In today’s competitive marketplace, customer loyalty is more important than ever. After all, a business’ most loyal customers are often its most profitable.
This means it’s even more important to analyze your loyalty program data to understand whether your loyalty program is truly driving value for your customers, and ultimately your business.
In this article, we’re covering some key metrics you should keep in mind when evaluating the success of your loyalty program. But first, a brief refresher on why loyalty matters.
Why You Need A Loyalty Program
As brands compete for customers’ attention, a well-designed loyalty program can be the key to not only retaining existing customers but also encouraging them to spend more during each visit.
With customer acquisition costs increasing 222% over the past eight years, customer loyalty is more important than ever. On average, customer acquisition costs businesses $29 for every new customer acquired, a dramatic jump from $9 in 2013. With these rising costs in mind, businesses must shift their focus from merely acquiring new customers to retaining and satisfying their existing ones.
A tried-and-tested way of keeping your current customer base and increasing average order spend is through the implementation of a loyalty program. Successful loyalty programs like Starbucks Rewards, Sephora’s Beauty Insider Program, and Edo Japan’s Edo Cash Program ensure that customers keep coming back and spending more with each visit, helping them stand out from the competition.
Now the question arises: how can you tell if your loyalty program is genuinely building customer loyalty and benefitting your business? Membership sign-ups alone aren’t enough to tell.
How to Measure Loyalty Program Success
1. Size of Loyalty Program
The most obvious indicator of the success of a loyalty program would be the size of the program. Tracking total members, growth over time, and the percentage of purchases from loyalty members gives you insight into how widespread your program is.
Key Metrics:
- Total Members
- Percentage of Purchases from Loyalty Members
If the percentage of purchases from loyalty members is significantly low, your company should consider investing more resources into marketing the loyalty program or offering sign-up incentives to first time users.
2. Loyalty Program Membership Growth Rate
Maintaining steady growth is crucial for any loyalty program, since it reflects the program's ability to continuously attract and retain customers.
If more people are joining, it suggests that your program is appealing and worth signing up for. This growth could be driven by positive word-of-mouth, effective marketing campaigns, or even strong in-store employee training that encourages sign-ups.
To determine the reason for the growth in membership, you should survey customers during the sign up process about how they heard about the program. This information can help guide your marketing efforts and determine where to focus your resources.
A steady increase in membership shows that customers recognize the benefits of your program and may even be recommending it to others. Additionally, a well-structured onboarding process and clear communication of program perks can also contribute to higher membership growth rates.
Key Metrics:
- Membership Growth Rate
- Percentage of New Members per Month
- Referral Sign-Ups
If your membership growth rates are low, it could indicate that your program's value isn't being effectively communicated, or that current incentives aren’t compelling enough to drive sign-ups. You might want to adjust how your marketing communications are expressing your program’s benefits. You could also offer more incentives for signing up such as first time member rewards or offer a member referral program.
3. Loyalty Program Engagement
Another key metric to measure the success of your loyalty program is customer engagement.
Some questions you should be asking yourself to gauge your customer engagement include:
- Are members actively participating?
- Are they redeeming their points and interacting with your brand?
- Are they opening and utilizing the promotions?
Since 2022, the average number of loyalty programs customers belong to has increased by 10%, yet loyalty and engagement have declined.
Customers have limited attention spans, and the constant introduction of new loyalty programs results in increasing competition and fatigue. Keeping an eye on customer engagement metrics will allow your company to make any necessary changes to ensure that you have your customers’ attention.
Key Metrics:
- Redemption Rate (of promotions and points)
- Click-through Rates on Emails and App Notifications
- Purchase Frequency
If your redemption rate is low, you might want to work on adding personalization to your promotions. Similarly, if you notice that your click through rates are low, you should personalize your email content or implement A/B testing to see which content performs better with your customers.
4. Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is one of the most important metrics for measuring the success of your loyalty program. CLV represents the total revenue you can expect from a customer throughout their relationship with your brand. A successful loyalty program should increase this value by increasing the frequency of purchases and encouraging larger order sizes.
For example, Copper Branch observed a $2 increase in spending per transaction after rewarding return visits.
Key Metrics:
- Average spend per customer
- Duration of customer relationship
- Increase in average order value over time
To optimize CLV, focus on providing personalized experiences and relevant promotions. Using segmentation data collected through your loyalty program, you can target specific groups with customized offers, which drives both loyalty and spending.
5. Customer Retention
Customer retention is the backbone of any successful loyalty program. The longer a customer stays with your brand, the greater their overall value. Once again, acquiring a new customer is much more expensive than keeping an existing one. So improving customer retention should be at the forefront of your loyalty program goals. High retention rates suggest that your loyalty program is effective in keeping customers engaged and satisfied.
Key Metrics:
- Retention Rate of Loyalty Members
- Churn Rate (percentage of members leaving the program)
- Re-engagement Rate for Lapsed Members
Boosting retention can be achieved through personalized experiences, exclusive rewards, and consistent communication that reminds customers of the value they gain from your program.
6. Collection of Customer Data
One of the major benefits of a loyalty program is the ability to collect consumer data. This data can help you get a better understanding of your customers’ demographics, purchasing behaviour and preferences, allowing you to better tailor your promotions and communications.
With the phasing out of third-party cookies and increased privacy regulations, first-party data from loyalty programs is more valuable than ever. Certain CRM (Customer Relationship Management) software allows you to segment your audience, predict behavior, and optimize marketing efforts accordingly. For example, DataCandy allows for segmentation of customers based on their member profile data and allows you to send out personalized offers.
Key Metrics:
- Data on purchasing habits
- Demographics and buying preferences
- Engagement with targeted promotions
Conclusion
Measuring the success of a loyalty program goes beyond just counting members; it’s about understanding engagement, retention, and overall impact on customer lifetime value. By analyzing key metrics like membership growth, engagement rates, CLV, and retention, you can continue to adjust and optimize your program in order to deliver more value for both your business and your customers.
Looking to take your loyalty program to the next level? DataCandy’s loyalty program solutions are designed to help you understand your customers better, increase engagement, and drive long-term growth. With our innovative platform, you can effortlessly track key metrics, personalize rewards, and enhance the overall customer experience.
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