Two minutes into a car trip, the plaintive voice comes from the back seat: "Are we there yet?"
Parents know these words—and so do loyalty marketers, although the back-seat question marketers face usually isn’t plaintive. It’s demanding, if from a corporate officer. Or challenging, if from the financial department.
When it comes to loyalty-marketing return-on-investment (ROI), the answer to "Are we there yet?" is best answered by your marketing team before your executive sponsor asks it. While early measures of success can be hard to come by, a field-tested set of early performance metrics can hint strongly at the eventual answers.
How can marketers engaged in long-term strategies answer this question? By quantifying the relationship between loyalty-marketing participation and lifetime customer value and establishing incremental measures. The more active and engaged members are in a loyalty or dialogue marketing program, the greater the sales lift, retention and brand engagement those members deliver back.
This correlation is called the relationship chain. Relationship chain methodology provides an early indication of program success—long before analysts can measure, with any degree of statistical significance, the incremental sales or increased retention directly attributable to your loyalty strategy. Marketers can apply relationship chain methodology throughout the life of their loyalty campaign—including shortly after a program launch.
Other performance metrics require marketers to record customer transactions and analyze traditional RFM metrics. In contrast, the relationship chain records and analyzes customer activity that indicates success in the form of increased retention, customer spending and brand engagement and decreased churn. Because this activity begins shortly after program launch, marketers can begin capturing useful predictive data immediately while analyzing customer behavior.
The relationship chain is a series of distinct customer behavior stages that, as customers pass through them, increase the value of the relationship for both customers and businesses. As customers pass through successive links in the chain, their lifetime value increases and the overall ROI of the loyalty marketing campaign rises as both lift and retention metrics improve.
While the specific steps vary according to business, sales cycle and industry considerations, the fundamental process is the same. In the design stage, marketers need to ensure their strategies build customer relationships follow these basic stages:
Stage 1: Enroll the right customers: Determine which customers you want to raise their hands to engage in your relationship strategy. Marketers can enroll their highest-value customers to recognize and reward their value. They can cultivate high-potential customers who currently split their purchases between their organizations and their competitors, or reach out to those most at risk of churning. Knowing which customer groups are most important allows marketers to craft a recognition and reward strategy that piques customers’ interest.
Stage 2: Engage customer interest: Involve customers via regular communications. Clearly and enticingly answer the "What’s in it for me?" question. Dialogue is critical in moving users through the relationship chain. Design communications with calls to action that will stimulate regular response. Customers who click through email offers, ring the call center with questions or hit a loyalty program Web site are all exhibiting increased interest.
Stage 3: Stimulate active participation by encouraging program use and customer engagement. Key behaviors that fuel analysis include any voluntary customer activity beyond standard transactions such as paying a monthly invoice or placing a phone order. Relationship chain analytics are based on such activities as completing surveys, checking points balances online, responding to targeted offers, using kiosks, bidding on auction items, entering sweepstakes and so on. Such participation is a sure sign of increasing value.
Stage 4: Trigger multiple redemptions: Customers who participate in loyalty strategies expect a payoff—the answer to the "What’s in it for me?" question. Reward redemption is both the answer to that question and the ultimate measure of customer value. Redemption isn’t limited to cashing in points or miles for trinkets or trips; it happens whenever a customer extracts value from a loyalty campaign. Customers who purchase with an auto-issue gift voucher, take advantage of a special 20%-off shopping day or show up for a members-only special event are all redeemers. Multiple redemption is the key. A customer who redeems once is just sticking a toe in the water. A customer who redeems twice has decided that the water is just fine.
Proper analysis requires tracking and measurement of loyalty-marketing activity at both the individual customer and segment levels.
Key metrics include:
Enrollment: Which customers raised their hands to indicate initial interest in the campaign? Are they the right customers?
Participation: How many non-participators, one-time participators, and multiple participators are responding to the dialogue efforts? What is the recency of participation by segment?
Redemption: How many non-redeemers, onetime redeemers, and multiple redeemers are in the customer file? Is there a steady progression of one-timers to multiples? How recent are the redemptions?
Segment mobility: Are you seeing a steady migration of customers from high-potential to high-value segments? How well does program activity correspond to this migration?
Churn rates: How many customers are leaving the program? How many are leaving the brand? Is there a reduction in churn? If so, how does that reduction correspond to program activity?
Annual average customer value: Is transaction value increasing? Are cross-sell and up-sell penetration rates rising?
Customer lifetime value: Is the Net Present Value (NPV) of key segments improving due to increased lift and reduced churn?
By comparing the behavior of loyalty-marketing participators to the behavior of established control groups, marketers can infer the financial impact of each customer stage by measuring success early in the chain. Are efforts hitting their enrollment targets? That’s an early indicator of success. Are campaigns generating high participation in the right segments? That’s another indicator. Are redemptions coming in when and where expected? That’s yet another.
As marketers gain experience with relationship chain metrics, they can build benchmarks for future initiatives. Marketers can derive correlative insights from the flow of customers through the chain by identifying individual points of success (for example, migrating single redeemers to the multiple-redemption bucket) or of failure (the number of single redeemers who fail to migrate, or who exit the campaign entirely).
The relationship chain won’t fully answer that plaintive back-seat question. The chain is just one component of a robust measurement strategy, along with other important loyalty metrics such as incrementality, customer equity and share-of-wallet.
But the relationship chain will help marketers understand early on if they are steering in the right direction—or if they are careening the wrong way down a one way street. And because it’s early in the journey, they have time to make a course correction before something crashes. At these check points, marketers can examine the reasons behind the results, and work to either solve or exploit them—steer right, steer left, or hit the gas pedal. Marketers may even surprise the “Are-we-there-yet?” folks in the back seat with how quickly they’ve arrived.
Colleen Becker is a LoyaltyOne consultant and a COLLOQUY contributing editor. She can be reached at cbecker@loyalty.com
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