8 Tips That Improve ROI of Your Loyalty Program


The good news about investing in relationship marketing is that you can measure the results and show these to Management. There’s bad news too! You can’t hide behind, “But the business would have declined even more without it,” excuse unless it’s actually true.

So, here are eight tips that improve the ROI of your Loyalty Program. These are some effective ways to make sure that you’re delivering the largest profit bang for every marketing buck:

8 Tips That Improve ROI Of Your Loyalty Programs

A) Start with your objectives and strategy. If you don’t know what you are trying to accomplish, you’ll never be able to determine whether you did it, and you’ll likely waste a LOT of money along the way. While you’re at it, make sure your objectives and strategies are consistent with those of your organisation and get senior management buy-in. Otherwise, your efforts may be doomed from the start.

  1. Examples of objectives: Increase sales by x% over the next 12 months; improve profitability by y% within the next 3 years, etc.
  2. Examples of strategies you can use to meet your objectives: Improve customer retention; increase # trips per customer; increase average purchase per customer; reduce costs of new customer acquisition, etc.

B) Clearly establish how you are going to evaluate your program and how you will define success. Get it in writing, and get sign-off from the relevant stakeholders. For an unbiased view of how the program is performing, evaluation should be done by a different group or department than the one actually running the program.

C) Segment your customers based on their current and probable future value to you and on their needs from you. You want to influence different customers to do very different things, e.g., get the best customers to stay with you longer and to refer their friends; get occasional customers to shop more often; encourage non-customers to try you.

D) Test, test, test! Make sure you have a control group (people who act just like the people you are targeting but don’t get your offer or message). The difference between control (what they would have done anyway) and target (what they did after they got your message/offer) is the actual benefit you delivered.

  1. Ideally, try different messages or offers before you commit yourself to the full promotion. Try everything from an offer you think is way too rich (the upside might surprise you) to just information, with no offer at all (just hearing from you – or finding out something new about your business – may be enough). See what gives you the best return, and roll it out to the rest of your targeted list.
  2. If your message is time-sensitive (like Valentine’s promotion), preventing you from doing pre-testing, divide your list and try a few different messages/offers. Make sure you track the learning from each and test different approaches over time.
  3. Remember, the list (whom you speak to), the offer (what you are willing to give them) and the creative (look, feel, copy) all affect redemption, in that order. Use learning from previous offers to do a better job choosing whom to contact, and more importantly, whom NOT to contact. This step is essential if you are using an expensive medium, like direct mail.

E) Focus your spending on incremental behaviour, i.e. getting customers to do more than they would have done otherwise. Note: this doesn’t always mean more than they are doing. For example, retention of best customers is a perfectly valid strategy if they are at risk of defecting.

  1. Don’t focus on rewarding PAST behaviour (which you can’t change), but on influencing FUTURE behaviour (which you can). Don’t reward someone for being the best customer this year – give her an incentive to continue to be the best customer next year. You can position the offer, however, as a reward for the previous behaviour, e.g. “Only our best customers qualify for this special offer.”
  2. Do the math. Determine what the customers in a particular segment are doing now and what you want them to do differently. Calculate how much you think you need to spend to change the behaviour (based on offer and distribution costs and probable redemption) and how much more margin the new behaviour will bring. What’s the return on your investment? If you were your CFO, would YOU fund the offer?

F) Optimize the balance between your base offer (e.g. 1 point for every dollar spent) and extra, targeted offers.

  1. Use your customer data to identify your greatest opportunities and threats. Hold back enough budget to send the right messages/offers to the right customers to get that incremental behaviour you want.
  2. Note: the base offer is NOT what generates loyalty; it is merely the bribe to get your customers to use the card and share information. If you spend too much on the base offer, you turn your program back into mass marketing.
  3. Get more out of less spending on your base offer by creating/using a currency that your customers value. For example, in one loyalty program, we found that a significant proportion of our members would rather have one of our points (which cost us just over 2%) than a 10% discount! Cash isn’t always the answer.

G) Leverage inexpensive electronic media, social media and vehicles you need to send anyway: your POS/cash register receipts, in-store messages, statements/bills, e-mail, etc.

  1. Save expensive direct for campaigns that are likely to have high redemption and drive a lot of incremental spends, or for valuable customers/prospects you can’t reach in other ways.
  2. Make sure you have customers’ permission to e-mail, and always include clear and easy directions for opting out.

H) Don’t waste your money giving incentives for e-mail addresses. You will end up with a lot of useless information from customers who only wanted the incentive.

  1. The only offer you need for a valuable e-mail address is “We’ll send you relevant offers and information by e-mail.” Now you have a permission-based list of customers who want to hear from you and tell you what they are interested in getting more information. Make sure you deliver value to them.
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