Category: Loyalty Programs

Measuring Loyalty Program Performance and ROI Part 2

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Last week I started a new series on measuring loyalty program performance and ROI. I discussed the proper metrics and related measurement issues if the program’s primary goal is to growth your business. Today I would like to take a look at goal #2 (to reward the best customers) and goal #3 (to catch up to competition).

When Your Loyalty Program Aims to Reward Your Best Customers (Goal #2)

Although rewarding your best customers seems intuitive, it is not without controversies. On one hand, your top customers spend the most at your business and may be the most responsive towards your marketing messages. On the other hand, these customers may already be heavy product category users with limited growth potential. They may also have higher expectations and are harder to please. So rewarding the best customers as the primary loyalty program goal will make sense for some businesses and will not for some others.

I’ll assume that you have done your work and have decided that you indeed want to build a loyalty program to show appreciation to your top customers. How do you gauge success in reaching this goal? I believe four measurable success metrics suitable for this purpose are:

  • Retention rate, for use it or lose it type of business;
  • Purchase loyalty level, for always a share type of business;
  • Habit level, for frequently purchased product categories; and
  • Positive word-of-mouth volume among social media fans.

Retention Rate or Purchase Loyalty as Success Metric

Depending on your industry, customer loyalty may be manifested very differently. We can think of it in two broad categories. In the first category, customers can always buy simultaneously from multiple businesses, and buying from one business most likely does not preclude purchases from another business. Businesses that fall into this always-a-share category include grocery stores, airlines, and restaurants. For these businesses, share-of-wallet is typically a good indicator of purchase loyalty. In the second category, consumers typically use only one provider. If they leave, they will take all of their business away to switch to a different business. Examples of businesses in this all-or-none category are wireless service providers, insurance companies, and TV and Internet providers. For them, retention rate and customer lifetime duration would be better proxies of purchase loyalty. Continue reading “Measuring Loyalty Program Performance and ROI Part 2”

John Hancock’s New Reward Program to Life Insurance Customers

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I offered my tiny two cents today in an NPR Marketplace story about a new rewards program by John Hancock for their life insurance customers. Under the John Hancock Vitality Program, customers can receive discounts and free rewards for making healthy lifestyle choices. These choices are recorded through smart wearables such as Apple Watch and Fitbit. Since this is a very loyalty program-relevant topic, I decided to repost the radio segment below, followed by a list of the pros and cons that I see in the program.

Pros

  • The activities rewarded through the program are things that consumers should be doing and are beneficial to them. So the program is high on both relevance and aspirational value.
     
  • Since most activities are automatically tracked by smart devices, the program is also quite convenient to participate in.
     
  • Most importantly, from a branding perspective, the program turns a negative event driven product into something positive. Customer interactions surrounding life insurance (and most other types of insurance) policies are typically motivated by an unfortunate negative event. This program focuses on the good and creates positive connection between the brand and the customer. It also greatly increases the frequency of brand-relevant interactions with customers.

Continue reading “John Hancock’s New Reward Program to Life Insurance Customers”

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”