Loyalty programs are a big lift in resources to launch and manage. Do you have a plan to measure their performance and return on investment? While it’s important to recognize that determining the correct KPI measurement varies based on industry and purchase cycle, the key areas of focus are the same.
Member acquisition is defined as how many new members are joining your program over a defined period of time. This KPI is important because hitting your membership target is directly tied to the program's financial goals. If you find your program's struggling to meet it, it could be for one these reasons.
Poor acquisition strategy: Develop a comprehensive plan that attracts members into the program at every touchpoint, such as paid media, in-store signage, strategic partnerships, at checkout / POS integrations, mentioning the program on products, etc.
Overly difficult to join: Joining a loyalty program should be as simple as possible, and any sticking points could mean the loss of a potential member. Maximize enrolment numbers by keeping your requested data points to the bare minimum your program requires to onboard and communicate with members.
Member lift in spend is defined as the percent increase in spend for active members versus non-members. The two metrics you should track when calculating lift in spend are average trips and average transaction size. Lift in average frequency is measured in how many more transactions your loyalty members make compared to your non-loyalty members. Average transaction size consists of how much your members are spending per transaction versus your non-members and includes the following considerations
Your loyalty program should increase overall member spend by driving incremental revenue and increasing profits. If you find you’re missing your lift in spend metrics, it could be due to one of these factors:
Ineffective communications: You might be causing your members to tune you out by sending out campaigns too frequently. You could also be turning them off by failing to meet their expectations for personalization. Focus on recommending products when you know your customer needs it, versus when you've scheduled a campaign for them to receive it.
Barriers to buying: Don't let your desire to collect data get in the way of a completed purchase process. Implement autofilled forms from browser data so members can purchase without having to complete the tedious task of inputting their information. Embrace and push communications to drive frequency, and make sure your products and services are readily available and in-stock.
Reward redemption rate is defined as the percent of your currency earned that is being redeemed (i.e. points, vouchers, etc.) Members who are engaged and actively redeeming within a loyalty program are more likely to spend more with you and have a lower churn rate. If you’re not hitting your target redemption rate, it may be an indicator you've got trouble in one or more of these areas:
Members can’t achieve the reward: If reward values are too high, it makes it difficult for members to redeem. Consider implementing a mix of low value rewards that are easy for new members to earn redemption for with higher value rewards that members with longer tenure are inspired to work towards over time.
Members don’t know they have a reward: If members have earned a reward, but haven’t redeemed yet, you might need to remind them they've earned it. You cannot communicate this value to them enough, so make it the first thing they see in every communication you send them. A great way to help members see the value and utility of your program is to place a currency tracker on the member home screen online and in your app so they know the exact actions they need to take to reach their next redemption milestone.
Members don’t want the reward you're offering them: If your reward inventory isn't valuable to your members, your redemption rates will be low. Invest in customer research to better understand what types of rewards your members would like to see in the program. Then leverage co-branded campaign and partner marketplaces to ensure you're meeting their needs within your budget envelope and brand values.
Members don’t have time to use the reward: If rewards expire before members use them, they may feel frustration with the loss of that opportunity. Examine and then align your expiration policy with standard redemption rates to adjust for timing issues. Don't forget, expirations can also be used to drive engagement. It’s all about finding the right balance between excitement and urgency or, the FOMO effect.
Churn rate is defined as the percentage of your members that are at risk of leaving the program and, potentially your brand. It’s critical to track this indicator because it has an exponentially negative effect on your company's financial performance through the combination of two unfortunate truths:
Successful loyalty programs reduce customer churn rates by closely monitoring this indicator and ensuring they have a churn strategy in place to help mitigate the loss of at risk members. Build your churn model and member segments using predictive analytics, then apply a communication strategy that is tailored specifically to the declining members before they're at risk.Consider campaigns around the perks and benefits of being a member or sunk cost triggers for losing the currency they’ve earned if you have an expiration policy.
Incremental margin is defined as an increase or decrease in profit based on the margin achieved minus program costs. This KPI is a powerful indicator of the overall health of your program. If your program is seeing negative returns, it's not healthy enough to sustain itself in the long run.
That said, it's important to recognize that incremental margin is something that builds over time. Typically, year one of a loyalty program will likely indicate negative returns due to initial investments in start-up costs. However, each year the program is in operation should generate an increase its profit. If you’re not seeing a positive incremental margin from your program by the end of year two, it could be the result of one or a combination of these elements:
You may not be driving enough top line revenue: This could be that your members aren't spending or behaving the way that you'd like them to or you aren’t retaining them for as long as you predicted in the business cycle
Your program cost is too high: The amount you’re investing in rewards, tools or campaigns may be more costly than your customer base can return. Boost incremental margin by lowering program operating costs, such as the cost of rewards fulfilment, benefits, and marketing costs.
Your product or service margin is too low: Healthy margins are achieved when all inputs are accounted for, including your loyalty program operating costs. This variable is difficult to course correct and may be an indicator that a loyalty program isn't the right strategy for your business model. If you believe a loyalty program supports your overall business strategy, consider designing one that provides members with value outside of monetary rewards or leverages fixed assets that would otherwise go unused as program inventory.
You want your customers to get in the habit of engaging early and often with your program. Members who join your program, and make their first purchase within their first purchase cycle have a high acquisition quality. Those who don’t have a lower acquisition quality, and are more likely to lapse out of your program. If you're failing to attract members with a high acquisition quality, you could be struggling in the following areas:
Low understanding of your ideal member profile: Loyalty programs should attract your best and most valuable customers. A high count in members won’t necessarily lead to a profitable program long-term. Check your enrolment offer to make sure that it offers rewards and benefits your ideal customers want, and doesn't attract “gamers” who only enrol for the initial welcome gift or bonus.
Onboarding: Develop onboarding and activation campaigns that welcome and educate members on program benefits and nurture purchase conversion. Investing in education and demonstrating value are key in driving high member acquisition quality. Secure their ongoing engagement by offering early earn opportunities and lower value rewards to deliver early value through a quick win.
To ensure the overall financial health of your program, it’s important to track and monitor these KPIs and develop corrective solutions. This will ensure that your program is revenue-generating, and is not perceived to be a cost centre.
If you're struggling to report on these core customer KPIs, our data insights and activation tool, Kognitiv Pulse can help. Armed with AI/ML generated customer data, Kognitiv Pulse can help keep your loyalty and non-loyalty customers engaged at a high level and visible to you in real time.