Why does loyalty program ROI remain so murky?
According to LoyaltyOne’s “Loyalty Big Picture” report, marketers are increasingly looking at loyalty programs “through an opportunity cost lens” in order to maximize spend. Finding trustworthy ROI, however remains complex.
One challenge is the time period. “By their nature, loyalty programs are long-term and many have been in place for many years which makes measuring the current and incremental impact difficult,” said Brian Ross, president of Precima, in the report.
Many best-in-class loyalty programs also involve a number of components, including multiple-tiers, free versus fee-based programs, personalized to promotional mass offers, in-store marketing and a variety of monetary and experiential rewards.
Marketers need to take into account what the competition is doing, seasonality and weather, as well as all of the other price and promotional activities underway at the company.
“In many companies, loyalty programs are integrated into customer strategies — which make it tough to isolate specific loyalty program results for measurement when it’s part of the core value proposition,” according to the report. “It would be hard to carve Amazon Prime out of Amazon, or SkyMiles out of Delta.”
The report finds loyalty programs continue to see increased investment as members, on average, contribute almost half (43 percent) of companies’ annual sales and spend double to triple non-members. Loyalty data is also being used well beyond marketing and PR departments.
Companies were found to be spending a minimum of two percent of sales on their loyalty proposition, with at least another two percent going to related personalized marketing. Costs are expected to rise as customers seek more digital components, real-time offers and redemption as well as seamless cross-channel interactions.
Suggestions in the report for measuring ROI include determining measurable business goals (i.e., customer acquisition, retention, growing basket sizes), combining data sets and setting metrics.
The two top metrics were found to be membership growth and active members. The report found that loyalty program operators often overlook what drivers are delivering incremental spend and visits. “The real measure of customer engagement is not customer satisfaction, it’s program activation,” according to the report.
- New Research Report: Global Customer Loyalty a $323B Endeavor – LoyaltyOne
- Loyalty Big Picture (study) – LoyaltyOne
DISCUSSION QUESTIONS: What suggestions would you have for measuring the ROI of loyalty efforts? Which metrics do you think are most valuable?