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”