BY CAMILLE YINGLING – DATA SCIENTIST
Several years ago, I used to go to a juice bar by my apartment several times a week. I was one of their regulars—they greeted me by name when I walked in and started making my smoothie without me even having to order. As lame as this may sound, it was a pretty cool feeling to be recognized and appreciated like that. Every time I got a smoothie, I’d get my reward card punched, working my way up to a free drink. Doing the math now, that “free” smoothie was approximately $7 in savings over the course of several weeks of loyal shopping. However, the value to me wasn’t necessarily that $7—it was the personal recognition and the feeling that I was being rewarded for being a loyal customer.
Loyalty programs should be partnerships between companies and their customers that benefit both parties. Companies should be regularly evaluating their loyalty programs and strategizing the evolution of their loyalty programs based on this premise. For example, I would have probably given the smoothie shop my email address for a free smoothie if they had asked. I’d get another free smoothie and they’d get a direct line to further market their shop.
So, how do companies know if their loyalty program is working? How can they understand if their loyalty program is truly benefiting both parties and where opportunities lie to improve an already successful loyalty program?
I recently had the opportunity to be part of a loyalty program evaluation at a large client and have some ideas of how a company should take this on. At a quantitative level, companies should be exploring and analyzing customer behavior data with a focus on status attainment, behavior changes, and reward redemptions. With this analysis, companies can determine if customers are able to meet the requirements for certain status thresholds, if customers behave differently after they receive benefits, and if they utilize the benefits that they’ve earned. It should be concerning if the vast majority of customers discontinued shopping with the company after they received the maximum amount of benefits from the loyalty program, or if only a very small number of customers were able to reach the minimum status threshold. On the other hand, it would be validating if customer lifetime value increased after members reached a certain status threshold or if customers with high reward redemptions spend significantly more than those without.
Additionally, qualitative research should be layered in with quantitative analysis to assess other factors that influence loyalty programs, such as awareness of the loyalty program and its benefits, what members like most and least about the program, what they wish the program offered, and what aspect of the loyalty program motivates them the most. Companies should be concerned if awareness of benefits is low, overall sentiment of the loyalty program is negative, or if customers do not find the rewards motivating. On the other hand, it would be good news to learn that most customers feel special for being a loyalty program member and valuable to learn that the majority of customers are the most highly motivated by a specific reward.
At a qualitative level, companies should use focus groups, ethnography, and other forms of research as follow-up work to quantitative analysis. Qualitative methods help companies understand the underlying reasons for customer behaviors and attitudes, and are often helpful in identifying pain points or opportunities that can be leveraged to increase loyalty. While I always had a great experience at the smoothie shop, it’s possible I would have come in even more frequently if the punch card only took five smoothies to earn a reward instead of ten. It could have even been 50% off a smoothie—the same net savings as a free smoothie after ten purchases—but I would have been coming in at a more frequent rate, because I would have been more incented to earn an easier-to-attain reward.
When used as a follow-up to quantitative analysis, qualitative analysis should include questions derived from quantitative results to understand the “why” behind quantitative findings. For example, if quantitative results indicate that customers with a high level of rewards are not redeeming those rewards, qualitative analysis can probe customers about why they are not redeeming. Finally, qualitative analysis should explore the attitudes and emotions that connect customers to the company to inform marketing efforts and drive loyalty program evolution.
The qualitative and quantitative insights from a loyalty program evaluation should be used to develop a plan of action to optimize the loyalty program in terms of benefits to both the customer and the company. The insights do not need to be concerning to prompt action. Rather, an action plan can be formed around opportunities to improve an already successful program. Companies should also keep in mind the potential unintended tradeoffs to changes to the loyalty program, such as devaluing a status level by lowering the threshold too drastically, making more customers rewards-eligible and thereby degrading the rewards.
A loyalty program done right offers benefits to both customers and companies. Sure, it’s an ongoing effort for the company to evaluate and reevaluate a loyalty program, but the value gained from quantitative and qualitative exploration of customers’ behaviors, wants, and feelings is a huge win for everyone.
