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 Chuck Schaeffer How to Create Retail Loyalty Programs That Work


10 Step Customer Loyalty Program Framework

  1. Know Your Critical Success Factors. There are both loyalty best practices and known success factors. Consider the following when designing your program.

  • Relevance is a top critical success factor with loyalty programs and campaigns. Loyalty programs must be relevant to member interests. Campaigns, messages, offers and incentives must be personalized, relevant and contextual in order to motivate loyalty members and achieve success with loyalty programs. Relevance can be measured using campaign metrics (opens, reads, click-throughs, conversions, etc.) in your marketing system as well as activities in your CRM system.
  • Recognition is another essential success factor. Customers want to feel recognized and appreciated. There’s a high correlation between members who feel their brand knows (and engages) them and customer share. Drip campaigns and nurture campaigns go a long way in maintaining just the right recognition frequency.
  • In building customer affinity, royal equals loyal. Strive to create programs that deliver the VIP treatment. Loyalty is an emotional reaction. Making customers feel special is highly correlated to achieving customer loyalty.
  • Unexpected surprises also go a long way with consumers. Irregular reward grants may be more effective in maintaining top of brand awareness than routinely delivered awards. This is something that needs to be tested by customer segment in order to find the optimal balance.
  1. Identify Key Performance Indicators. It’s critical to identify the metrics that matter in order to make informed business decisions, measure and improve loyalty performance, and verify loyalty programs are meeting slated objectives. However, that can be a challenge as these metrics reside in multiple systems.

    For example, the loyalty application itself normally measures key performance indicators such as reward rate and break rate while measures such as program relevance, recognition and Customer Lifetime Value are measured in either marketing automation software or CRM software depending upon your configuration. Your ERP system will also house valuable financial performance measures.

    A top mistake made by loyalty program managers is simply viewing the default metrics provided in the out of the box loyalty software, as those figures in many cases are not the metrics that most matter. Consider the below success factors and measures as those that provide actionable insight and contribute to highly successful loyalty programs.

  • Customer share (aka wallet share) and profitability contribution are top measures of customer loyalty.
  • Customer Lifetime Value (CLV) should be a top measured key performance indicator. Measuring customer margins and profits are important, but are historical indicators. CLV is different because it measures future customer value, and is a powerful metric that allows management to understand how actions implemented today will impact CLV and financial streams in the future.
  • Customer Experience (CX) is the customer’s emotional perception of the brand based on his or her totality of interactions and is highly correlated to customer affinity or churn. This may be reflected using RFM analysis or methods such as NPS (Net Promote Score) or CSAT (Customer Satisfaction).
  • Reward Rate should be budgeted and monitored closely. The reward rate is the percentage of rewards relative to customer spend. For example, a reward rate of 2 would mean that customers receive $2 of incentive for every $100 of spend.
  • Break Rate goes hand in glove with the reward rate. Breakage is the measure of accrued rewards that will not get redeemed. It’s essentially the difference between points issued and points converted and an important metric when budgeting your reward program. For example, a 25-35% break rate (which is common) indicates that 25-35% of outstanding rewards (in points or dollars) will never get redeemed. If your break rate is too low, you’re likely operating an unprofitable program. If your break rate is too high, your program probably lacks relevance to consumers and will fail to meet its business objectives. Finding the right balance to match your program objectives is key.
  • Top retail key performance indicators should be tracked both pre- and post-loyalty program participation. Similarly, same store year over year growth, repeat visits, incremental sales, customer share, customer attrition, customer retention and customer satisfaction should be broken out by loyalty members and non-loyalty participants.
  • A retail best practice is to display key performance indicators in online dashboards, so that they are highly visible, can be easily shared and will show variances in real-time that can be acted upon quickly.
  • It’s important that retail analytics and reporting take into account weekly variations (i.e. holiday periods which occur on the same dates but in different weeks of the year), seasonal fluctuations (such as holidays and back to school), environmental variances (extreme weather which keeps consumers from shopping) and non-seasonal selling (slack sales during certain months of the year) in order to deliver relevant year over year analysis. Reporting with date sensitivity is often a function in your ERP system.
  • Performance measures can also be used to identify patterns that can predict loyal customers or show when consumers are about to defect.
  • It's a good idea to also create metrics which show your least profitable or unprofitable customers so analysis leads to actions which may support customer deselection.
  • Lastly, simply viewing loyalty program Net Ads and Membership Size is a mistake because by themselves they are influenced by different activities. For example, these metrics may be based on new customer acquisitions or a reduction in customer churn, either of which is achieved from different initiatives.

Next - Customer Loyalty 10 Step Plan >>

Customer Loyalty ProgramsCustomer Loyalty FrameworkLoyalty ProgramLoyalty SoftwareLoyalty CustomerCustomer Loyalty Risks




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A 5 percent increase in customer loyalty will increase the average profit per customer by 25 to 100 percent.
Source: TheLoyaltyEffect


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