April 15, 2008
How To

How to Assess Your Loyalty Program - 6 Steps

SUMMARY: Loyalty programs offer repeat-purchase benefits to customers and become especially important during a tight economy. But they’re often viewed from the marketer’s perception and leave the customer out.

We’ve put together a six-point checklist to help you assess your loyalty program, plus tips on how to put consumers first.
Connecting with consumers isn’t always easy. Many marketers use loyalty programs to deliver benefits and value. Still, whether the card or club targets consumers or B-to-B customers, marketers must understand the key drivers.

What makes a customer feel that a loyalty program is worth joining? What makes a customer loyal? Start here: Customers won’t participate in a program that doesn’t offer sufficient value.

Loyalty programs are extremely important: A retail loyalty program study done by Carlson Marketing in 2007 showed that 63% of customers are more likely to use a particular firm’s products and services more frequently.

Here are six steps to help you assess the value of your loyalty program from a customer’s perspective.

-> Step #1. Research your customer base

Emotionless as raw data is, it can reveal some truths and trends about a customer’s buying behavior and inpiration. This requires effective database analysis and segmentation.

But companies often fail to ask their customers enough questions. Even a range of traditional marketing research tools -- like focus groups, short online polls and surveys -- fail. What customers say and do often don’t correlate.

-> Step #2. Capture qualitative data

Examine your customers’ actual behavior to determine relevancy and value. Loyalty is not just transactional. Captured data must go beyond an analysis of sales figures. The emotional triggers that lead to a particular buying decision are just as important as the hard statistics.

For instance, you should know how a customer perceives your loyalty program from inception to the end of its lifetime and how a customer interacts with your brand. Knowing the treatment and experience customers have when engaging with the company’s employees, partners, products and services is vital.

Supported by quantitative data, it’s possible to find the overlap between what a customer says and does. You need to know each customer as an individual. Some customers may have higher expectations than others, such as frequent-flier programs.

- Higher-value customers, for example, won’t necessarily want to receive discounts like those typically offered in retail outlets at the point of sale.

- B-to-B customers might want to be offered something of value to their company.

Marketers need to become each customer’s best friend and capture personal data that reveals more about each individual.

-> Step #3. Maintain ongoing dialogues

It’s not possible to know anyone well without having some form of continual dialogue with them. Encourage your customers to interact with you frequently. They might prefer to speak with a rep in a contact center, or communicate with you via the Web, or through a brick-and-mortar outlet.

Each interaction presents an opportunity to gain more information about them, to find out about their lifestyles and what they value. It helps you to personalize the communication process. Indeed, the ideal discussion should feel like a one-to-one dialogue.

Some companies make the mistake of using customer data aggressively.

- Loyalty programs should pull customers toward the brand by adding perceived value.

- A push model will often put customers off; they will tell you to go away and perhaps leave for a competitor.

Give customers more control over the preferences, frequency, timeliness and means of dialogue.

-> Step #4. Make program simple

Loyalty programs need to be easy to join and understand. They should be accessible across all the relevant touch points with customers.

The programs should encourage consumers to join and remain loyal to that program only -- not several at a time.

“Too many organizations require the customer to provide all of the input upfront, and the customer does not see any value-add,” says Patrick McHugh, Executive VP, Email Marketing and Loyalty Specialist, Neolane. “Marketers view loyalty cards as a way to get to know the customer better, but they need to use it for the benefit of the customer as well as for that of the business.”

Make it easy for everyone to redeem rewards as well and offer alternative rewards available if you run out of promoted ones. Otherwise, customers might become disgruntled rather than loyal.

-> Step #5. Reward (but not too much)

Any loyalty initiative should be seen as a bonus. People generally like the idea of being loyal to successful brands, but much depends on how value is delivered and attained. Be careful -- rewards and incentives can also be seen as bribery, particularly in the B-to-B sector.

In some cases, like banks, new customers are often treated better than older ones, whose value is seen as less. The loyalty of older customers should never be overlooked.

Customers know it costs them something to be involved. Make rewards attainable and justifiable. Make them fair.

Points aren’t always seen as valuable. Higher-spending customers may be influenced more by softer benefits. For instance, a B-to-B customer may respond more to free delivery of services, while a B-to-C customer might appreciate an upgrade from economy to club class on an airline.

-> Step #6. Monitor and review

Establish performance levels and targets, based on your customer information. Needs and perceptions of value and expectations will change over time. Then stay dynamic, innovative and in step with your customers.

Some typical measures:

- Net Promoter Score. How many customers promote the program and encourage others to join?

- RFM Model - Recency Frequency and Monetary. How often do customers use the program? How many times did they purchase a particular product or service? What was the financial gain?

- Balanced scorecard. This links strategic objectives to a range of key performance indicators.

- Return on investment. A simply calculation of how much it costs to set up and run a loyalty program versus any increase in financial returns and profitability.

- Customer satisfaction. Have their expectations been met? Examine changes in customer attitudes and perceptions of the brand, too.

- Brand and program awareness. Measure any increases in awareness and participation in your loyalty card and club. You might want to find out how emotionally connected customers are to the brand too.

Loyalty example: Bridgestone Europe has introduced a dealer-focused loyalty program, the Biker’s Club. It aims to persuade and reward its dealers for selling and fitting its motorcycle products over its competitors.

Useful links related to this article

Past Sherpa articles -
How to Score Customer Loyalty: 7 Steps to Double Satisfaction Rating:

How to Rev Value for Loyalty Program - 4 Strategies From NASCAR: http://www.marketingsherpa.com/article.php?ident=29837

Business-to-Business Loyalty Marketing - How to Stop Your Most Profitable Accounts from Deserting:

Before & After Story - Email Redesign Increases Loyalty Plan Activation:

Professor Merlin Stone:

Carlson Marketing Group:

Peppers and Rogers:


Dunn Humby:

Nectar Business:

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