Customers come and go.
Yet even with e-commerce and mobile store integration, last mile delivery and a whole gamut of personalization techniques, the biggest issue for any retailer still remains: how do you get customers to stay?
According to Forrester research, acquiring new customers can cost five times more than satisfying and retaining current customers. Therefore the viability of implementing an effective loyalty program can have a high influence on the success of a retail business.
Colloquy defines loyalty marketing as the effort required to identify, maintain and increase yield from best customers through long-term, interactive and value-added relationships.
Metrics can make all the difference
As every retailer knows, it’s not enough to simply start a loyalty program. To produce measurable business results there needs to be constant analysis and optimization of the program’s performance. The challenge often lies in figuring out the right metrics to evaluate in your loyalty program.
Buying frequency, basket values, redemption usage rates are all commonly used indicators of whether your customer loyalty program is working. Let’s look at some of the next-level metrics that can help you elevate the success of your loyalty program.
Growth of new acquisitions
The first and easiest metric to track is the number of new members to your program. This value, when measured over a period of time is a primary indicator of the success of your loyalty program. From the growth, stagnancy or depletion of this value, a clear indication of the program’s popularity can be obtained.
Cost of retaining customers
Acquiring a new customer is 500% more expensive than retaining an existing customer. When creating a loyalty program, you need to factor in this cost to retaining your existing customers.
This is the metric that can help you decide the total budget (and value) of your loyalty program.
Zappos is famous for their great customer service. They have a high customer retention rate of 75% and their focus on satisfying existing customers have helped them obtain tremendous levels of loyalty.
Who are the repeat customers?
One of the basic metrics of customer loyalty is how often they shop with you. Understanding the level of repeat customers, in terms of frequency, basket value, social influence can help you identify valuable customers and improve your loyalty program. It pays to remember that the longer a customer shops with a company, the more they tend to spend.
With its REDcard loyalty program, Target enhanced customer loyalty by building out industry-leading data capabilities and using the data to target its highest-value consumers.
According to a study by Bain & Company, veteran retail customers spend nearly 70% more than patrons who are around for six months or fewer. This spending incongruence was also seen with grocery shoppers: long-time clients spend 23% more than patrons who had been shopping at a specific store for fewer than six months.
What is the negative churn?
To put it in simple terms Negative Churn is how much more money you get from your repeat customers when you are losing other customers. According to Lincoln Murphy, negative churn is “When, for a given time period, expansion revenue more than offsets any revenue you lose from customer churn, downgrades, and lower usage.”
Knowing this metric helps you focus on when and how customers are becoming more invested (and therefore more loyal) to your product or brand.
Another way of looking at this is by the Southwest loyalty scheme example. While most airlines reward by miles flown, Southwest rewards are proportional to the ticket price, allowing them to directly target more profitable customers.
Look to the Net Promoter Score
There’s nothing that boosts the potential of increased customer’s loyalty than a referral from another customer. Your Net Promoter Score (NPS) tells you how satisfied the customer is with your company or brand and it works on the basis of one simple question: “On a score of 0-10 how likely is the customer to recommend the company or brand to a friend or colleague?”
This value provides an indication of which customers are likely to recommend your company to other people giving greater insight into their loyalty and helping you find like-minded customers.
Calculate Customer Lifetime Value
Forrester defines Customer Lifetime Value as a customer’s potential monetary worth through the course of his or her relationship with a business.
The shift of retailers from product-centric marketing focus to a more customer-centric one is changing how CLV is understood. While not a new concept, the Customer Lifetime Value was often based on marketing profitability than customer loyalty.
Using advanced analytics, retailers can now measure and analyze CLV at the individual level and use this information to optimize for better customer loyalty. According to Forrester TechRadar: Customer Analytics Methods Q2 2016, CLV can help marketers decide to increase investments in channels that consistently deliver them customers with high CLV. CLV also informs creating a differentiated approach for retaining different customer segments. Therefore, marketers may spend more to cultivate loyalty in high CLV customers through loyalty programs.
Follow the Non-Purchase Interactions
It’s not enough to just measure the frequency of purchases by the customer. To improve upon the success of your loyalty program you need to measure certain quantitative and qualitative metrics which give your feedback on why a customer did not buy.
The quantitative metrics include store visits, time spent in-store, recent visits, customer migration, and customer profile completion rates. The qualitative metrics include satisfaction survey response, member sentiments online and offline, and customer service calls.
Sainsbury furthers this idea by collecting supplemental external data through encouraging consumers to collect rewards across many non-competing UK retailers.
Find the Break Even Point
Measuring the break-even point can tell you the viability of your loyalty program. A higher break-even means higher amounts of money needs to be spent on the program for it to start becoming profitable.
Ideally, the break-even point should be calculated well before the program has been initiated. With the help of the right analytics tool, this becomes a very easy task.
How advanced analytics play a key role
In order to make a good loyalty program great, it is essential to gather the metrics and be able to gain insightful information about your customer behavior. An analytics tool that helps you summarize large pieces of data into much more concise and usable information, is therefore key to creating a sustainable loyalty program.
According to EKN’s ‘Future of Retail IT’ survey 2015, 7 out of 10 retailers said they were very likely to adopt predictive analytics and 9 out of 10 ranked predictive analytics as the number one enterprise technology.
Insightful analytics with predictive capabilities can help retailers create targeted programs for their highest valued customers with ease. In the past retailers relied on past experiences, customer feedback, and plain guesswork to make decisions. In the era of predictive analytics, this is no longer the case.
Today’s customers, your future profit.
A recent study conducted by Talech Technologies found that 87% of customers wanted a customer loyalty program. Loyalty program members generate 12-18% incremental revenue every year than a new customer.
So use the right metrics and analytical tools to optimize your loyalty program and ensure the competitiveness of your retail business.