Category: Reality Check

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”

Should You Shorten Your Loyalty Program Expiration Policy?

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For many loyalty program providers, program financial liability is a serious concern. Since members can redeem their points for rewards anytime, the business carries liabilities toward these potential future obligations. Such liabilities can be quite large. For example, American Airlines’ 2017 10-K filing reports $420 million worth of loyalty program liability. For Hilton Hotels, the guest loyalty program liabilities are valued at $889 million, according to the company’s form 10-K. With new accounting guidelines for loyalty programs about to take effect, liabilities will become an even more salient issue for loyalty program providers.

One common way of limiting liabilities is to set a point expiration policy so that points automatically expire after a set period of time (or a set period of inactivity). If your program points do not expire or expire after a longer period of time than you’d like, you may want to consider tightening up the expiration policy. But how will that affect your customers? Should you make the switch? Let’s look at the pros and cons for such a policy shift.

Pros of a Shorter Loyalty Program Expiration Policy

  • A shorter expiration time reduces the number of redeemable points in the long run and decreases program liabilities.
  • Because of the time pressure, a shorter expiration policy discourages your customers from shopping elsewhere. If they want to earn enough points for rewards before the points expire, they may need to put all their eggs in one basket.
  • According to motivation research, cutting the expiration time may motivate members to work harder, either because of the increased challenge level or because of their desire to regain control.

Continue reading “Should You Shorten Your Loyalty Program Expiration Policy?”

Building Loyalty Program Partnerships Wisely

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In less than two weeks from today, Plenti, a coalition loyalty program, will officially shut down. Created by American Express three years ago, Plenti had an impressive roster of partners, at one point including Macy’s, ExxonMobil, Rite Aid, Hulu, Expedia, among others. Despite its high-profile start, the failure of Plenti shows the many challenges associated with loyalty program partnerships. If you ever consider loyalty program partnerships, it is important that you do so strategically and judiciously.

The Business Case For Loyalty Program Partnerships

On the surface, loyalty program partnership is a great idea. It allows consumers to earn points from different businesses, making reward earning easier and more relevant to more consumers. This expands the potential market for the program. Running a joint program reduces the operational cost for each business. In the case of a dominant business-peripheral business partnership (such as the partnerships airline frequent flyer programs form with smaller businesses), the dominant business can make good money selling its program currency to its partners. Airlines, for example, are estimated to make between 1.5 and 2.5 cents per mile. With all these benefits, what could possibly go wrong? Continue reading “Building Loyalty Program Partnerships Wisely”