How do you evaluate a rewards program - what are the KPIs of a successful loyalty program?

It is not uncommon to see a marketing team ditch its newly minted loyalty program in a matter of 1-2 years. This happens most often with those programs that fail to excite the participant, and have poor engagement scores. Such programs are neither exciting to the consumers, nor to the members running it. Here I list 6 metrics that a team can look at to ensure their loyalty program is on the right track and engaging for their consumers.

• First and foremost is strength of enrolments. This is measured using enrolment efficiency. Enrolment efficiency is measured by taking the number of enrolments over the total number of consumers who were eligible to enroll. For example, if you had 100 people visit your store and based on the enrolment criteria that you have set, all 100 were eligible to enroll in your loyalty program, then the number of enrolments divided by the number that were eligible to enroll becomes your enrolment efficiency. If you have a high enrolment efficiency, then that means that more consumers find your program exciting.

• Next you should look at the spread between the spending of the members versus non members. For example, if the average spend and number of items bought for those who are members of your program is similar to that of non-members then that could suggest that your program tactics and communications are failing to create any excitement for the member group. This you should observe over a longer timeframe and not just one visit.

• Third thing I like to look at is retention rates, primarily during non mass reach events. For example, your brand does massive EOSS sales, or has a set schedule of TV and online push for broad reach, then those I would call as mass reach events. In India, they call them ATL marketing. During non ATL times, if you are able to sustain or grow your retention rates year on year, then that means your loyalty effort is working.

• Now that you have looked at acceptability of your program, the quality of your members, and the fact that you are able to reach out and get a reaction, you should look at individual tactics of your program. Most programs will have some anchor elements that are part of the design. On the simpler end, these just might be Birthday or Anniversary gifts, milestone gifts, etc... or they can be as exciting as holiday month bonanzas. For all these tactics or program elements, you should assess the engagement by measuring how many of the members achieve and utilize those benefits. A poor achievement would mean that you have made it very difficult to reach a certain milestone and that in return will impact the excitement of your program. Similarly, very high utilization might hint at poor hurdle rates, which in return may impact the profitability of your program.

• Speaking of profitability, that should be what you look at next. Profitability measurement can get quite complex, with taking into account the fixed costs, divvied up across all members, or active members, and also the costs of rewards/discounts. Also measuring incremental sales from a program is another discussion in itself, which I plan to cover in a different blog. At this stage I would recommend that you measure the average discount (both product and rewards) that a member avails as compared to the non-member. Engagement at the cost of discount is not good for your program. That does not drive loyalty, only a habit of expecting value. It works if you are able to use the program elements to slowly move your members away from the discount value proposition, but does more harm if you are in a very competitive space.

• Lastly you should look at marketing costs. This indirectly ties to profitability, but in my opinion provides the best possible evaluation of your program. If your marketing spend per member account drops and keeps dropping year over year for the same or higher results achieved, then you are doing a stellar job. The program will allow you to collect a lot of relevant data for your members, engage them in activities that aid your marketing efforts, like getting them to review products, influence others on social media, provide referrals, and promote your brand. All these activities achieved as part of your loyalty setup, will improve your marketing ROI.

To sum it up if you keep your focus on the appeal of your program, quality of your members, retention and engagement of various program elements, and are able to run a self sustainable program, that keeps contributing to your marketing ROI, then you have built a great program.

At the same time keep in mind, that all great programs lose their steam as time passes. They need to be audited and tweaked to keep in step with the consumer trends, but that again is a different blog for some other time.

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