Challenges and Benefits of Measuring the Impact of Loyalty Programs
Loyalty programs can serve many purposes, including improved customer satisfaction and customer retention. But retailers also turn to them for revenue growth and improved share of wallet (SOW). One of the challenges facing retailers, however, is the difficulty they have in measuring the impact of loyalty programs on their business. Retailers typically only have a view on customer behavior post-enrollment.
Rather than rely on such limited data, a better approach would be to partner with a data provider that can provide both the data and the means to analyze spending patterns and behaviors pre- and post- enrollment (see Exhibit 1). Ideally, the analysis would also include a control group to isolate for changes that would have happened regardless of membership of the loyalty program.
The analysis might include the change in average spending during the period of the study, comparing loyalty program member spending to that of non-member customers of the retailer. Analyzing these against each other, and against spending in the overall retailer sector (i.e., the ‘control group’), assesses the relative strength of engagement with the loyalty program membership.
With these types of metrics on hand, retailers can better understand whether their loyalty program members show the following desired behaviors
following entry to the program:
- visit the retailer more frequently;
- spend more during visits;
- spend proportionately more with the retailer than previously, relative to spending with the retailer’s industry (i.e., improving SOW).
Retailers with access to these measures are in a stronger position to assess the effectiveness of their current loyalty program, to make more-informed decisions regarding future investments in the program, and to calculate true ROI for converting an average customer to
a loyalty member.
Real World Examples
Loyalty Program Entertainment Sector Client
An Entertainment organization launched a loyalty program with relatively simple execution. However, it was neither able to see nor analyze guest spend behavior prior to enrolling in the program. To help overcome these challenges, the Entertainment organization partnered with MasterCard Advisors to conduct a study of the loyalty program and its ability to drive not just engagement and loyalty of existing customers, but also to attract new guests. Existing guests were found to increase their spending with the Entertainment organization by more than 50 percent during the year following the start of their membership of the program, while the chain’s SOW increased by more than 20 percent. Study results assisted the Entertainment organization to calculate a more accurate program ROI and overall customer value.
Measuring the Launch of a New Loyalty Program with a Multi-Department Retailer
A North American retailer partnered with MasterCard Advisors to launch a new loyalty program and analyze how the behavior of its customers changed during the initial post enrollment period. As part of the study, the loyalty program membership was segmented into (i) early adopters, and (ii) late adopters. This segmentation approach was with the aim of assessing the extent to which early adopters exhibit different spend behaviors, if at all, compared to late adopters. The study also had a goal of understanding how each segment’s loyalty changed from pre- to post-enrollment, to evaluate how engagement evolved past the initial enrollment period.
The ensuing study highlighted the need for an evaluation of the engagement process with the customer during the first year of program membership, to address a slow-down in shopper activity that was found to occur after the initial membership period.
Retailers can derive significant value by taking steps to properly measure the impact of their loyalty programs. By doing so, retailers can develop a more informed view on whether loyalty program members show desired behaviors relative to non-members. Just as importantly, such exercises can provide valuable contributions to strategic growth plans and expose broader opportunities for improved customer engagement.