Loyalty To A T
BY CAMILLE YINGLING – DATA SCIENTIST
Several years ago, I used to go to a juice bar by my apartment several times a week. I was one of their regulars—they greeted me by name when I walked in and started making my smoothie without me even having to order. As lame as this may sound, it was a pretty cool feeling to be recognized and appreciated like that. Every time I got a smoothie, I’d get my reward card punched, working my way up to a free drink. Doing the math now, that “free” smoothie was approximately $7 in savings over the course of several weeks of loyal shopping. However, the value to me wasn’t necessarily that $7—it was the personal recognition and the feeling that I was being rewarded for being a loyal customer.
Loyalty programs should be partnerships between companies and their customers that benefit both parties. Companies should be regularly evaluating their loyalty programs and strategizing the evolution of their loyalty programs based on this premise. For example, I would have probably given the smoothie shop my email address for a free smoothie if they had asked. I’d get another free smoothie and they’d get a direct line to further market their shop.
So, how do companies know if their loyalty program is working? How can they understand if their loyalty program is truly benefiting both parties and where opportunities lie to improve an already successful loyalty program?
I recently had the opportunity to be part of a loyalty program evaluation at a large client and have some ideas of how a company should take this on. At a quantitative level, companies should be exploring and analyzing customer behavior data with a focus on status attainment, behavior changes, and reward redemptions. With this analysis, companies can determine if customers are able to meet the requirements for certain status thresholds, if customers behave differently after they receive benefits, and if they utilize the benefits that they’ve earned. It should be concerning if the vast majority of customers discontinued shopping with the company after they received the maximum amount of benefits from the loyalty program, or if only a very small number of customers were able to reach the minimum status threshold. On the other hand, it would be validating if customer lifetime value increased after members reached a certain status threshold or if customers with high reward redemptions spend significantly more than those without.
Additionally, qualitative research should be layered in with quantitative analysis to assess other factors that influence loyalty programs, such as awareness of the loyalty program and its benefits, what members like most and least about the program, what they wish the program offered, and what aspect of the loyalty program motivates them the most. Companies should be concerned if awareness of benefits is low, overall sentiment of the loyalty program is negative, or if customers do not find the rewards motivating. On the other hand, it would be good news to learn that most customers feel special for being a loyalty program member and valuable to learn that the majority of customers are the most highly motivated by a specific reward.
At a qualitative level, companies should use focus groups, ethnography, and other forms of research as follow-up work to quantitative analysis. Qualitative methods help companies understand the underlying reasons for customer behaviors and attitudes, and are often helpful in identifying pain points or opportunities that can be leveraged to increase loyalty. While I always had a great experience at the smoothie shop, it’s possible I would have come in even more frequently if the punch card only took five smoothies to earn a reward instead of ten. It could have even been 50% off a smoothie—the same net savings as a free smoothie after ten purchases—but I would have been coming in at a more frequent rate, because I would have been more incented to earn an easier-to-attain reward.
When used as a follow-up to quantitative analysis, qualitative analysis should include questions derived from quantitative results to understand the “why” behind quantitative findings. For example, if quantitative results indicate that customers with a high level of rewards are not redeeming those rewards, qualitative analysis can probe customers about why they are not redeeming. Finally, qualitative analysis should explore the attitudes and emotions that connect customers to the company to inform marketing efforts and drive loyalty program evolution.
The qualitative and quantitative insights from a loyalty program evaluation should be used to develop a plan of action to optimize the loyalty program in terms of benefits to both the customer and the company. The insights do not need to be concerning to prompt action. Rather, an action plan can be formed around opportunities to improve an already successful program. Companies should also keep in mind the potential unintended tradeoffs to changes to the loyalty program, such as devaluing a status level by lowering the threshold too drastically, making more customers rewards-eligible and thereby degrading the rewards.
A loyalty program done right offers benefits to both customers and companies. Sure, it’s an ongoing effort for the company to evaluate and reevaluate a loyalty program, but the value gained from quantitative and qualitative exploration of customers’ behaviors, wants, and feelings is a huge win for everyone.
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