Category: Research Insight

Measuring Loyalty Program Performance and ROI Part 3

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I hope you have enjoyed reading Part 1 and Part 2 of the loyalty program performance measurement series. In this last portion, let’s look at what your metrics should be for the last two types of program goals: to attract new customers, and to gain customer insight.

Metrics When New Customer Acquisition is the Goal

The obvious metric for measuring new customer acquisition is the number of new customers acquired as a result of the loyalty program. Although it seems rather straightforward, it is necessary to note a few things about this. One, depending on the nature of your business, determining who are new customers may not be so easy. An online retail business typically has customers’ name and contact information. So identifying and determining the number of new customers is pretty straightforward. Without such information, a new loyalty program member may simply be an existing customer who decided to sign up for the program. Therefore, it is generally not a good idea to count sign-ups for the loyalty program as a metric for customer acquisition.

Instead, you may want to leverage POS data to identify new credit cards that have not previously been used at your business. This is not 100% accurate either obviously, as existing customers may simply be using a different credit card. But it is likely to be closer to the true number of new customers. Measurement of foot traffic or sales and then excluding frequency+spending growth by existing members can be another crude measure of new business. Finally, it is also possible to draw a random sample of your visiting customers and ask the simple question of whether it is the first time that they are buying from your store. Whichever approach you use, it’ll be best to have some baseline customer acquisition numbers before the program was established to compare the new numbers to. Continue reading “Measuring Loyalty Program Performance and ROI Part 3”

Measuring Loyalty Program Performance and ROI Part 1

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Loyalty program can be an expensive investment. Once you decide to take that plunge, it is important to take the pulse of your program at regular intervals to make sure it is doing what you want it to do. In this series, I would like to discuss how to gauge loyalty program success and ROI.

Success Metric Depends on Your Goal

Different loyalty programs set out to achieve different goals. The best metrics for gauging your program performance depend on the specific goals you have for your program. Broadly, most companies decide to start a loyalty program for one of the following five reasons:

  • To grow customer spending. With this goal, you are trying to make consumers increase their spending at your business. This can happen either because they pull their purchases from other places to concentrate more of their purchases with your business, or because you are expanding their absolute demand. The latter one is more likely to be the case when your product category is a flexible one, e.g., travel, entertainment, etc.
  • To reward your best customers and strengthen their loyalty. You create a loyalty program to better understand and cater to their needs, and to make them feel truly appreciated. The delayed reward nature of such programs can also decrease your promotional cost to these customers.
  • To be on par with competition. This is a scenario where many of your competitors have loyalty programs. Although you may have felt ambivalent about having such a program, you realize the pressure the competitors’ programs are creating to your business and the bleeding of your customers because of it. In this case, your main focus is to catch up on competition and stop further loss of customers and their spending.
  • To attract new customers. This is almost the opposite to the last scenario. In this case, you may be a loyalty program pioneer among your competitors, or you may have a better designed loyalty program. Either way, you are hoping to lure at least some customers away from your competitors, or otherwise attract consumers who were not buying from you before the program was in place.
  • To gain customer insight. Your business may not offer a natural way of tracking consumer purchases. Starting a loyalty program can help you solve this problem by offering a mechanism of tracking at least some consumers’ purchases. You then leverage the insights learned to improve your products and marketing messages.

Continue reading “Measuring Loyalty Program Performance and ROI Part 1”

Turn Loyalty into Habit and Habit into Loyalty

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Recently I was interviewed by the creative minds at Venables Bell + Partners on the topic of customer habit and loyalty. One of the questions asked was how businesses can turn loyal customers into habitual customers and vice versa. That conversation inspired me to write this blog post, to share with you how a business can bring loyalty into habitual behavior and vice versa develop loyalty into automatic habits.

Why Do You Want To Turn the Customers?

Why would your business want to turn one type of customer into the other? Consider Jane, who loves your brand and is a loyal customer. She purchases your brand heavily and is in the top 20 percentile in terms of her spending. A paradoxical fact about loyal customers like Jane is that they are also often the most demanding customers. They negotiate the hardest and have the highest expectations because they have been so “loyal”. By encouraging Jane to become a habitual customer, you help make her brand choice process more automatic, reduce her overthinking, with the added bonus of having more regular, predictable behavior.

Now imagine the opposite case. Tom is also a frequent customer. He visits your store and buys your products habitually, but he does not have strong opinions about your store one way or another. I know what you are thinking. “Wait a minute! How is it possible for Tom to buy so much without liking you a lot in the first place?” You are certainly right that habit a lot of times evolves out of our passion for doing something. Over time, it becomes a habit. But for many products and services, consumers don’t necessarily care enough to want to choose the very best. Instead, they try the first thing that is available. It works reasonably well. They don’t care enough to go search for a better alternative. So they settle down right away and repeatedly buy that first product, eventually becoming a habitual buyer.

The above is just one example of how you can have a habitual customer who buys a lot but does not have strong feelings for you. Why do you want to turn someone like that into a loyal customer? The reasons are pretty straightforward. It could be a defensive move. If Tom loves you, he may not be so easily lured away by your competitors. He may also be more inclined to try other products from your brand. When unexpected things happen that disrupt his habit, you can hopefully have his loyalty to fall back on to keep him buying. Continue reading “Turn Loyalty into Habit and Habit into Loyalty”