DISCUSSION
What are some common missteps when launching loyalty programs?
Written by Guest contributor
Photo: RetailWire
Lauren Wawrzyniak, Manager, Business Analysis & Strategy, LoyaltyOne Global Solutions
Through a special arrangement, what follows is a summary of an article from COLLOQUY, provider of loyalty marketing publishing, education and research since 1990.
Launching or relaunching a loyalty program is a monumental feat for many retailers. That’s especially true for those without any history of loyalty programs — and more so, those whose loyalty investments in the past never paid off.
Program operators typically evaluate three types of financial gains from loyalty — lift, retention and acquisition. But for some retailers, especially outside of the high-frequency space, it can be difficult to get an accurate read on the incremental impact. In addition, brands often fail to build a bridge between loyal existing customers and potential new customers. Transaction history and preferences from loyal customers should be used to identify similar new customers, as well as to target existing customers for more engagement.
Measuring lift, retention and acquisition with pinpoint accuracy requires a lot of time, resources and operational discipline. A lack of historical data, budget limitations, short pilot phase or even the corporate culture can present challenges.
One of the first ways to gauge or stress-test the potential upside to your program is by focusing on what you can control — the budget. By estimating total startup and ongoing costs, you can determine what type of customer behavior is required for your program to break even in a reasonable amount of time. How much more would your customer have to spend? How much attrition would you need to stop on an annual basis?
After launching your pilot, observation and measurement takes over. One of the key early indicators you should monitor is market lift. Compare the change in sales then and now between your pilot market and the designated control market to get a high-level, directional insight into pilot performance. Analyze the behavior of common customer groups or segments between test and control markets to find early performance indicators, and focus on the behavior of frequent customers pre-and-post launch.
Unfortunately, many retailers rely on annual metrics, but rarely do pilots run for an entire year before rolling out nationwide. Many also focus almost entirely on how customers earn rewards and not enough on how they’re redeemed.