Will your loyalty programme generate incremental profits?

Mar 14, 2023

Despite volumes of research and market experiences validating the positive financial impact of loyalty programmes, justifying the implementation of new programme always brings about the need for a business case. In our experience there is very little hard data available to prove with certainty that a new programme will succeed. There are too many variables and dependencies most of which are entirely out of your control.

Much to the annoyance of many marketing professionals, Loyalty Consulting UK start with the business case in mind, engaging with the CFO and or his/her team. Winning the hearts and minds of the financial community is critical to the sustainability of any significant marketing initiative: remember the famous quote from the 1950’s, “we know that 50% of our marketing spend delivers results, we just don’t know which 50%” by John Wannamaker a famous U.S. retailer

Most businesses are not in the business of running ‘vanity projects’, they need to generate a return on all significant investments. With that in mind, here are five important issues to consider:

1. KPI’s Matter – Every programme needs a range of metrics that must be monitored, from membership recruitment to redemption rates, there are many measures of success/failure that operators of loyalty programmes must be aware of before launching anything. Putting in place realistic KPI targets that span launch to programme maturity is key, they need to underpin the business case and deliver the hard data that demonstrates success.
2. Cost Mitigation and Contributory Revenue Streams – There are a number of classic opportunities to generate contributions toward the cost of rewards and contributory revenue streams. From supplier funded rewards to sensitive data commercialisation, these strategic contributions can be the difference between success and failure. Many businesses struggle to afford the cost of meaningful and or relevant motivational rewards.
3. Return on Investment (ROI) – The business case must provide a sand-box for sensitivity analysis of the overall programme ROI. This should boil down to the basics – what do I have to believe – we can grow our average bask value by x, we will retain y% more customers and or acquire z% new customers. Every business is different and as such there is no ‘one size fits all’ business model that can be deployed. Even if there was, the CFO will want to build from the ground up and understand every minute detail, and rightly so.
4. Enhancing Shareholder Value – It’s a well-known fact that some loyalty programmes become more valuable than the company that created them, this has been especially true in the airline industry. Customer data/insight can significantly enhance the valuation of a business. Whilst it is hard to quantify, there are plenty of real-world examples that underline this assertion. This should not be ignored if only because the converse is true, businesses that don’t understand their customers face big trouble.
5. Frontline Stakeholder Management – One of the most important variables that underpins any loyalty business case is the support and commitment of frontline stakeholders – the staff that interact with the customers whether they be employees, franchise holders or business partners. They need to be advocates of the loyalty programme, if they doubt in any way the value of the programme you can face significant issues with customer engagement. As a part of the evaluation of a loyalty programme design, winning the support of frontline stakeholders is vital.

Loyalty Consulting UK is regularly asked to help organisation revamp loyalty programmes, much of the time this is due to the fact that the current programme fails to deliver the expected results. Whilst we are customer loyalty advocates, there is no shame in concluding that a classic loyalty/rewards programme is not a good fit for your organisation. As loyalty professionals we are not afraid to deliver this news.