| | DECEMBER 20218CIOReviewIN MY OPINIONBy Alex Tavera, Director CRM, Email & Loyalty, Lakeshore Learning MaterialsAs a loyalty expert and multiple time owner of a point-based program, I am often asked if loyalty actually drives incremental financial benefit to an organization. Skeptics believe that loyalty programs are a table stakes requirement of a company these days and only serve to create buzz. They do not trust that these programs drive incremental revenue and ultimately believe they are a financial drain. One such suspicious executive went as far as to tell me, "these programs are a façade, and by façade, I mean a sham." Over the course of our work together, however, I was able to prove financial success and convert him into a loyalty believer by using four different measurements of incremental financial contribution. I will share those with you below. Before getting into metrics, it is worth noting that I understand why these above-named loyalty skeptics exist. When a company does pull the loyalty lever but does not set up the program for success by providing an expert and a robust team of strategic problem solvers, then there is little hope of measurable gains. That is because loyalty is not automated. A company needs to truly invest in their dedicated team and create a long-range strategy in order to see a strong enough uptick in customer engagement that will lead to positive monetary results. A capable loyalty team will monitor KPIs (key performance indicators) across demographic and behavioral segments to ensure the program is engaging all members. This ongoing analysis allows for continuous testing and swift pivots that lead to program structure refinement and ideal incremental financial contribution. Now, how do we accurately measure a loyalty program's financial contribution? As previously mentioned, my hands-on experience has led me to the conclusion that there are four key ways to prove a program's incremental economic success.1. Member Versus Non-Member Value: This metric can be simply defined as the financial value (revenue and profit) that a member contributes to the business annually in comparison to a non-member. For many companies, they measure this value by looking at the variance of average purchase frequency (how often they purchase from you) and average purchase total (average dollar amount spent per trip) between the two groups. · As a baseline, companies should keep in mind the financial value of customers who convert into members prior to joining and post joining to measure true incrementality to the business.· For programs requiring members to pay a subscription or enrollment fee to join, the loyalty program would also deliver financial benefit from those member dues.· In businesses with a varying margin mix, member contribution can also be determined by evaluating high margin product purchases. For example, if your members and non-members frequent your business similarly and spend similarly, but the loyalty members are influenced to purchase higher margin products, then the loyalty team truly is delivering incremental financial benefit.The loyalty goal is always to convert a non-member into a member. The program should be able to clearly explain a delineation between the two and maintain that delineation as they recruit non-members and new customers into the membership base.2. Member Behavior Change Contribution: This value should be measured by analyzing "look-alike audiences" or segments based on purchasing behavior within the member group. Most programs use tiers to segment their members based on the financial value to the business. · Base Members: Normally represent about seventy to eighty percent of your member population and have spending patterns that should be higher than non-members. Normally this higher spending is due to tailored communication and the value the member sees in the rewards offering. · Tiered Members: The remaining Twenty to twenty-FOUR WAYS A LOYALTY PROGRAM CONTRIBUTES INCREMENTAL FINANCIAL BENEFITAlex Tavera
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