Category: Marketing Analytics

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 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”

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”