Measuring Loyalty Marketing

For brands, it’s more critical than ever to have one-to-one relationships with customers. That provides the ability to collect customer data and insights and market directly to customers in a way which can be tailored to a customer’s loyalty status -- and often loyalty members are a brand’s best customers. Loyalty is the gateway to enabling personalization and contributes to overall customer lifetime value.

The ANA report -- Loyalty Marketing: The Good, the Bad, and the Ugly -- provides a deep dive on the benefits, challenges, and watchouts of loyalty marketing. One of those challenges is measuring the ROI of loyalty programs. At our recent event -- ANA’s LoyaltyCon -- we asked each speaker the question, “How do you measure the effectiveness of your loyalty marketing program?” The following summarizes the learning (without attribution to specific brands in order to maintain confidentiality).

Overall, there were the obvious metrics -- the number of loyalty program members, growth of that membership, the size of the active base, engagement of members (including frequency and the dollar amount of their respective transactions), and how their transactions compared with non-members of the loyalty program.

Drilling down, there was consensus that loyalty programs divide their members into “tiers” and work to move those members to higher tiers over time.

• Member #1: “We divide customers into three different mind states: engage in the program, loyal to the program, and then an advocate for the program.”
• Member #2: “The core thing we're trying to do is break our customers into segmentation by frequency that goes from super loyal to not that loyal, so we call it platinum, gold, silver, bronze. For context, our platinum customers are visiting us about 35 times a month on average. Gold, silver, and then our bronze customers have lower frequency of visits.”
• Member #3: “Our loyalty program provides an understanding of how much to invest at every single step of that life cycle to say, what's it worth to us to move a customer from non- member to member, from member to silver tier, from silver up to gold tier to encourage more usage of our products and services. Because we have that really clear understanding of value at every step, we're able to make really informed decisions regarding how much to invest along the way.”
• Member #4: “We came up with what we call our continuum segmentation of customers. The first tier we call curious. They know the brand and probably have been once or twice through their lifetime, but they don't have a high passion for the brand, and they're certainly not frequent customers. There we have the casual customer who are medium frequency and medium fandom around the brand. They probably just need different triggers to create an additional visit. Then we have what we call our committed. Those are the people who have super high fandom and visit frequently. Our strategy is to drive increased frequency from those who were not coming as much in our casual group to move them to the committed group.”
• One participant summed this up as follows: “Our main KPI is -- are we migrating our loyalty members? Are we maintaining those platinum and gold and silver customers? And how many of the bronzes are we migrating up for us? That is the North Star. Are we converting a customer to somebody that shops more frequently with us? That for us is the number one thing we measure.”

Overall, then, as one speaker said, “It’s about graduating loyalty members into a higher tier in the program.”

There was also discussion about customer lifetime value.

• “We see at least a 30% increase in those participants in our engagement programs above and beyond all non-loyalty members. What we're building toward is customer lifetime value. That's the metric we really want to measure. It's wonderful to convert someone to our business. It's wonderful to grow that customer, but if their head is turned by a competitor and they leave, it's all for nothing really. And we're just going to be on that hamster wheel. So, we have to think about customer lifetime value. We take snapshots of three to five years of business.”
• “I love the concept of lifetime value as we build relationships with customers that generally last for their lifetime. And so, we need a lifetime view of the customer aligning the company around how we measure that. We are looking to maximize value. And it might be buying more of a certain product, or it might be increasing the number of products in your basket, or it might be buying a higher margin product and moving a customer up into a higher yielding product. So, all of these design considerations come into play.”
• According to one speaker, “Members of our loyalty program shop 40% more than non-members and spend 20% more. So, if we were to annualize that, in six months that is providing us with a 60% higher volume of business than non-members. That drives customer lifetime value.”

Other insight:

• “Our loyalty programs allow us to build deeper, more meaningful relationships with our customers. It's so much more than discounts and rebates.”
• These loyalty programs fuel retail media networks.
• “The business value proposition is -- as we get the customer to identify themselves, we get better data to run the business because we understand the customer frequency, the price, elasticity, brand loyalty, product, substitute ability, things that we could not do or would be impossible if the customer was not identifying themselves.”
• “There’s what’s called the retail math equation, and it's pretty much valid for every business. There's only four ways to make more sales. You can get customers to buy more things. You can get customers to buy pricier things or things that give you a better margin. You can get customers to come in more often. Or you can get new customers.”

Finally, our closing thought is provided by Luc Bondar, COO & President at United Airlines Mileage Plus, “There’s never been a more exciting time to be involved in running, building and operating loyalty programs. They offer tremendous value!”

Posted at MediaVillage through the Thought Leadership self-publishing platform.

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