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!).
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Sorry my writing was not clear…the point I was trying to convey was this…the programs that I am involved in do not reach out to me (proactively) with suggestions or even ‘random and appropriate signs of love’ like a free gift based on my buying history.
Instead I show my card, get a discount, the end.
What I would love is getting something at home that prompts me to come to the store in order to receive a free gift or significant discount on something I typically don’t buy but is in a category that I buy regularly.
For example, send me a note with “because we value your business, we thought you might like to try these gourmet products – so the next time you come into our store, pick up the following products and then let us know if you like them.”
Those more expensive products are either offered as a free gift or at discount so the price paid is comparable to what I pay for the cheaper product.
I like [ex] Ice Cream A but get to try another ice cream that is more expensive (and hopefully richer, creamier and more decadent). I like it…and (hopefully) I change my buying behavior.
Unfortunately, today, the program typically reacts to my same old product purchases with a discount. I don’t change my buying habits and the store doesn’t proactively manage the relationship with me.
Hope that helps…again, sorry for the lack of clarity.
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I don’t believe points programs are necessarily monitored by the cards you have in your wallet. I, too, am part of most card programs offered; however, grocery stores don’t require you to carry your card, they simply ask that you know the phone number you are registered under to activate your savings… simple… your ‘best’ customers, are any customers in benefit of your service, and that service is partially attained by use of a membership program; it doesn’t really matter how many cards you carry, whether you use them or not, in my estimation, it only matters that its offered, since, in order for the business to compete in today’s market, in order for the customer to feel valued, in order for the business to monitor its services, it’s a must-offer. It seems, as far as store programs are concerned, the membership is a request for relationship… ‘I value your store’s service and product selection’ and they respond with a special service or savings on what’s offered; which would encourage repeat business.
The bigger question for the consumer, is whether you feel you are valued should you not be able to be a part of the program (I’ve shopped at grocery stores while out of town, & usually, the store clerk is kind enough to offer me their savings through use of a store card held at the register); whether you’re valued should you choose to not be part of the program (for example, Hallmark offers their Gold Crown customers special savings, however, I don’t feel undervalued by choosing to not receive their coupons-based awards in the mail)… I don’t think it really matters if you have the cards, I choose never to carry cards for the sake of conservation of space, I also belong to most, & always receive the savings… (store cards are not points-based, by the way, they’re percentage based I believe… you receive a discount on items they’ve reduced in order to sell more quickly)
I disagree that these programs are reactive, and am unsure how you qualify that statement, it makes no sense… they’re reacting to consumerism? I suppose that’s true, but what should a business react to if not their customers… a proactive response would require that all people respond accurately in any similar situation, and that isn’t a reasonable measurable.
The bottom line, each business situation needs to be evaluated separately, not lumped into a category of ‘card-based’ solution… it really isn’t that they offer special savings for loyal customers, or whether you feel valued by the establishment, it’s whether you value what you receive on any given visit. It’s a personal choice, and you should choose wisely.
Pat,
Good comments … we may not be that far apart. Note that I am concerned with the “unrealized opportunities with existing programs in the market”, meaning that there are too many programs that don’t work and too many more that aren’t measured well enough to know if they are worth the investment made by the sponsoring company.
On my web site, you’ll find this: “Our belief that while not every business needs a loyalty or rewards program, every business does need a thoughtfully created and well executed Customer Strategy”.
Whether you favor the traditional loyalty model or detest it, I think we can agree that establishing a construct for measuring the impact of marketing investment is good business.
Bill
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Points-based loyalty programs are not for all customers…and they are not for all of your best customers. Why would everyone want points? Don’t most people have enough going on in their lives – why add “in order to prove my value, I have take out a card every time I make a purchase so the company can offer me something that is part of their program” to the mix?
Loyalty programs are reactive – they need to be proactive.
Currently I fit the research – I have about 15 cards, but only 4 are in my wallet. Two are for grocery stores and I use them in order to get my savings at the register. Not a very customer-centric approach to loyalty since it basically tells me that if I don’t manage the relationship, I get overcharged.
The other cards are for Petsmart and Staples for the life of me, I don’t know why I bother. I show the cards every time and I can’t remember when I got anything of value from either store. Nothing at the register, nothing in the mail (beyond those wonderful “Save 10%” headlines followed by small print that tells me that I have to buy $100 or more.)
Is there financial liability for unredeemed promotion? The thought has never once crossed my mind. Which I’m absolutely sure is the case in the minds of most consumers who are not versed in the business of loyalty programs & marketing. So this makes me wonder, who is paying the price for these unrealized discounts or buyer advantage points?
I’m certain it won’t always be the vendor or retailer; in fact, I’d venture to say it can’t be; not if the business is to be a successful one. With the expense of loyalty strategy built into the format of the business structure, necessarily, in order to compete at all in the marketplace, are your promotional program business sources considering the fall-out? I don’t believe so, or you wouldn’t be asking this question, “are we profitable,” which is really what you’re asking in attempting to devise an across the board metric for your industry.
The good news?
You are obviously united in your efforts…
The bad news?
I don’t see any… since, the answer is obvious:
You just need to be sure your programs are used.