Loyalty programs are one of the best ways for retailers to engage and retain customers. This is not news —in fact, there are 3.8 billion loyalty program memberships in the US alone. However, not all loyalty programs are equal. US households actively participate in an average of nine loyalty programs—despite subscribing to more than 20.
Simply having a loyalty program isn’t enough today—retailers need to keep abreast of how the customer wants to be delighted, delivering rewards and experiences that are perceived as valuable. The variety of channels available (website, mobile, apps, SMS, in-store) make it easy for customers to switch to the competition, increasing their expectations for loyalty rewards. Even long-term customers aren’t guaranteed to stay committed to a brand that doesn’t reward faithfulness.
So, how does your loyalty program stack up? Measure your loyalty program across four areas:
Customer retention measures the length of time a customer has shopped with the retailer, and is an excellent marker of the loyalty program’s effectiveness. A good loyalty program grows customer retention over time. Customer lifetime value (CLV) is a reliable indicator of performance. CLV is heavily influenced by how often a customer shops with the store and how long she remains a customer. Thus, comparing member and non-member CLV can be used to evaluate the program’s value.
Customer effort score
A customer effort score (CES) measures ease of the customer experience. Within the realm of measuring customer loyalty programs, ease of use is a key indicator of how often the loyalty program will be used. A convoluted program with too many steps or a complicated redemption procedure is frustrating and can take too long for users to experience measurable value. Some retailers attempt to gamify their rewards programs, but the game should be simple and straightforward. If points are hard won and rewards are infrequent, customers are likely to abandon participation. By contrast, a program that is simple, streamlined, with valuable rewards delivered at regular intervals, is likely gain adoption and encourage frequent engagement. For companies that have had mediocre loyalty programs over the course of several decades, simplification and increasing reward intervals are easy ways to improve CES.
If churn is the number of customers that abandon retailers, negative churn measures consumers who upgrade membership and increase in value with retailers. Measuring negative churn is especially important for loyalty programs featuring tiered memberships. As negative churn numbers increase, so do membership numbers in the higher tiers. Evaluating these metrics can show areas for growth among tiers and indicate areas of change needed to further incentivize customers. For example, if there is a very low negative churn between gold and platinum members, a company may increase the incentives between these two tiers. Increasing incentives might involve an annual promotion for double points on luxury items. The retailer may also evaluate the rewards of the platinum tier and test incentives for joining, perhaps free shipping and returns on orders of any value. The idea is to not lower the exclusivity of the higher tiers but to inspire customers to elevate their status.
Net promoter score
A net promoter score (NPS) measures customer satisfaction. The most common form of NPS evaluates how likely customers would be to recommend your company to others, based on a scale from one to 10. NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. Scores can range from -100 to +100—the higher the number the better the customer satisfaction. This score is most often evaluated by a third party on a periodic basis. For those with highly engaged customers, it can be calculated in-house through customer surveys. The benefit of both approaches is not simply a quantitative score, but the qualitative commentary that accompanies the feedback.
By using this process, retailers can fully evaluate their loyalty programs. Whether tailored, exclusive experiences or cash back incentives, retailers must use their loyalty programs to deliver value directly to the customer. And in today’s ultra-connected world, it is imperative to leverage the latest technologies to do so. By promoting transparency and trust, loyalty programs can further and strengthen the brand-customer relationship.
-By Valentyn Kropov, AVP, Client Success at SoftServe