customers.
2. Successful loyalty programs require rigorous financial analysis that includes models of customer behavior so you can understand the incremental performance for each customer segment.
3. Great loyalty programs are integrated with your CRM. Loyalty schemes and CRM should work together to drive optimal customer behavior.