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Redefining loyalty: Metrics that shift the dial

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Feb 04 2021

Loyalty programs are on a mission to redefine the loyalty experience in a continuous effort to maximize incremental share (growth in membership and the additional amount spent by members). In a market that is saturated by loyalty programs, we can see the growth of multi-partner programs that are bringing their offerings together to attract wider audiences.

Measures of loyalty program success are numerous, however key indicators are loyalty margins (the value of a reward to members versus the cost to the company) and incremental share (do members spend more overall than before they joined the program?). In an ever more connected world, companies are able to gather vast quantities of data about their customers. However, they must walk a fine line between insight and analysis paralysis, and customer utility and privacy.

Much like SEO can help us determine what customers are looking for, we can also analyze reward redemption rates in order to see what rewards really motivate our customers. KPMG revealed that 69% of shoppers agree that it is too hard to earn rewards and 96% think that companies need new ways to reward loyalty. We can use reward redemption rates to inform our offering and ultimately increase basket size, engagement, and customer retention.

When programs are regularly able to offer rewards to members that incentivize them to shop more, they feel driven to shop more frequently and potentially spend more with that company rather than shopping around. This is especially valuable in today’s age where we have seen a growing number of discerning shoppers who are driven by price over brand. A strong affinity for your brand is key to leveraging your loyalty program to change customer purchasing decisions, even to cross-banner spending and upselling.

Travel loyalty programs have been severely disrupted by travel bans across the world. As well as maintaining points and memberships for an extra year or so whilst members could not travel, they have partnered with hotels to encourage people to go on staycations and ‘rediscover’ their own cities. The most obvious use of the Asia Miles rewards system is collecting and redeeming points from and for flights, however the restaurant and shopping partner offers that they already had have become crucial to keeping the program running whilst flights are grounded.

Starbucks was also affected by a fall in physical footfall as a result of the pandemic. They took the issue of reduced contact with customers as an opportunity to improve their digital touchpoints via mobile orders and drive-through services, which increased downloads of the Starbucks Rewards app by 17% in Q3 compared to Q2. Despite a 38% YOY fall in revenue, CEO Kevin Johnson believes that the long-term digital differentiation they are establishing in response to the challenging conditions of covid will ultimately increase their competitive advantage.

Social listening and net promoter scores also tell us a lot about a program’s success. People can be using the program regularly, but if it does not excite them or provide them with real added value, then they will not bother recommending it to their friends. Offering a great service to your members is a more effective form of marketing than big-budget ATL advertising.

Programs must also consider the quality of acquisitions. Are people signing up to take advantage of introductory offers and then dropping off? If member behavior is unchanged, then the program will overall be a financial loss. The program should encourage members to spend more, not spend the same whilst also enjoying perks/discounts.

The approach to earning quality acquisitions should be designed around contextualized rewards that offer real added value for members. We can see more customers who want charitable/experiential rewards over minor discounts on everyday products that they would buy without an offer and which fail to motivate their spending habits.

There is growing demand for experience-led design, not only in the physical space, but in the digital too. Millennials have been dubbed the experience generation, and the trend only seems to be growing amongst Gen Z. PwC coined the term Return on Experience as a measurement for investing in customer experience, which does not always have the same concrete ROI of other investments, but is being increasingly highlighted by consumer preferences.

Experience is also closely tied to brand purpose, which should be taken into consideration when designing program rewards. In order to build a convincing and integrated sense of brand identity and values, loyalty programs can be used to emphasize the core values that a brand wants to be recognized by in the eyes of consumers.

The success of loyalty programs ultimately hinges on your understanding of your customers. From extensively mapping the customer journey to identifying different customers’ preferences, demonstrating your understanding goes a long way to building brand affinity where price sensitivity can undermine all other efforts. With ecommerce giants like Amazon demonstrating massive earnings from personalized recommendations, we can see real evidence of functional customer experience driving sales and loyalty.

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