Paytronix Systems, Inc. , a leading provider of reward program solutions to restaurants and retailers, recently published a report titled, “Is it Time to Change Your Rewards Program?” The report identifies the following four signs a loyalty program is ready for an upgrade: Declining loyalty, gaming the program, franchisee complaints, and a conflict with corporate objectives.
 
Loyalty360 caught up with Lee Barnes, head of Data Insights at Paytronix Systems, to further explore this topic. Paytronix has a history of helping brands find ways to improve loyalty programs.
 
Why is it that many brands don’t know how to effectively evaluate a loyalty program?
 
Barnes: Most of the time, brands only have their own data so they have no benchmark to compare results with to see how they are doing. Also, it is difficult to analyze the effectiveness of a loyalty program because it’s not something that can easily be tested in a carefully controlled way. Finally, some brands don’t know which metrics to use to measure performance and don’t understand how loyalty programs work. So they may measure the wrong things.
 
What do brands do well with data collection and leveraging key customer insights and where do the challenges remain?
 
Barnes: Brands are generally good at analyzing store-level transaction, inventory, etc. data, but are not used to the idea of analyzing the same guests over a period of time. Most are able to put in place some simple trigger messaging, targeting guests that lapse, or guests that earn a reward, but struggle with more complex guest segmentations. There is a tendency for brands to want to focus on guest demographic data, and specific menu item purchasing behavior, but it is hard to action these segments to drive meaningful results. The best segmentations start with guest frequency, and build from there.
 
How often should brands evaluate their loyalty programs based on your two primary goals of loyalty?
 
Barnes: Paytronix defines the two primary goals of a loyalty program as driving members to visit more often and to spend more when they visit. In order to keep their loyalty programs on track, brands should be constantly vigilant for the following signs of weakness:
 

  • Declining loyalty penetration and new member enrollment.
  • Evidence that customers are “gaming” the program to their advantage.
  • Franchisees and operators increasingly complain that you’re just running a discounting program.
  • Your program is conflicting with your corporate strategic objectives.
 
By understanding and recognizing how to watch for and evaluate these four signals, brands will know when it’s time to change their loyalty program. In particular, they need to take a careful look at their program design. If a rewards program doesn’t adhere to core design principles, it’s probably not built for success.
 
How can brands better monitor the key signs of loyalty program change?
 
Barnes: A regular review of KPIs is critical. At least once per quarter, take a look at enrollment, penetration, and loyalty transaction totals to see if any bad trends are starting to emerge. Also, keep an eye on the rate at which customers are earning and redeeming rewards.
 
What is your advice for brands when it comes to better distilling key customer data from the volumes of data they receive?
 
Barnes: Start with guest frequency and work from there. This is the most actionable data you will have. Avoid focusing on segments that are too small, or that are unstable (where guests move between segments too frequently). A good targeted marketing segmentation scheme should meet the following criteria:

-The segments should be truly distinct: If you can’t answer the question, “How would you treat segment A differently than segment B?” then you don’t really have two segments
-The segments should be large enough that they’re worth addressing – if you have too many micro-segments, it may not be feasible to manage them all
-The segmentation should be predictive of future behavior: If it doesn’t tell you anything about the future, your segmentation won’t be useful for targeted marketing
 
What loyalty metrics should brands focus on?
 
Barnes: The most important two are: Loyalty penetration (what percentage of checks are loyalty checks); and non-loyalty conversion (what percentage of non-loyalty members join the program)

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