Category: Customer Relationship Management

5 Criteria for Assessing Your Loyalty Program Value

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To encourage customers to actively participate in your loyalty program, they need to see value in doing so. From a program management perspective, it is important that you regularly audit the value provided by your program in order to create sustained engagement with your current and potential program members. This is especially critical if you have recently made changes to your program or are about to implement changes. A classic loyalty program article in the Harvard Business Review suggests a really useful framework that lays out five criteria for assessing loyalty program value. I would like to explain these five criteria here and offer an illustration of how several well-known loyalty programs fare on these criteria.

Criterion #1: Cash Value

This first criterion should be a no brainer. It refers to the financial value consumers receive from participating in your program. You can determine your program’s cash value by calculating its reward ratio. That is, how much does a member receive in terms of free rewards for every dollar spent? Take Starbucks Rewards as an example, consumers earn 2 stars for every dollar spent (without promotion). A free reward is issued every 125 stars accumulated, or $62.5 spent. Assuming consumers redeem the free reward for the more expensive items on the menu (say, with an average price of $5), they would receive a cash value of $5 for every $62.5 spent, or 8 cents per dollar spent. That is the reward ratio for the program. To calculate your program’s reward ratio, use this more general formula: reward ratio = (average reward value/average point threshold) x number of points earned per dollar. In the case of Starbucks above, reward value ratio = ($5/125)*2 = $0.08 per dollar (or 8%). This is actually really high compared with typical credit card reward ratios of 1-2%. If you already know the average value per point, you can also directly calculate your reward ratio as average $ value per point*number of points earned per $1. Continue reading “5 Criteria for Assessing Your Loyalty Program Value”

6 Uses of Loyalty Program Data

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If your business has a loyalty program, you are probably sitting on a gold mine of customer data. Are you using those data to gain insight into your customers and improve your marketing effectiveness? A survey of retailers in the Netherlands shows that gaining customer knowledge through loyalty program data is crucial to realizing the loyalty enhancement potential of such programs. So if you have not been leveraging your program data, it is important that you start right away. In this article, I will describe six sample uses of loyalty program data.

Use #1: Customer Lifetime Value Analysis

The beginning of loyalty programs is often to make the best customers feel appreciated. But who are these best customers? Loyalty program data can help you answer that question. Based on each customer’s transaction frequency and amount, it is possible to calculate the expected lifetime value for the customer. Refer to this article for how to calculate customer lifetime value. Once you are able to assign a lifetime value to each customer, you can design offers and campaigns to ensure that your best customers’ needs are satisfied.

Use #2: Customer Attrition Risk

Related to customer lifetime value analysis, your loyalty program can also tell you if some of your customers are at risk of leaving you. This knowledge gives you precious lead time to proactively address the problem and retain customers.There are different ways of identifying such risk levels. One popular approach to predicting customer churn (the BG/NBD model) uses simply the number of transactions a customer has made, when the last transaction happened, and how long the customer was observed. This model can be implemented as an EXCEL spreadsheet and through the BTYD package in R. Continue reading “6 Uses of Loyalty Program Data”

Customer Loyalty Dashboard in Google Analytics

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How loyal are your customers? If you business is like most brands, your answer is probably going to be complex and constant in flux. To accurately gauge customer loyalty, you need data from a variety of sources such as customer transaction data, social media data, and customer survey data. But what If you don’t have such data readily available or if you don’t have the analytic capabilities to tackle such data? It is still possible to use common tools to form a crude picture of your customers’ loyalty levels. In this article, I would like to talk about creating a customer loyalty dashboard in Google Analytics.

This article assumes that your website already uses Google Analytics. If you use one of the other web analytics tools instead, the basic ideas should still carry, although the exact terminologies and metric definitions may be different. This recommended dashboard should be applicable to most businesses. But it is particularly relevant to businesses where visits to the website is an important part of how your existing customers interact with you. This may apply, for example, to an online store or an online content provider (e.g., a blog).

Google Analytics Dashboard Brief Overview

(Note: I am keeping this general introduction very brief as I assume that you are more or less familiar with Google Analytics already and may even use the dashboard function. If you are not, a great resource for learning more about Google Analytics is the Google Analytics Academy. If you want to learn about dashboards specifically, check out the “About dashboards” section in Google Analytics Help.)

Google Analytics dashboards allow you to assemble several widgets to create a quick overview of how your website is doing. Since multiple dashboards are possible, you can create individual dashboards around certain themes such as customer loyalty or business growth. To access Google Analytics dashboards, click “CUSTOMIZATION” then “Dashboards” in the left panel. (If you only see a list of icons instead of actual links on the left side of your Google Analytics screen, click on any of the icons will expand to the full menu.) Click the “CREATE” button to create a new dashboard. Select “Blank Canvas” and enter a name for the dashboard in the small window, and click “Create Dashboard”. This creates a blank canvas that you can add different widgets to. Continue reading “Customer Loyalty Dashboard in Google Analytics”