Let’s face it. You may know that you have a “meh” program, but there are countless ways in which you can increase revenues through already prioritized initiatives.
As such, you may be asking yourself:
- Why shouldn’t I just continue with my existing program and prioritize other initiatives?
- How much will this cost, and what are the risks?
- How will I measure success?
Before we tackle measuring success and impact, let’s start by addressing the first two questions upfront.
Many marketers don’t realize that a sub-optimized loyalty program may be a hidden cost center — where customers are earning rewards for “purchases that they would have made anyway.” A common “symptom” of an under-performing program is when rewards cost in deciles 1-2 are exceptionally high, while the corresponding opportunity to drive incremental revenue is relatively modest. This scenario often plays out with specialty retailers who are constrained by addressable share of wallet opportunities that are inherently “limited” among their best customers).
Instead of largely focusing your execution and investments where the upside is challenged, a program refresh can enable you to reinvigorate your efforts toward the cross-section customers in your mid-deciles (who are often mistakenly overlooked and “underserved”). Through a program refresh with this focus, the financial impact can be huge if you are able to reduce attrition slightly. Proven approaches include introducing and communicating lower redemption thresholds, point promotions, and rewards sales to “at-risk” segments (typically customers who only purchase once or twice per year).
Now, I bet that you’re already thinking about the next question, which refers to the cost of a program refresh. To minimize the cost of the refresh, you can replace existing discounting strategies with member-only promotions to maintain your overall margin, and by moving away from aggressive discounts (via coupon costs) to targeted promotions. Additionally, you can further manage your loyalty rewards costs by providing incentives where the perceived value to members exceeds your incurred costs (providing elevated service levels like expedited shipping or offering a free gift on a high margin product not include in the typical shopping basket are two highly effective examples).
Now that we’ve discussed why the program refresh is a priority and how to mitigate the costs incurred, let’s move on to the approach around measuring the impact of changes to the program. You may be tempted to make you some of your members into a pilot group and complete A/B testing against non-members. However, as your members have “self-selected” into the program and are your best customers, you can’t create control groups from non-members.
You are probably now questioning the need for a pilot group as you could just track the average frequency of purchases from members. The issue is that you don’t have a benchmark to assess what else could influence member spend. For example, let’s discuss a specialty electronics retailer with a program. After a decision to rebrand and boost the effectiveness of the program, they launch a number of targeted promotions for members and in addition to a program structure change, there is an additional targeted promotion (equivalent to a 5% discount). Early results show a 10% increase in frequency and total spend. Initially, this may look promising, however, what if other existing initiatives and factors would result in a 5% increase regardless? All of a sudden the 10% lift looks far less credible.
A possible solution is to reverse engineer a pilot control group from your existing member population. For our electronics retailer we can break their members into deciles, and from each decile take a small subset of members to form a control. The control doesn’t have to be large, perhaps only 5-10% of each decile and this group is not exposed to any program improvements. Let’s say our electronics retailer has 10,000 members, with 1,000 in each spend decile. We may pick 100 members from each decile to for the control. Great, now you will know for sure that your “refreshed” program is earning you revenue instead of racking up costs!
Note: if you are interested in having the 500friends’ loyalty strategy team do an audit of your program, or if you are interested in speaking to some of our partners including 1-800-Flowers who have trusted us to upgrade their loyalty programs, please do not hesitate to contact me: arif(at)500friends.com