You Can’t Measure Happiness, but You Can Measure Success – Financial Metrics for Customer Loyalty Strategies

Acquiring internal support for customer loyalty programs and strategies can be a challenge for any brand. When it comes to adding new technology, functionality, or program benefits, marketers must work across brand teams to secure buy-in and support to ensure success. However, customer loyalty-focused marketers may have difficulty obtaining support without the right metrics and KPIs, especially from their finance teams.

As brands look to move beyond transactional customer loyalty efforts and programs, success is measured and defined in many ways – typically going beyond sales.

Loyalty360 spoke with several supplier members for their insights and perspectives on best practices and key metrics brands should leverage, and advice for marketers seeking to secure support from their financial teams for their customer loyalty programs.

Gaining Company Support for Loyalty Efforts
With marketers working to improve their loyalty strategies and programs, what are the best ways to build support and buy-in from their internal teams, especially finance? 

Susan Frech, Founder & CEO of Vesta says,Most finance teams know that customer retention efforts are critical business practices, but the biggest stumbling blocks for internal buy-in involve the availability of resources, scalability, and measurement to optimize and prove ROI.”

She stresses the importance of demonstrating how developing strong consumer relationships is incredibly efficient and provides immediate value to multiple organizational stakeholders.

“When trying to convince the finance team, highlight the utility of loyalty efforts as part of its value,” Frech adds. “Creating loyal communities of consumers, powered by the right technology, not only elevates customer lifetime value, but also is a channel for activating brand advocacy that drives new customer acquisition, and is an always-on outlet for gaining crucial feedback to drive innovation and validate investments. This serves numerous business goals and makes many teams more efficient and effective.”

Padmashwini Raghunathan, Product Manager, TCS Digital Software & Solutions, says that brands with an existing loyalty program should continue to evolve their programs using incremental transformation instead of taking a big bang approach. This can allow a level of measurability that is hard to obtain by tackling too many projects and technologies at once.

She explains, “This approach will enable organizations to measure incremental ROI and quickly identify where course corrections are needed for aspects of the program that are not working.”

Calculating Program Operation Expenses
Brands may or may not consider loyalty platforms, partner support fees, and other marketing efforts when calculating program operation expenses beyond rewards expenses when building a loyalty program.
At Kobie, they see their clients address the cost of rewards, liability expense carrying cost, and occasionally technology related to integration with a partner.

Dave Andreadakis, Chief Innovation Officer of Kobie, says, “In addition to the cost of rewards, liability expenses, and technology, we sometimes see internal expenses attributed to loyalty. It does not make sense to do this unless you have the corresponding revenue associated with it. For example, suppose 5% of in-store labor is assigned to the program to cover expenses associated with servicing the loyalty program. In that case, there needs to be a revenue number for in-store sales as well.”

Calculating Loyalty ROI
When clients are looking to calculate ROI for their customer loyalty program and strategy, it is important for brand teams to take a holistic approach beyond transactions. Brands need to consider the cost of customer retention, advocacy and other activity that is equally important to the longevity of the company.

At Vesta, they stress the importance of emotional loyalty, and that can’t be measured like traditional ROI.
Modern loyalty efforts can no longer be measured solely by transactional data,” explains Susan Frech, Vesta. “Emotional connection to your brand must be a part of the equation, as this is a key determinator in whether a consumer will stay with you or go to your competitor.”

According to Vesta, emotional loyalty is driven most by a solid alignment between the brand and a consumer’s values, and can be measured through brand affinity, Net Promoter Score, and positive brand opinion. Beyond that,  when activated correctly, loyal customers help drive the cost of consumer acquisition down through their brand advocacy efforts. Measuring that activity is just as important as measuring the frequency of purchase and will create a more holistic picture of the ROI of the loyalty program.

Raghunathan agrees, adding, “ROI for a customer loyalty program needs to be looked at from a holistic perspective. It should not be limited to incremental sales or changes in average order value, but instead, the impact loyalty has on increasing customer lifetime value, reducing acquisition costs due to referrals, creating brand advocates who support and promote your brand, and increasing sales attributed to loyal customers willing to spend more with your brand.”

Andreadakis advises clients to look longitudinally, saying, “Most single interactions tell a tiny part of the loyalty story. Looking at customer lifetime value is a great way to see the effect loyalty has had on an individual.”

As with Vesta and TCS, Kobie advises brands to look at loyalty ROI holistically. Says Andreadakis, “Ultimately, the best practice is to look at ROI several different ways. That way, you get a better view into not only the return your program is providing, but also a better view on which tactics are working.”

The Impacts of COVID on Reporting and Metrics
Metrics, KPIs, and reporting evolve with the ever-changing customer loyalty landscape, but the past two years since COVID have accelerated changes like never before.

COVID changed shopping behaviors overnight,” says Frech, “and with constant shifts in supply chain issues and public health restrictions, most marketers were simply trying to hold their heads above water through the constant pivots and unpredictability.”

As marketers look to a post-COVID world, there is increased pressure to focus on long-term resiliency metrics and retention efforts and less on short-term performance-based tactics. Metrics must demonstrate both agility to the market, like conversion and audience optimization, while also showing long-range impact with brand equity, emotional loyalty, and bold innovation.

Andreadakis adds, “In every financial model are a series of assumptions, facts, contributing models, and straight up data. Assumptions and contributing models need to be re-examined if they haven’t in a while. While many companies see this as a burden, it is a great time to do it, and it will pay off much faster than you might think.”

Initial Financial Indicators of Program Success
There has been a surge in brand upgrades and relaunches in loyalty programs, in addition to the growing number of new launches in the customer loyalty arena. Brands should keep a list of initial financial indicators of program success to determine the payoff of their efforts and what to do moving forward.

At TCS, they offer their clients three top financial indicators of success:

  • Increase in average transaction value
  • Incremental revenue from loyal customers
  • Decreasing liability (indicating high participation rates)
Andreadakis says it depends on what the program is built to do. “Some programs are designed purely for driving ancillary revenue. For these we want to see partner uptake and adoption as early indicators of program success.”

Other programs are about increasing engagement between transactions and staying top of mind during long purchase cycles. In those cases, a year may not be long enough to truly see the impact of the program. Kobie recommends driving additional objectives into the mix to continue a cycle of influence and customer interaction.

Lastly, some programs are about a mix of objectives that are more difficult to measure impact, especially without a solid financial model.

“It’s never too late to do a financial assessment of the program design, call the shots on what you expect it to do, and then measure against those expectations,” stresses Andreadakis. “Even doing this late is better than leaving a program alone and finding out 3 years in that it is costing more money than it is worth.”

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