What are the common challenges and pitfalls of measuring Loyalty Program metrics and KPIs?

I was listening today to some of the interviews that are part of the Blind Loyalty Challenge. In two of them, Amanda Cromhout posed the question "what is the most important loyalty KPI" that you can think of? Both people cited something akin to calculating the value of loyalty program members and non-members. I have used this metric successfully and now like to use "Customer Annual Value" as a key metric. Sure, you can do something more sophisticated ala Customer Lifetime Value, but with the world changing so quickly, it is sufficient to know the delta between members and non-members in the current time frame as a guide. Try it. On average I have seen a minimum of 1.4X value for members over non-members.

The biggest mistakes people make when launching a loyalty program is framing success in terms of company targets without talking to customers. For example, launching a loyalty program because leadership demands 20% revenue growth because that is what the annual plan said it has to be or because a competitor launched one. This sets up the program for failure because it is blind to what customers want and what challenges are limiting growth. Instead, a theory informed by customer feedback should be developed as to the challenge that is limiting growth. The metrics for the loyalty program should be set based on how well the loyalty program is helping overcome that challenge. Start with challenge and set the goal. Not the other way around.

There is a traditional list of metrics such as ROI, Enrollment rate, Redemption rate, RFM, Attrition rate, CLV among others, but the real important KPI’s, are the ones related to the program objectives. For an example: If your objective is to reduce operational marketing cost, the most important KPI is the cost of marketing.

Measuring the success of a loyalty program involves tracking key performance indicators (KPIs) to optimize its impact. Here are essential KPIs: - Return On Investment (ROI): effectiveness and trends. - Repeat Purchases: Measure customer loyalty through multiple transactions. - Redemption Rates: Assess reward utilization. Incremental Sales: Determine if the program drives additional revenue. - Reduced Churn: Monitor customer retention. Tip1: Start tracking ROI early, even if returns aren’t immediate. Adapt and enhance your program based on insights! Tip2: Continuously calculating incremental sales is crucial because the costs of a loyalty program persist over time and recur annually. Ensure sustained growth that compensates those costs.

Think I know why Bill Hanifin was taking a good look at the Blind Loyalty Challenge videos 😄 I have many favourite loyalty KPIs depending on strategy, industry and location/competition. One of the most indicative success factors in retail is % loyalty sales of total turnover…. The best loyalty brands are boasting over 80%!

From my experience, measuring loyalty program metrics and KPIs presents several challenges. It's often difficult to align these metrics with broader business objectives, leading to ambiguity in measurement. Attributing customer behavior accurately to loyalty program activities can be complex, resulting in skewed insights. Additionally, tracking engagement across multiple touchpoints proves challenging, particularly in omnichannel environments. Ensuring data accuracy and consistency is crucial for reliable analysis. Overcoming these hurdles demands a well-defined measurement strategy, robust analytics tools, and continuous refinement to adapt to evolving customer behaviors and market dynamics.

How can you be sure that your reward system has an actual effect on customer lifetime value? Well, there are two best practices. First, compare the purchase frequency and average order value of members versus non-members. However, if you are really curious whether someone is loyal because of the reward program, make sure to incentivize actions that are outside of the buying cycle. For example, earning a coupon not only requires a valid purchase, but also needs to be claimed through a dedicated loyalty app. This ensures that a loyalty program member performs an action (downloading and signing into the app) that they would not have done as a non-member.

Think data warehouses for storage, dashboards for real-time insights, and comprehensive reports for in-depth analysis. These tools not only simplify data management but also enhance our ability to make informed decisions. In essence, the road to mastering loyalty program metrics and KPIs is paved with the commitment to data excellence. By focusing on the quality and integrity of our data, we set the stage for meaningful insights that drive our strategies forward.

There are robust methodologies to measure program ROI. But they often miss a key piece of program value. Traditionally, ROI models measure the incremental increase in value creation (usually member $) minus costs (marketing, tech, rewards, personnel). They try to isolate the program's impact through various analyses (regression, cohort, time series, etc). But modern loyalty programs are iterative marketing vehicles with evolving incentives & activations. That means program managers can monitor the performance of individual activations & incentives to see what's working. But that activation-based performance is often missing from the overall ROI model. I advise taking a more incremental, activation-driven approach to program performance.

It's vital for assessing program effectiveness. Key metrics include customer retention rates, repeat purchase frequency, redemption rates, and Net Promoter Score (NPS). These indicators offer insights into customer engagement, satisfaction, and overall program impact. Tracking these metrics enables businesses to refine strategies, enhance the customer experience, and drive long-term loyalty and Joyalty.

5 mistakes Loyalty Managers make trying to prove the business impact and ROI of the program 1) Member sales % doesn't reflect growth. 2) Big member basket sizes are expected. 3) Member visit frequency is biased. 4) New members might be existing customers. 5) Total member count doesn't show activity. Do it right: 1) Show program grows business. 2) Prove program keeps top customers loyal. 3) Compare member visits to pre-loyalty behavior. 4) Attract customers from competitors. 5) Keep members engaged and save costs. It's important to be able to show the CAUSAL impact of a loyalty program and not a mere CAUSATION. Run plenty of experiments to prove this.

Beyond the typical loyalty KPIs like retention rate, CLTV, purchase frequency, basket sizes, etc., there's another important metric that tells you how loyal your customers are: new customer referrals. When existing customers recommend a business to their friends that's the biggest endorsement a business can receive and is a true indicator of trust. So a referral program should be integrated into any customer loyalty strategy.

efining and tracking key figures is one thing. The real challenge lies in embedding them in the overarching business strategy and objectives. It is regularly observed that the loyalty programme exceeds the targets set and therefore the increased costs lead to measures such as budget reductions. Specifically, the value of the point/mile or the attractiveness of the rewards is then reduced. This happens when the objectives of the loyalty programme are not aligned with the company's objectives. For this reason, it is important to make the key figures boardroom-compatible, e.g. Customer Life Time Value or Future Expected Profit.

One other thing to consider at the outset is if the program is single or multibrand in nature, and how the programs should work in concert to promote loyalty to the master brand without negatively impacting OKRs for each of the participating brands. You will need to add the lens of each brand to the segmentation to understand affinities to drive cross-brand consumption and set guardrails to avoid moving customer segments downmarket.