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Understanding The Value and ROI Of Customer Loyalty Programs
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Uncovering the Leading Indicators of a Successful Loyalty Program

Uncovering the Leading Indicators of a Successful Loyalty Program

There’s an ever-growing stack of evidence showing that customer loyalty programs are significantly beneficial for both businesses and their customers. Both parties receive value from a loyalty program: for the business the value comes from growing customer connections, access to useful first- and zero-party data, while for the customer the value is both monetary ( discounts, special pricing or offers, free products) and emotional (being part of a community, receiving personalized messaging and experiences, etc.). 

For both parties to realize this value however, the loyalty program needs to be successful. The process for determining what makes a program successful is both somewhat straightforward while also slightly complicated (go figure).


What Goes Into Determining Success For A Loyalty Program? 

Success isn't always a single clear-cut number when it comes to loyalty programs. This is because well-designed and effective loyalty programs include both transactional and non-transactional events; this means there are aspects to the program that are easy to measure and others that are more ambiguous. Loyalty programs who are strictly transactional types -  earn-and-burn, buy-this-get-that, etc. - can look at sales or participation numbers to determine if they’re successful. But these types of programs are not effective long-term because they don’t create the type meaningful customer relationships that more relational loyalty programs do. 

So how does a company define the leading indicators of success for its loyalty program? 

This largely will depend on the brand itself. Loyalty programs are present across multiple industries and millions of people participate in them; however that does not mean that each loyalty program - thus the way of determining success - is the same. B2B loyalty programs are drastically different from B2C programs in certain ways, and even consumer loyalty programs will differ strongly depending on who the brand is, the type of products it sells, and even who their customer audiences are that shop from them. One loyalty program might be enormously successful according to certain criteria that wouldn’t apply to another loyalty program from a different industry. 

This is why it’s enormously important for a company to determine what success is to them on an individual brand level: increasing sales and growing revenue is always important yes, but a brand might consider it equally important to see high customer engagement rates on social channels. At a high level, the easiest way for a brand to determine its own indicators of success is to break success down into two categories, the financial side and the activity/engagement side. Knowing what is important to a brand will then set the foundation for what metrics need to be tracked, how they will be tracked, and what successful performance will look like. 


Common Loyalty Program Metrics For Success

It helps that's there's established loyalty program metrics to help companies see how their programs are performing financially. Everyone loves metrics, even if the metrics themselves are hard to measure at times. For loyalty programs there are a handful of key performance indicators that help show where a program is running smoothly or where it might need some fine tuning. Some of these include:

  • Participation Rate
  • Customer Redemption Rate
  • Point Breakage Rate
  • Repeat Purchase Rate
  • Active Engagement Rate 
  • Customer Retention Rate

You can get all the details on these metrics and more by checking out our blog "What Are Your Loyalty Metrics Telling You?" or by downloading our free guide to loyalty program KPIs

Metrics are of course important as they can provide hard numbers that show you how the program is performing. But not every metric is available to measure right away. For example, in the first three to six months after program launch you’ll only be able to start assessing metrics like enrollment or engagement rates, and at a beginning level program transactions and sales. Other metrics like net sales/sales lift, redemption rates, and net promoter score won’t be fully measurable until the nine to twelve-month mark, after the program has had time run. 

This is also why having other indicators, metrics, or goals other than just performance metrics is important for determining success for loyalty programs. As said before, every loyalty program should help grow the bottom line. However there are dozens of ways loyalty programs contribute to growing ROI beyond simply offering a discount at checkout. 


A Successful Loyalty Program Supports The Brand 

One of the easiest ways to see if a loyalty program is working is to check goal progress. Ideally a brand has established goals upfront prior to program launch and has been monitoring their progress since. Every loyalty program needs goals in order to both demonstrate its impact and to also give it baselines for how it can evolve and grow over time. 

However goals are only helpful if they're a) specific and b) tailored to the brand itself. Everyone knows that good goals are SMART ones (specific, measurable, achievable, relevant, and time-bound). Being tailored to the brand itself is a little harder because not everyone realizes that a loyalty program’s goals must align to the brand in order to have an impact. It wouldn't make sense to have the loyalty program succeed in motivating customers to do something that actually has no relevance to the brand at all. 

As such, it's important for marketers and the c-suite to determine exactly what a loyalty program's success indicators will look like to them; both on a financial level yes,  but also in more qualitative areas like brand reputation, customer engagement, etc. This will help establish if a loyalty program's success indicators include things such as increasing attendance numbers at brand events, raising follower rates, motivating customers to buy a certain amount of time in a specific time frame or increasing survey or feedback questionnaires respondent numbers. 

Ultimately, it’s important to remember that customer loyalty programs are a long-term investment for businesses but one that provides immense value for both the business and their customers. There’s no single metric that definitively dictates success: determining which program works best is more complex than looking at participation numbers or sales figures. It takes evaluating what type of program is most likely to attract customers, building it with those goals in mind, measuring its responses over time, refining where needed, and then engaging customers with an effort to cultivate meaningful relationships.

A successful loyalty program can completely transform your customer base by creating meaningful connections based on trust and loyalty in both directions. It's not easy to design such a program—but we want you to know that you don't have to navigate the waters alone. If you're looking for a partner to guide you through the process of developing a successful loyalty program for your business, get in touch with us today!

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