Just as any of us visit a doctor, dentist, or automotive repair shop, retailers should assess their loyalty programs annually to ensure excellence. That was the theme of Loyalty360’s Thursday webinar titled, “Give Your Loyalty Program an Annual Physical with a Loyalty HealthCheck,” which was presented by Aimia.
Loyalty programs are a significant marketing investment, typically, in excess of $1 million, according to Manu Sarna, Vice President, Loyalty Strategy & Analytics, Aimia.
Sarna said, when surveyed, many companies admit that their loyalty programs aren’t optimized relative to their full potential. Sarna noted the top three most important functions of loyalty that need the most attention in 2016: Motivating desired customer behaviors, personalized customer communications, and quantifying program ROI 48%.
In assessing a loyalty program’s “health,” Sarna said the framework should evaluate along three dimensions: Alignment (Clear objectives, metrics, capabilities, assets); External (Member value assessment, member experiential assessment); and Internal (Business value assessment, business operational assessment).
Jesse Grittner, Senior Director, Loyalty Strategy & Analytics, Aimia, recommended that brands define metrics of loyalty and focus on a short list of high-impact metrics. He noted that, by establishing ROI as a core metric, a company will be more successful in setting up other metrics.
“What are you trying to do with your program?” Grittner said, when asked about where to start in creating loyalty metrics. “Incremental sales? Be clear on that. Understanding what those things are is critical. What are the goals you’re trying to achieve through what metrics?”
Internal alignment is an absolute must for any successful loyalty program, Grittner stressed.
“Everyone needs to be pulling in same direction,” Grittner said. “Would your executives all agree on your company’s definition of loyalty?”
Sarna and Grittner posed the following: How can we create a profitable, revenue-generating customer membership program that overcomes:
Poor view of customers
Limited engage opportunities
Small network
Crowded market
External: rep for ops
Internal: execution
And exploits:
Market potential
Growth position
Direct distribution
Direct customer relationships
Direct partnerships
Monetization opportunities
To:
Drive and sustain consideration and demand
Improve customer lifetime value
Meet all pre-set objectives
Regarding external assessment, Sarna and Grittner said companies should benchmark member value through the following sample metrics:
Value proposition
Return on spend
Redemption frequency
Percentage of points earned from bonus points
Attractiveness of soft rewards (thin through value an attractiveness of those awards)
Time to reward
Time to first redemption (Companies should try and cement that relationship with the customer as early as possible)
Tiering structure
Achievability / stretch to next tier
Impact of tier structure on spending behavior
Benchmark your member experiences:
Awareness & advocacy: Program awareness among customers (best and others)
NPS / likelihood to recommend
Customer journey:
Enrollment process: steps/time to complete
Enrollment completion rate / % who redeem first reward
Communication:
Customization/personalization of communications
Frequency / dispersion across member lifecycle
Member experience:
Member understanding of how to earn and redeem points (Don’t assume anything here; survey members)
Mobile-enablement
Benchmark your value assessment:
Revenue side
Program penetration
Lift and shift (watching changes in behavior of members/non-members)
Return on investment
Program growth: Acquisition, average tenure
Retention / churn
Breakage: earn/burn ratio, expiration, breakage (“We see breakage as a tool,” Grittner said. “The reality is this a good way to track and see how much engagement you’re getting from members.”
Liability & cost side
Full program cost breakdown (including “hidden costs,” e.g., cost of rewards, operational costs)
How is liability accounted for?
Benchmark your operational assessment:
Program management
Efficiency / cost of rewards fulfillment
Uptime of loyalty systems and platforms
Can program model impact of potential program changes on liability?
Can program P&L and ROI be concretely quantified?
Data management
Member data points collected / availability to frontline
Member incentives to provide accurate personal data
Regarding use of customer data, Grittner said not every loyalty program has to be a “data powerhouse. What do you want to do with the data? Be clear and focused on what you want to do with the data and that will inform what you collect and how you collect it.”
Sarna and Grittner offered a few benchmarks for companies to get started:
Rewards value as % of purchase price
Points breakage ((7%-40%)
Member penetration of customers
Membership by tier (4 tier)
Bonus points as % of (base + bonus)
Loyalty systems uptime (98-99.99)
Loyalty communications open rates
Sarna said that the most common problems with loyalty programs are having an undifferentiated program and short expiration windows.
Simplicity, Grittner noted, is crucial to the success of any loyalty program.
“We have to work really, really hard to keep that complexity away from the members,” Grittner said. “Simplicity drives understanding. Understanding drives engagement. Engagement drives value.”
A company seeking to execute a loyalty program health check should allow for at least six weeks.
“I would get a sense from the SVP of Marketing about how they feel about the program,” Sarna said. “You want to point to other successful programs, inside and outside of your industry, ones that create value. Ask senior executives if they want it to be a marketing tactic or something that drives meaningful dollars. Loyalty, as we all know, is the voice of the customer.”