Yet despite a significant focus on and investment in loyalty programmes, 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 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 maximise 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 programme is determining clear-cut objectives and quantifiable, strategic metrics for success.
This starts by asking big questions about your business and your programme. Every brand is different, and a programme 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 programme 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 programmes 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 programme 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 programme 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, personalised 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 LoyaltyOne Global Solutions, we’re governed by two standards for evaluating loyalty programme value.
- Programme effectiveness: What is the programme’s return on investment?
- Programme health: How engaged are your customers today and in the future?