4 Ways to Measure the Value of Your Loyalty Program

Date

July 23, 2020

Author

Mike Bradley

VP, Strategy

​Mike is a data-driven, results-oriented marketing practitioner with deep experience activating highly successful relationship-marketing initiatives.

Editor’s note: A previous post, 6 Metrics for Measuring Loyalty Program Success is a great companion read to this piece as it showcases the evolution in thinking specific to Loyalty program design and implementation. Read below to get a sense of what is critical today, and then take a look back to see how far Loyalty, as a force to drive engagement and growth, has come!

Loyalty programs are pervasive across consumer and business-to-business categories. According to Forrester research, 89% of U.S. online adults belong to at least one kind of loyalty program. Yet, only 44% report that a loyalty program makes them feel more loyalty to a brand.

As a result, brands are continuously revamping their loyalty programs because they realize they can’t differentiate on the benefits alone. They need to differentiate on the customer experience.

The myriad of program strategy choices can make it overwhelming for marketers when considering the right program construct for their needs. Therefore, brands need to understand what motivates and drives loyalty behaviors to consolidate the best of what the brand has to offer and deliver that value proposition in meaningful ways across customer interactions.

The underlying secret weapon that provides insights and enables program success is data. Loyalty program data can be leveraged to quantify and inform strategic approaches across the spectrum of functional and emotional loyalty. The following four measurements can help gauge the true impact of the loyalty value proposition on the customer experience:

    1. Program Growth
      Is the program value proposition compelling enough to convert existing customers to members and attractive enough to acquire new customers? More sales transactions connected to loyalty program members means a greater ability to gather customer insights and change behaviors across a larger member base. In turn, a loyalty program becomes a critical lever to drive overall company business results.For example, beauty category leaders Ulta and Sephora both benefit from over 80% of sales transactions tied to their loyalty membership. In the restaurant category, Starbucks and Ansira client Panera lead the pack with approximately 50% of sales tied to their loyalty programs. Each of these consumer brands have a different program construct and value proposition, but the data they attain from their programs gives them a significant advantage over the competition.
    2. Member Retention
      Keeping and growing customer value is a critical and foundational priority of any loyalty marketing initiative. Research from Bain and Company shows that increasing retention by 5% can correspondingly increase profits by 25%-95%. Segmenting members into distinct value groups will help quantify and identify those members who are of high value, have the greatest potential for incremental behaviors, or are at the highest risk of attrition. Ansira’s Data Science & Insights team has established test and learn methodologies that have resulted in our clients realizing 2-3X value from members vs. non-members, as well as 2X incremental return on reward investment dollars. When factored against program memberships in the tens of millions, the impact on the company’s bottom line is significant.
    3. Emotional Attachment
      According to a study by Capgemini, 86% of consumers with high emotional engagement say they always think of the brands they are loyal to when they need something, and 82% always buy from the brand. This compares to 56% and 38% of consumers with low emotional engagement. For emotionally engaged consumers, the brand plays a bigger role in their lives. These consumers expect brands to know them and to deliver personalized experiences. Brands that establish an emotional connection with customers are able to beat out the competition and maintain significant wallet share from their customers. A “Share of Wallet” analysis can be used to determine what “share” of spend your customers (your best customers, your infrequent customers) are giving you compared to your competitors.
    4. Advocacy
      Research shows that compared to detractors, advocates (promoters) are roughly 7 times more likely to repurchase, over 6 times more likely to forgive a company if they make a mistake, and almost 8 times more likely to try new offerings from companies. Perhaps most importantly, the research also shows that promoters are 15 times more likely to recommend a brand to people. A Net Promoter Score (NPS) asking “on a scale of 0 to 10, with 10 being highest, what’s the likelihood that you would recommend us (our company) to a friend or colleague?” – is a simple question that will help gauge customer advocacy and identify areas of improvement. This has also been shown to correlate with a company’s financial performance. As Forbes points out, NPS is about relationships, not transactions.

A well-designed loyalty construct will provide a wealth of transactional data to inform growth and retention strategies, as well as business cases to prioritize future investments. By adding additional measurements through secondary research like Share of Wallet and NPS, a company can begin to assess the true impact of their loyalty value proposition on the customer experience.

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