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How to Measure Loyalty Program’s ROI

Customers frequently expect mobile apps to support loyalty programs. Make sure to keep these key factors in mind when developing your own service

Evan F.P.
October 27 2018

Loyalty programs are often viewed as investments with intangible benefits. While they have historically cultivated engagement and goodwill with customers, marketers couldn’t always expect a return that was measurable in the same way as revenue.

This has been changing in recent years, however, especially in relation to mobile loyalty programs. Today’s developers and businesses suddenly have a much broader range of data to draw from thanks to everyday interactions with mobile apps. Millennials, in particular, are incredibly likely to take advantage of loyalty programs – up to 96% in some cases – and increasingly expect to engage with them using mobile services.

And yet, simply having a mobile loyalty program isn’t enough. Developing successful apps is costly, and the metrics for measuring a return on investment are still catching up to modern technology. Those that do exist are usually developed within a specific industry, and aren’t necessarily transferable to other fields. As such, marketers must consider several questions: How does one measure the influence of a mobile loyalty program on customers? What best practices are most effective? And what specific audiences are you appealing to with your program and rewards?

Outside of these concerns, measuring ROI in mobile loyalty programs remains quite similar to traditional loyalty cards. The key factors businesses should take into account are customer retention and engagement.

As always, customer retention is the most important benchmark for any successful mobile loyalty program. This may seem self-evident, yet it’s a frequently overlooked point in app development. One survey from Clutch found that most small businesses invested in mobile apps for the express purpose of attracting new customers. Ironically, this is not a likely outcome.

Instead, the survey found pairing mobile apps with loyalty programs led to strengthened communication with existing customers. Reward points, product notifications, and discount coupons were all notable features that helped users feel engaged. These are far more tangible investments than acquisition, and while a registration discount might tempt someone into joining a program, that doesn’t mean they’ll become a regular customer.

What’s more, these loyal users are a more likely source of long-time revenue than first-time buyers who might never return. PostFunnel has previously reported that existing customers are 5 times more likely to make a purchase, and more likely to recommend your services to others. Meanwhile, most brands invest up to 80% of their marketing budget on acquiring new customers, while retention can deliver much larger returns.

While customer retention and engagement are the primary benchmarks of a mobile loyalty program, there isn’t one single metric for measuring them. Total memberships are only useful when considered alongside other data like account activity or purchase frequency.

A good starting metric is the number of members vs. non-members in your customer base. For example, found that up to half of US grocery shoppers use mobile reward programs for savings. These figures were largely corroborated by eMarketer, and seem to be transferable to related industries such as convenience chains.

(Source)

Once you’ve established the percentage of customers using your loyalty program, you can measure engagement in other ways. A few key performance indicators suggested by Conduit include new memberships, active vs. inactive members, and reactivated members. These numbers are important because they help determine your Net Member Base Growth, which is a far more useful benchmark than overall users. Thankfully, this data is fairly easy to monitor if your app is well-optimized for engaging with members.

In the long term, it’s also important to consider your loyalty program’s churn rate. It’s quite common for member activity to lapse shortly after joining, especially if they’re also doing business with competitors. Thankfully, mobile app notifications make it easier to make offer the latest deals, which provides opportunities to engage with lapsed customers. As we’ve mentioned, it’s certainly most cost-effective than trying to attract new members using traditional marketing methods.

Revenue-based data points can be included if applicable. If your loyalty program uses reward points or discount coupons, these transactions can be used to measure customer interest. You can also measure a member’s Average Purchase Frequency and the Average Transaction Value to determine their Spend Per Visit. (Of course, you’ll also want to distinguish between visits to physical locations and purchases through an online storefront.)

On the whole, no one metric will be the ultimate ROI benchmark for a mobile loyalty program. Instead, each measurement should be aligned with the overall goals of your business while placing an emphasis on customer retention and engagement. If you see growth in each metric, you can feel more certain that your mobile loyalty program is a successful one.

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Evan F.P.

Evan is a writer, educator and tech marketer. As content director at Fluid PR Group, he helps businesses tell their stories to the world. He lives in Toronto with his wife, their son and an occasionally well-behaved Australian Shepherd named Islay. Follow Evan on Twitter

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