Defining a successful loyalty programme
Defining a successful loyalty programme depends on your specific business objectives. Our job is to help brands define a successful loyalty programme for their business requirements. Different loyalty programmes drive different outcomes and this means you need to quantify what success means to your brand before being able to accurately call your loyalty programme a success or failure.
ROI (Return on investment) is the over-arching metric which almost seems too obvious to state, but in a study by Accenture, only 19% of retailers cited ROI as a metric to determine loyalty programme success. ROI on a base level is simple: your loyalty programme is successful if it brings in more money than it cost to set up and run. Our experiences shows that a loyalty programme can bring 1-4% increase to gross revenue if managed correctly: revenue being 1 of 2 major factors in ROI, i.e. revenue and costs. The caveat is that a loyalty programme is only as good as the communication plan and data management that it comes with. You cannot expect to launch a programme with no strategy behind it and see a 4% revenue gain. However, this incremental gain in revenue is only realised if your loyalty programme succeeds in changing key customer behaviours. Big retailer loyalty programmes rarely see a positive ROI in year 1, but we absolutely believe that positive ROI figures must be achieved in a maximum of 3 years. Smaller programmes with less up-front capital investment (normally required for systems) should aim for 1st year positive ROI.
Changes in customer behaviour – Below we unpack some potential customer behaviours which define loyalty programme success and/or drive the incremental revenue growth.
Increased basket size – Some brands define a successful loyalty programme as one which increases shopper / customer spend. With strategic, data-driven vouchering (such as conditional vouchers) we always see that retailers can double the spend against a threshold: i.e. “Spend R300 and get R50 off” yields an average basket of R600.
Increased frequency – Current research, by Bond loyalty, has shown that 70% of consumers will modify where and when they shop to maximise points earned. Both increased basket size and increased frequency are examples of how brands can increase customer long-term value. Customer long-term value is cited by 32% of retailers as a key metric for loyalty programme success, as this drives brand longevity as opposed to more short-term, campaign driven, spikes in loyalty (according to Accenture).
It is debatable how influentual high membership volumes are to the success of the programme. For example, when Pn’P launched Smart Shopper, they signed up over 3 million customers within the 1st few months. Now membership volumes sit at over 10 million. However this doesn’t necessarily mean increased performance. Are these members active? An active member is one who is interacted with your brand within the last 12 months. Global research indicates that up to 58% of all loyalty members are actually inactive. However, in South Africa, we tend to see an activity rate of 50% if programmes are managed well. Obviously, we would like to see higher activity levels. Overall, retailers are showing an average of 67% of total spend is via a loyalty swipe. Clicks have recently stated that 70% of sales were assignable to a Clicks Clubcard member.
Be aware, however! Customers self-select. What does that mean? Your most loyal customers will sign-up to your loyalty programme and therefore, loyalty card behavioral statistics should always show impressive frequency and basket size percentages versus non-loyalty customers. In a perfect world, brands need to be able to measure customer behaviour pre and post launch (via control groups) to truly measure programme success.