Customer loyalty

Maximizing the Impact of Your Loyalty Program

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July 5, 2023

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Discover the key elements for evaluating the effectiveness of your loyalty program and the role optimization plays in achieving its success.

Success is tough to quantify and guarantee in a business. Your customer base is made up of individuals that each have their own motivations and goals for doing business with you. 

We've highlighted the power of loyalty programs before, and how they help you retain customers and increase customer engagement. But just because you build a loyalty program, it doesn't mean customers will come – or bother to use it. Your loyalty program has to be continuously measured and optimized to be effective.

So, what’s the first step? Understanding your customers. 

Learning about your customers is no small feat. Who is your average customer? What are their preferences? What do they expect from a loyalty program? Are they looking for financial or non-financial rewards? What drives their loyalty? 

As the saying goes: “You don’t know what you don’t know.” If you’ve ever tried to buy a gift for someone you barely know, you’ll have an idea of how difficult it is to build an effective rewards program without knowing your customers. It’s a guessing game.

In this post, we’ll go through what data you need to gather and interpret to maximize the potential of your rewards program. 

Setting your loyalty program’s aims & KPIs

The goal of your loyalty program should not only be well-defined, but also realistic. What does your company aim to get out of a loyalty program? 

For inspiration, look to the many interesting trends emerging with customer loyalty programs. If your customers are apathetic about the discounts and freebies products you provide, perhaps they’re looking for experiential, personalized rewards. If your company has a disengaged customer base, perhaps your loyalty program could be gamified with challenges, achievements, and games. 

The aims of your loyalty program will be specific to your industry and brand needs. Each defined aim should have a relevant KPI attached. Be aware of these KPIs, as they are your canary in the coal mine; your best way to monitor the success and health of your loyalty program. Many stakeholders within your company will have involvement in tracking these KPIs. 

Here are some of the aims, or drivers, your loyalty program may have and the KPIs they relate to: 

Aim KPIs
Increase customer loyalty Customer lifetime value
Customer churn
Loyalty program enrollment rate
Loyalty program engagement rate
Attract new customers First-time purchase amount
Number of new customers
Repeat purchase rate
Referral rate
Net promoter score
Increase customer engagement Likes
Content views/reads
Click-through rate
Loyalty program engagement rate
Loyalty program redemption rate
Encourage referrals Net promoter score
Referral rate

Your department might not have full ownership of these KPIs. For example, data about customer lifetime value may be held by your customer support/success department. Cross-departmental collaboration is essential for collecting the data relevant to crafting an effective rewards program. 

Determining your loyalty program’s baseline

Once you’re clear about your loyalty program’s aims, you’ll need to set a baseline for where you’re currently at with the relevant KPIs. This baseline will be set according to a time period that’s appropriate for taking an accurate reading of your company's current status. You’ll need to account for seasonal fluctuations in your industry as well as holiday periods. 

Determining a baseline also helps in identifying the KPIs you need to improve upon. If you can’t determine an accurate baseline, there’s a good chance that you’ll need to establish the processes and infrastructure required for acquiring that information.

Measuring the impact of your customer loyalty program

It’s difficult to maximize the impact of your loyalty program if you don’t know how to measure that impact. Fortunately, there are two main ways to look at the impact: Financially and non-financially. Although the finances of your loyalty program will be easier to measure, you should consider both when gauging how successful the program is.

Financial Impact

The financial impact is often the bottom line of a loyalty program’s success. Analyze financial data such as: revenue generated, program members, program engagement, sales, and cost of rewards. This data will directly relate to how profitable the program is.

You can also compare the revenue and profitability of customers currently enrolled in the loyalty program to those not enrolled in the program. This will give you an idea of what value a more loyal customer brings. 

Non-financial impact

Although not as directly impactful to the ROI, the non-financial impact of your loyalty program can inform the public perception of your brand and improve your customer retention rate. Take a look at non-financial data like: Brand perception, customer satisfaction, and customer loyalty. 

Don’t forget to ask for qualitative feedback from your customers in the form of surveys or direct interviews. This will help you understand how people perceive your company and rewards program.

Testing and optimizing reward strategies 

Data analysis can only go so far. Trying out different reward types and mechanisms can provide valuable insight into the success of your rewards programs. To do this, A/B testing is recommended for experimenting with your rewards. This testing methodology involves splitting your audience into two or more groups to understand which variant performs better. 

Each group should have a mix of behaviors, demographics, and psychographics to receive the most accurate results. The variants that you show to these different groups will depend on what you want to test. Here are some examples of what you could experiment with changing:

  • Community - An essential part of deepening your customers' engagement with your brand is building a brand community. Brand communities develop two-way relationships where your customers feel more involved with your company. Creating a two-way relationship encourages customers to stay invested in your brand. 

Analyzing the results of these tests will also involve monitoring your KPIs to understand what’s working and what isn’t. Some changes may particularly resonate with your audience and drive the desired behavior. Other changes may positively affect KPIs that you didn’t intend to target. It’s a meticulous process to test your audience preferences, but it’s your best shot at guaranteeing the success of your rewards program.

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