October 01, 2019
By Amy Blasco, SVP, Experience Analytics, RAPP NY
Business has long been about loyalty, and for good reason. If you build a strong relationship with a customer base, chances are good they’ll stick around — not to mention come back more often, buy higher-ticket items, spread the word about your business, and simply improve brand image. The only problem: Loyalty is hard-won.
Enter the customer loyalty program.
Though loyalty programs can be traced back to the late 18th century, one of the most popular and longest running started in the 1930s by Sperry & Hutchinson with S&H Green Stamps. Shoppers would earn stamps by shopping at certain supermarkets, department stores, and gas stations, and then could exchange them for goods. Of course, some retailers would give out more stamps per dollar than others with the hopes of encouraging customers to choose them over the competition — a very roundabout way of establishing loyalty.
By the late 1980s, S&H Green Stamps fell out of favor with consumers. For brands, however, building, measuring, and profiting from customer loyalty didn’t. It just took on a different form. Look at almost anyone’s key ring or wallet contents, and you’ll probably find a stack of loyalty cards. In fact, the majority of U.S. internet users were loyalty program members as of 2018, while eMarketer found that the average loyalty program member has a total of 15 program memberships.
CVS, for example, has an ExtraCare card that tracks purchases and then awards its members “Extra Bucks” that can be used during certain shopping periods throughout the year. If you’re a Starbucks customer, you already know about its loyalty program that lets you earn stars for every dollar spent. Once you collect enough, they can be exchanged for free food or drink. The list of brand loyalty trends goes on and on.
Measuring Customer Loyalty
But here’s the rub: Loyalty marketing programs need to do more than offer discounts and free stuff. These perks often eat away margins and aren’t true measures of customer loyalty. Really, they more so highlight a customer’s desire to save a buck. With loyalty programs, you must start thinking holistically and take a cross-channel approach.
After all, the cost of retention versus acquisition is sizable, with most estimates putting it at five times more to attract than retain. You’re also more likely to get existing customers to spend more — and spend more often, relieving the need to be in a constant acquisition mode. This can free up resources to improve other areas of business, chief among them being customer experience.
In our experience, CRM is the foundation of this holistic, cross-channel approach. It’s a gold mine of first-party data, allowing you to gather strategic insights and business metrics. These can be used to improve not just customer experience but customer service, sales, marketing, and that loyalty program.
With hundreds of metrics to gather, this naturally leads to the question, "How do you measure customer loyalty?" At RAPP, we focus on the following key measures:
- Current customer base
- Net new customers
- Cost to acquire
- Average order value
- Frequency of purchase
- Average number years stayed
- Churn rate
Combined, these can give you a clearer picture of your customer base and the affinity they have with your brand.
Perfecting Loyalty Marketing Design
Building, measuring, and profiting from customer loyalty is sometimes easier said than done. But our team has noticed a few common themes — or, brand loyalty trends, really — that seem to differentiate successful loyalty marketing programs from those that land like lead balloons.
Here are the ones that top the list:
- Proving ROI. Many marketers grow impatient to prove ROI, forgetting that the return on a loyalty marketing program doesn’t happen overnight. It can often take two, three, or even four years to see an incremental lift. Give programs room to not only grow, but also to simply stick with a target audience.
- Investing correctly. For many brands, marketing investments can best be described as lopsided, earmarking more dollars toward acquisition versus retention. Sure, you need to spend more money in the earlier stages of a business to acquire customers. But as you grow, the pendulum should slowly swing toward retention.
- Valuing the right metrics. Tracking net new customers is all well and good, but this metric just highlights your short-term gains. Brand loyalty metrics, on the other hand, give you a clearer picture of how customers feel about your brand — and isn’t that really what it’s about? Look at metrics like customer lifetime value, repeat rate, loyalty program participation, etc., to get a better idea of customer sentiment and satisfaction.
- Involving all stakeholders. Customer acquisition teams don’t usually sit with those in charge of customer retention, resulting in subpar customer experience and a lack of understanding in the customer life cycle. From marketing and sales to customer service and IT, involve all stakeholder teams in mapping each stage of exposure. Then, identify which departments own which pieces of the customer life cycle — and how these pieces can work together to provide a seamless customer experience.
Loyalty isn’t going anywhere. Neither is the customer loyalty program. What you need to do is rethink how you measure customer loyalty — and how you execute any program involved with customer retention.