For every person who chirps that Loyalty programs don’t work, I respond by pointing out the unrealized opportunities with existing programs in the market.
Recent COLLOQUY research reported that American households belonged to an average of 14 loyalty marketing programs but were active in only 43%. Think about the implications of this simple metric.
If the average household has about 14 loyalty and rewards cards floating around between their pockets, kitchen counter, and file cabinets, only about 6 are probably IN the wallet, the glovebox, or the purse and ready to be used. Equally striking is that the other 8 cards are relegated to a place of darkness in the house and, depending on your definition of “active”, haven’t been used even once in the past 12 months.
For the cards being used on a regular basis, the program sponsor needs to understand what benefit is being created for the business, and has a fiduciary responsibility to shareholders to demonstrate profitability and return on investment (ROI). For owners of those 8 inactive rewards programs, there is need for budget justification if the program is to continue, and key questions should be addressed, starting with:
- Should adjustments be made to program communications to create more engagement with members?
- Can the program value proposition be improved to create more spend, earning activity and redemption?
- Can costs be lowered?
- Can liability for unredeemed points be managed more proactively?
A well crafted measurement plan will provide all these answers for program sponsors. That said, it is surprising that far too many businesses minimize resources dedicated towards the discipline. The saturation of loyalty and rewards programs in the market is not a reason for despair, but should create a sense of urgency to measure and evaluate program performance to drive continuous improvement and ensure that objectives are being met.
A Measurement Plan is defined as a tool through which a program sponsor can evaluate the success of its Loyalty program on an ongoing basis. Having a usable plan is considered a Global Best Practice across the Loyalty Marketing industry. The foundation of the plan must be tied to clearly defined financial objectives and underlying assumptions outlined in an approved Business Case.
A basic measurement plan should address these three key issues:
- Profitability – Metrics that capture incremental income derived from the program and all relevant program expenses
- Product Objectives – Measures that indicate progress versus targeted goals for individual products promoted in the program e.g. credit and debit cards
- Liability Management – Track growth and trends in the Reward Liability reserve and make adjustments as needed to the rate of reserve applied to new program earnings
For a measurement plan to deliver high utility to stakeholders and merit credibility within the business, it should be created within this construct:
- Accuracy – Models used must have consensus support among management and the model output must be perceived as accurate
- Relevancy – Users of the information must understand the relevancy of the data to their areas of responsibility within the business
- Execution – The plan stakeholders should be able to translate the information into tactical activities in order to address daily challenges and opportunities in the business
This framework is essential to build an effective measurement plan with high utility in the Executive suite. Over the next few weeks, I plan to break down key elements of Measurement plans and share insight into how to better manage the financial liability for unredeemed promotional currency (with real world examples!).