Editor’s note: A more recent post, 4 Ways to Measure the Value of Your Loyalty Program, is a great companion to read with this piece as it showcases how thinking has evolved specific to Loyalty Program design and implementation. Read below to get a sense of what was critical in 2018, and then take a look at the newer post to see how far Loyalty, as a force to drive engagement and growth, has grown!
Brands leverage loyalty programs to drive incremental spend, strengthen competitive advantage, and enhance the customer experience. Within the past year, major brands like Chili’s, Subway, and 7-11 have introduced new or revised programs, demonstrating the important role loyalty plays in business performance.
Brands with loyalty programs benefit greatly from the data collected. To determine the true success of a loyalty program, consider these six metrics.
1. Member Value
If the average lifetime value of loyalty program members exceeds that of non-loyalty customers, it’s fair to say the loyalty program is working as designed. Higher member value also means the program is worthy of further investment to grow it. A paid search or paid social campaign is one potential way to do that.
2. Share of Sales Transactions on Loyalty
What percentage of your total sales transactions are linked to loyalty program members? More sales transactions connected to loyalty program members means a greater ability to gather customer insights and change behaviors across a larger member base, thereby increasing the return on investment (ROI) of the program.
3. Incremental Sales
Is your loyalty program driving incremental sales? Use randomly selected test and control groups of loyalty members and non-loyalty customers to monitor and track the sales that are truly incremental (would not have occurred if it wasn’t for the loyalty program), as well as the sales that would have occurred anyway.
4. Member Frequency and Spend
Is your loyalty program driving more valuable purchase behaviors from members? Segmenting members into distinct value groups can help quantify and identify those members who are most valuable, have the greatest potential for incremental behaviors, or are at the highest risk of attrition. A traditional recency, frequency, and monetary analysis can pinpoint opportunities for retention, upsell, cross-sell, and stimulation among the different value groups.
5. Loyalty Transactions on Discount
Is your loyalty program using discount offers to drive more profitable behaviors from its members? A loyalty program should not merely be a discount program for heavy-use customers who were going to buy from your brand anyway.
A loyalty program that relies on discount offers must generate incremental sales that underwrite not only the costs of those incremental sales, but also the costs of all discounted sales that would have occurred anyway and yet were unnecessarily discounted.
6. Loyalty Program ROI
Considering the resources and expenses required to operate and maintain a loyalty program, company executives will want the return to exceed the cost. Your loyalty program has to create shareholder value or it’s not making a positive enough impact on the business and should be discontinued.
Benchmarks like average cost of capital and positive lifts over control groups work great and reflect the unique nature and needs of your company’s business. The very essence of any loyalty program is about enhancing customer retention, and gradually winning away sales and profits from competitors.
A version of this article originally appeared in QSR.
