Loyalty Roi Whats A Good Number?

Loyalty Roi Whats A Good Number?

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The return on investment for a customer loyalty programme can be an illusive number and Im often asked what can be achieved. 1%, 10% or 100%? In fear of stating the obvious, I guess it depends how you measure the benefit and which costs you attribute to it?



The cost is usually the easy bit. There will be the set-up costs, the ongoing operating costs, the overhead of managing the programme and the cost of the rewards issued to customers. In a healthy programme it will be the rewards that dominate, overshadowing everything else.



For most initiatives we undertake in business a good ROI relies on low costs. Its easy to think therefore that rewards must be bad because they drive up costs and make it even harder to return a good number. In the past customer loyalty marketers used to benefit from the fact that the perceived value of the reward was much greater than the actual cost to the business and this helped to argue a good ROI. We might have parked the actual cost of rewards under marketing expenditure and ignored the mounting points liability. Introduction of the accounting standard IFRIC 13 changed this somewhat, shifting our thoughts to the liability of the points as they are issued and how we unload this efficiently to release deferred revenue. So, cost management is now more complicated than it was but the good news is, if we think about it up front IFRIC 13 actually helps us make some sensible decisions about the programme, its characteristics and the KPIs we put in place to manage it.



So we get the costs identified, feel comfortable with good customer engagement driving high redemption rates and increased customer loyalty. We organise with finance how to account for the fair value of points issued but we still need to worry about the benefit. How do we isolate the incremental revenue that only exists because of the programme and how do we convince everyone else in the business?



Its a well publicised fact that engaged members of good customer loyalty programmes increase their spend to attain rewards they actually want. This might manifest itself in an extra visit, choosing our business over a competitor, or an increased basket from time to time. We call this the Loyalty Uplift, the incremental revenue attributed to the members engagement in the programme and the change in behaviour motivated by the desire to attain a reward.



Those programmes that automatically reward members with discount vouchers at routine intervals cant really expect to benefit from this opportunity. In this scenario why should we expect a change in behaviour? Its certainly difficult to argue that we arent just rewarding the best customers for purchases they would have made anyway. However, the programmes that effectively communicate the members current balance and offer attractive attainable rewards have a much better chance of achieving Loyalty Uplift. An experienced customer loyalty analyst will be able to isolate and report this benefit, if of course it has been encouraged and optimised by good programme design and member communications.



Incremental revenue is clearly also achieved in other ways. The biggest opportunity is presented by the Promotional Uplift, the benefit achieved by promoting the right offer to the right customer at the right time. This highly targeted promotional activity underpinned by deep insight into member behaviour drives incremental revenue that is easily measured and optimized. We have found that well constructed promotional offers that take account of customer preference, their behaviour and their engagement with the customer loyalty programme drive the biggest benefit and are most appreciated by members.



Adding to the Loyalty Uplift and the Promotional Uplift we can include the intrinsic value of the rich data collected by a well designed and implemented customer loyalty programme. Realising this value is difficult for all but the biggest retailers who boast significant market share. Finally we shouldnt forget the real value of increased brand awareness that the loyalty programme creates. Monetising the benefit from both the Data Asset and the gains in Brand Awareness is difficult, but shouldnt be over looked in creating a complete ROI model.



Good programmes are designed from the outset to measure and maximise the potential from all revenue earning opportunities, balancing this with affordable rewards that motivate and incentivise members to change their behaviour. Like all initiatives, strong ROI is achieved by optimising all contributing factors on both sides of the equation.

About the Author:
To get more information regarding customer loyalty programme and other services we offer, please visit our website athttp://www.the-logic-group.com.



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