Genuine customer loyalty is the holy grail for brands, which is why so many companies prioritize building deeper connections with their customers. Yet despite a significant focus on and investment in loyalty programs, they remain one of the few budget items that aren’t always quantified with a verifiable, concrete method for measuring ROI.
In nearly every other part of a business, from the introduction of new technology to the selection of advertising media, brands have rigorous, precise methods for evaluating how spending impacts their bottom line. They track KPIs such as sales increases and efficiency improvements on a quarterly and sometimes even daily basis. So why aren’t they doing the same with loyalty?
Most likely, it’s because many still consider customer loyalty an intangible. But the truth is, it’s not. With the right methods, data and strategic partner, it’s not only possible to track the effectiveness of your loyalty strategy, but to tweak it in real time to maximize impact. Here’s how to get started.
Step one: Establish your objectives and determine metrics.
The first step for measuring the impact of your loyalty program is determining clear-cut objectives and quantifiable, strategic metrics for success.
This starts with asking big questions about your business and your program. Every brand is different, and a program dealing with a small contactable customer base will have different goals and metrics than one facing a high churn rate of shoppers or another looking to upsell to a broad, loyal shopper base. What are the areas you hope your program will help you to impact?
Once you’ve identified your objectives, the metrics you track should ladder directly into achieving those goals. No two loyalty programs are designed in the same way. They will vary from business to business, and for different customer segments, but often include factors like active rates, earn velocity, redemption rates, enrollment, shopper frequency or average transaction size. More specifically, you may also consider program member metrics such as the per-member margin, time to redeem, percentage of web- or email-active members, and overall conversion rates.
If your goal as a high-frequency retailer is to become the primary grocery store for your customers, the appropriate metric for success would be how well your loyalty program drives customer spend consolidation as evidenced by higher basket size and more visits, which helps to achieve that goal.
If you’re driving the loyalty strategy for a fuel retailer with an established base of customers, you would be much more focused on increasing frequency and margin, by rewarding customers for convenience store purchases. To evaluate the impact of your tactics, keeping tabs on the increased level of in-store purchases and upsell to loyalty members when they gas up will help you measure effectiveness.
No matter what your objectives and metrics are, be sure that they always align with and work in support of the strategy for your brand’s overall core business. It’s also important to keep in mind that more specific, personalized ROI measurements require more customer information. Be realistic about what data you collect, and how sophisticated it is, as you determine your goals.
Step two: Find the right techniques.
Once your goals are set, it’s time to determine how to measure success. At Global Solutions, we’re governed by two standards for evaluating loyalty program value.
- Program effectiveness: What is the program’s return on investment?
- Program health: How engaged are your customers today and in the future?
The core principles are: What is the value your program provides to your customers, and what is the value it provides to your corporation?
Marketing effectiveness can be determined by analyzing what is spent to determine which investments most directly impact shopper activity. This is known as marketing attribution modeling. It involves calculating customer potential or lifetime value, which helps predict long-term shopper stickiness and spending, and identifies your best customers to prioritize. Retailers often need to invest ahead, in media reach to build a base of awareness, or in targeted channels to send offers. Measuring marketing effectiveness allows loyalty programs to project the ROI on spend based on customer value.
Measuring corporate value might start with analyzing the effectiveness of your list of contactable customers. It could also be measured via financial modeling that analyzes the sum total of all of your loyalty strategies working together. This process includes analysis of average basket size for loyalty program members versus nonmembers, growth rate, retention and much more.
In the Global Solutions loyalty practice, we start by identifying client business goals. Those goals then dictate the techniques we use to measure how effectively the program is performing, and the strategies that can help to close the gap.
Step three: Evaluate, adjust, evaluate.
Actively tracking the value of your loyalty program can provide a wealth of valuable customer-centric information. The right measurement strategy can even offer insight into specific areas of your loyalty tactics, gauging the impact of things like brand affinity or the performance of your marketing lists. It can also provide guidance for strategic decisions, such as how to balance investments in mass marketing versus investments in personalization, as well as how effective each is at driving sales.
Once you’re tracking the impact of all your program elements, put them to work. Your program should be tested and adjusted on an ongoing basis. By modifying and testing as you go, you’ll ensure you’re using the most effective tactics and optimizing your budget.
What are you waiting for?
If you have a loyalty program in place but aren’t evaluating its impact, you’re missing a huge opportunity to improve as you go. Tracking your day-to-day results is a good first step, but it’s not the same as measuring its overall impact. To truly benefit, you need to be thoughtful around the metrics you monitor and work to understand what they actually mean.
There are several methods for measuring a program’s value. Each of them offers the ability to quantify your program’s value, but more importantly, to gain a better understanding of your customers. Better understanding leads to deeper connections. And without those, you’ll never achieve your biggest objective — long-lasting customer loyalty. Stay tuned for a deeper dive into program valuation methods in the coming months.
If you’re interested in learning more about tracking the value of your loyalty program, contact Francis Silva at FSilva@loyalty.com.