Do Loyalty Programs Really Work?
I believe that well conceived loyalty programs provide both immediate and long-term benefits to the organization. But how should the direct marketer go about proving the effectiveness of Customer Relationship Marketing activities?
As the sophistication of loyalty programs increase, so does the evaluation process.
The increases in customer loyalty budgets should translate into share-of-customer growth and additionally, more cost effective acquisition efforts. These need to withstand the scrutiny of the CFO with quantified results.
But here’s the rub. What would have happened in the absence of any loyalty program?
How does the marketer create a control group that totally isolates customers from the overarching influence of powerful loyalty programs? I have yet to see results that do not create more questions than they answer.
In today's multi-channel environments, it is almost impossible to isolate customers totally from their peers and other indirect influences.
It appears that the changes in the marketing space have placed new demands on direct marketers. We must now confront the same analytical problems that our branding brothers face. It works, but what yield am I getting from my marketing budgets?
We are well beyond the simple cost-per-sale and cost-per-customer indicators with new, more advanced evaluation criteria. We must now begin to apply hard numbers to soft data. Judgment replaces certitude when assigning credit to various media expenditures and complex, interdependent strategies.
In a sense, the promise of strategic integration has outpaced our ability to evaluate it.
There is a crying need to train analytical staff to take on more strategic and broader roles in today’s organizations. We need people who not only know analytics, but individuals who know how to create actionable recommendations from an oversupply of information.
Do you think that loyalty programs generally work? Or are there now too many such programs for consumers to care about anymore?
Ted Grigg
in Direct Marketing Strategy
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4 Comments
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Reader Comments (4)
I completely agree with you that there is a HUGE need for analytical people who not only understand the stats and numbers but who also understand business strategy. They are few and far between!
In regards to measuring loyalty programs, yes that is a tough problem. In a multi-channel environment, it's getting more and more difficult to isolate and maintain a control group that receives no communication from you. Yet, that's what I would propose, in as much as it's possible. Then, of course, measure the control group against the folks who were introduced to your loyalty/retention campaigns.
The last question you posed--are loyalty programs even worth it? They really do need to provide a clear value to the consumer to even consider the implementation costs. Of course, they also need to provide value to the business (increased sales, retention rates, referrals). If the benefits aren't clear or real, I would recommend against the loyalty program. Just my 2 cents :)
Hi Suzanne,
When looking at the control group results, it almost always moves up and down in tandem with the promotions whether they received them or not! This even occurs in acquisition efforts. That really confuses clients and makes program evaluation difficult.
How have you dealt with this type of issue?
You know, Ted, I haven't experienced that with control groups. In thinking over my history--I'm typically working with financial services, high volume mailers. My client is evaluated on the performance of their dm. Their control is simply a hold out sample (people who don't get direct mail). So, quite frankly, I rarely have insight into the entire multi-channel effect. But, in my experience, I do see a difference in performance between control and mailed folks.
I do see your point about the high degree of difficulty in maintaining a true control group in a multi-channel environment. How can you, for example, stop someone from surfing the Internet? Or, seeing a billboard, hearing an ad?
Virtually impossible.
Like you Suzanne, there usually is an increase, but that increase often is not enough to justify the overall expense. Over time, that might change. But client patience usually wears out before the long term effect takes place.
Most of my experience in this category is with the retail industry that has a strong store presence. Perhaps that does not occur as often in the financial world.