Category: Customer Loyalty

An Ambush on Customer Loyalty

Posted on

I’ve always liked Delta Airlines. In my perception (perception is reality, right?), Delta has nice airplanes, friendly staff, and generally good service all the way around. I consider myself a loyal customer of Delta. With the exception of mandated price shopping for work travels, I always like to look at Delta first when I need to go somewhere. But my recent service issue with Delta caught me completely by surprise. It made me question if I had misplaced my loyalty this whole time.

The Delta Luggage Incident

It was something simple really. While coming back from my international travel, I rechecked my luggages at the New York JFK airport for the last domestic leg of my long flight home. When I reached the destination, two of my three checked-in luggages showed up on the conveyer belt, and the third one did not. I filed a claim with the Delta baggage service right away and was informed that Delta would contact me for delivering my luggage. In the days that ensued, I checked the online status of the luggage regularly. Unfortunately it never changed.

Delta Online Baggage Status

After 10 days not seeing any change and not hearing anything from Delta, I finally picked up the phone to call Delta. Having to hold for half an hour on the phone and still no one on the line, I reached out to Delta via Twitter instead. Luckily that got me a faster response than the good ol’ phone. In a few minutes of messaging with the Twitter service rep, I was informed that the status means that my luggage was in the security area. The rep asked what the luggage looked like and what was in it. I told him/her that it was a smart balance scooter (like the one you see at the top of this page). This was when I was informed of a Delta policy that I had been complete unaware of previously. The screenshot of the stated policy is shown below. Continue reading “An Ambush on Customer Loyalty”

5 Criteria for Assessing Your Loyalty Program Value

Posted on

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

Posted on

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”