Benchmarking Loyalty Programs: A Call For Consistency

As a marketing tool, loyalty programs are used to attract and retain the long-term business of consumers.  If run well and constantly updated, they keep consumers returning, encourage them to spend more, and provide a unique competitive differentiator for brands seeking creative customer engagement angles.

Increasingly, loyalty programs are also leveraged as data collection mechanisms that illuminate valuable customer behaviors and attitudes, with the hopes to simplify the discussion and add value to both the brand and the consumer.

These are all important goals, but it is also imperative for brands to consider how well a loyalty program is actually accomplishing them.  Just as it is crucial for a loyalty program to produce deeper insights into customer behaviors, it is essential for brands to apply the same level of scrutiny to measure the efficacy of the program itself.  Internal and external benchmarks, metrics and standards are imperative to short, medium and long-term success, yet they do not exist.

This is one of the most overlooked and challenging aspects of managing any loyalty program, and it continues to be a struggle for brands to leverage such benchmarks with any consistency.  Everything is changing so fast now, and brands need to be able to understand how much a loyalty program is contributing the success or growth of the business at any given moment.

But the larger problem is not in convincing brands that they need to answer these questions, the real struggle is in first developing the mechanisms to create consistent benchmarks, especially external ones.

Currently, there are few metrics out there for brands to measure on.  Those that are in the market are vaguely understood and rapidly changing both temporally and situationally and by whom is selling or pitching the “solution.”

This is what we continue to hear from brands.  Marketers know, for example, what their direct mail open rates should be, they understand what kinds of response rates emails should garner, but customer loyalty has not yet reached that level of industry scrutiny.  The complexity of what technologies make up the program is challenging and complicates the end game.

Marketers may have internal benchmarks, and they might know that their loyalty program members spend more than non-members.  Or they can do some basic control and A/B testing.  But they don’t necessarily have any external market-wide metrics to use as a baseline, to gauge the overall efficacy of the program.  They know that members of the program spend more and are usually more engaged than nonmembers, yet measurement across verticals and industries is challenging.

This is one of the major challenges facing brands and administrators of loyalty programs today.  These metrics, or loyalty program “health guides,” simply don’t exist in any comprehensive or standardized manner.

Some benchmarks do exist for various third party vendors or technology providers that administer programs on behalf of brands.  But these organizations are self-serving to a certain degree.  They can leverage their own internal benchmarks to gain insight into how their clients measure against each other.  Or they know what various clients can do based on an ability to do creative, or program design, or re-administration.  Outside of that particular sector, however, most brands are lost and mystified.

Brands are really struggling with regard to what they should invest in, how new technologies work (in piecemeal or in total), what comprises a loyalty program and, in many cases, how to even define one.  Is a loyalty program just the database itself?  Is it the analytics program and how it interfaces with a campaign management tool?  Is it the social data?  What if you have two or three or three of four, and then add incremental functionality?

Traditionally, customer loyalty has always been hard to measure, but now it has become significantly more complex.

Merely putting a program in place is not enough to ensure success in this regard.  Brands that simply complete this initial step and neglect to take it any further are, more often than not, only submitting to a “me too” mentality.  That is, they feel that they should have a loyalty program only because the competition has one.  But that line of thinking negates the true value and potential that a loyalty program holds.

More investment needs to be made, and loyalty programs need to be constantly monitored.  In light of constantly emerging technologies and continually evolving customer behaviors, brands need to know if there are areas in need of significant improvement and how it stacks up against the competition.

As we have all seen, technology changes at an astounding rate, and customer behaviors, attitudes and perceptions are just as fluid and dynamic.  Therefore, the industry also needs benchmarking standards to ensure that loyalty programs maintain a high degree of relevancy.

Such a standard could help brands understand what they are looking for in a loyalty program, and different customers may be seeking different things.  Are they looking for experiential rewards?  Are they looking for points?  Are they looking for thresholds?  Furthermore, brands must consider if the rewards, benefits, and offers are relevant and meaningful.  Brands need to know and intimately understand all of this information.  Because ultimately, if customers don’t care then what’s the point?

Benchmarking can, and must, help in this regard.  Loyalty programs used to be all about frequency and monetary spend, but the goal now is also to understand the customer more closely, and that requires more data and deeper insight.

Brands can, of course, benchmark internally.  The challenge here, however, is that it only represents a brand against itself.  Any larger perspective outside that isolated bubble is lost.

That’s why the lack of standardized industry metrics continues to be a problem.  Whether you’re talking about retail, hotel, or restaurant, it is currently difficult to understand how one loyalty program measures up against another.  All programs and administrators are struggling in this regard.

If a program is designed by one consulting firm, it could be benchmarked by A, B and C.  If it is designed by another firm, it might be benchmarked by X, Y and Z.  This can also be further broken down by customer channel.  If your loyalty program is just in-store, for example, the metrics of those top 10 customers would be different from the customers who engage online, through a catalog, or even through social and mobile devices.

Going forward, there simply needs to be a way for brands to gain more consistency. There needs to be consistency in definition, in terms and in measurement.

The lack of standardized benchmarks and industry metrics makes all of these variables very difficult to measure.  Brands are struggling with knowing what benchmarks they should use, and this gets back to listening to the customer and in truly understanding what they find meaningful.  This is one of the defining marketing challenges today.