2023 Guide to Achieving a High ROI on Your Loyalty Program
In today’s day and age, it's almost impossible not to be a part of a loyalty program. Studies show that 90% of companies have a loyalty initiative of some sort, and 72% of customers across the globe feel a sense of “loyalty” towards one or more brands. As surprising as those statistics may seem, they should compel you to implement a loyalty program as soon as possible.
Truthfully, if loyalty programs were not beneficial, many companies would probably not be offering them. However, they are very beneficial to successful companies. Furthermore, it turns out that the average American consumer belongs to 16.7 customer loyalty programs, so reaching these consumers is important.
As a company, however, you may be wondering if starting a loyalty program merely seems beneficial or if it truly is. This is where loyalty programs' Return on Investment (ROI) comes in. To know whether the program you implement is successful, you will need to know the ins and outs of the ROI of your loyalty program.
In this article, we will look into the following:
- Why You Should Measure ROI for Your Loyalty Program
- How to Measure ROI
- 4 Tips to Maximize Your ROI
- Loyalty Programs in Action
Why You Should Measure ROI for Your Loyalty Program
When you decide that it is time to build your loyalty program, one of the first things you should do is decide how you will track your ROI. Just like you would track metrics on a campaign, you should track the outcomes of your loyalty program.
Tracking the ROI of a loyalty program is essential to its success because the data received will determine whether or not your program is successful or if you need to make changes to it.
Studies show that 45% of consumers don’t appreciate how long it takes to earn rewards from their loyalty programs, and 31% find it too difficult to earn rewards. Meanwhile, 27% don’t think the rewards are valuable enough. As you track the ROI of your new loyalty program, you may notice some trends in certain areas and can make modifications as needed to ensure you are meeting the consumer’s expectations.
Rather than just starting a loyalty program and assuming it is going well, you will need to confirm its success through the ROI.
How to Measure ROI
Calculating a Return on Investment is generally a pretty easy process. To calculate it, you must subtract the cost of investment from the gain from investment and then divide it by the cost of the investment. Then, you will have the ROI.
Although that calculation is pretty straightforward, working out the gains and costs of your loyalty program requires a bit more work.
How to Calculate the Return of a Loyalty Program
The goal of a loyalty program is quite simple: to ensure customer loyalty to a brand. When a customer is loyal to a brand, it ensures customer retention and increased sales.
Therefore, to measure the return of the loyalty program, you will need to measure the following:
- Number of loyalty program members and non-program members at the beginning and end of a specific time
- Purchase frequency of customers
- Customer order value
How to Calculate the Costs of a Loyalty Program
Calculating the costs of a loyalty program is simply gathering how much you spent on anything related to the loyalty program. These expenses will vary by company and scope of the project.
However, some costs that should be included are:
- Development of a loyalty app
- Personnel to implement a loyalty program
- Marketing fees
- Customer rewards
4 Tips to Maximize Your ROI
To have the best ROI on your loyalty program, you must, of course, focus on your loyalty program and what it will offer. Here are 3 tips to keep in mind when building your program:
#1 Whatever You Do, Market It Well
When you have a loyalty program in place, spread the word! Use email automation and send out messages to get the word out there, have employees talk it up at the checkout, make flyers and ads - take an online marketing course if you need to, and do whatever it takes for your industry to ensure everyone knows of your new program.
#2 Start Small
Start small, with rewards, that is. The traditional method of retailers using punch cards to offer a “buy 9 get the 10th one free” deal has become outdated. Many companies have realized that this method is ineffective as it takes too long for the consumer to receive a reward. Studies show that disappointing rewards are the top reason millennials abandon customer loyalty programs, so you want to focus on a great reward.
The trick here is to start small. If you own a restaurant, for example, instead of giving that full free meal free, offer a free appetizer after the second or third visit. Then, focus your rewards on quick wins that will reel the customer in.
#3 Upsell Your Rewards
One way to bring customers in is to invite them to purchase in your store or on your website for an exclusive discount. In this scenario, instead of offering a standard 10 or 15% discount, offer a discount that requires a purchase. For example, a $10 off of $50 discount or a free milkshake with the purchase of an entrée.
This will certainly increase your ROI on your loyalty program as the reward you offer requires a purchase of some kind.
#4 Consider a Loyalty Referral Discount
Sometimes the best advertisement comes from word-of-mouth, especially when it comes to services such as those from a lawyer. Reward your customer’s loyalty and reap the ROI by offering a special discount for customer referrals. This strategy is a win-win scenario for both parties.
Loyalty Programs in Action
Since we have looked into what you should and shouldn’t be doing with your loyalty program to have the best ROI, let’s glance at two companies that have successfully implemented loyalty programs that their customers simply can’t live without.
American Airlines’ reward program, AAdvantage, was one of the first of its kind. The original concept that remains true until this day was that it would reward its customers for loyalty to its brand.
The brand focuses on making its top consumers, or frequent flyers, feel a part of an elite group of consumers who fly with American Airlines.
Here are a few key points of the AAdvantage Program:
American Airlines offers its own credit card. If you use up to a certain amount within the first 3 months, you will receive bonus miles.
The more you purchase, the more you earn. The AAdvantage program is tiered so that members will be one of 5 levels, anywhere from basic to Executive Platinum and the more they use the program, the more points they will receive for each dollar amount they purchase.
The points are quite versatile, allowing consumers to use them on companies that fall within the Oneworld partnership and hotel stays. This motivates the consumers as they are not limited on what they may redeem their points for.
Here are three takeaways from this program:
- Use of a credit card for extra points
- Tiers so that mega-spenders are part of an elite group
- Ability to redeem points in several different ways
Without a doubt, Chick-fil-A is the golden standard when it comes to service. Its rewards program is right at the same level as well.
Here are a few keys points of the Chick-fila-A One rewards program:
1. The program offers tiered levels, so the more you spend, the more points you earn. This caters to creating an elite group for those loyal to the brand and higher spenders than others.
2. It offers free rewards at random, only available in the app. This keeps customers motivated to continue using the app.
3. Rewards may be redeemed based on how many points a customer has. Therefore, the customer does not have to wait until they have a high number of rewards. Rewards may be redeemed for anything from a cookie to a gallon of lemonade.
Here are three takeaways from the program:
- Tiered levels to cater to the elite group of high spenders
- Free rewards to further motivate customers to spend
- Different levels of products to redeem rewards
Final Thoughts on ROI on Loyalty Programs
Having a great ROI on a loyalty program requires some planning for a great program, but it will certainly be worth the outcome. The greatest ROI you can receive is loyalty from customers who will seek your brand out for years to come.
Freya Laskowski is an SEO consultant that helps brands scale their organic traffic with content creation and distribution. She is a quoted contributor in several online publications including Business Insider, Fox Business, Yahoo Finance, and the Huffington Post. She also owns CollectingCents- a personal finance blog that she grew from the ground up. You can reach out to her at firstname.lastname@example.org.
Stamp Me provides loyalty solutions to businesses large and small, from our own Stamp Me Loyalty App to fully customised loyalty and rewards programs for enterprises and brands.
Contact us if you would like to discuss a loyalty or rewards solution for your business or brand.