The main challenge in measuring loyalty is that it’s a state of mind, not exclusively an action. Asking customers is unreliable but yet the benefit of understanding who is loyal and how they behave allows businesses to observe, monitor, and improve.
The most common approach to measuring loyalty is order frequency. You might even go as far as to measure regularity and how recently or how much your customers spend. None of this is wholly wrong but in truth that is retention being measured here.
If your job title is ‘loyalty’ and yet all you are measured on is retention, you’re only really being measured on a fraction of what your role is about. Retention as an indicator of loyalty, not a measure. It’s linear, commercial, it simply tells you whether the visitors to your site are shopping with you and continue to do so over time. Loyalty, however, is multi-faceted, concerned more with whether the visitors to your site are giving you greater consideration as a result of their experience with you.
For simplicity, and due to the fact that CRM and loyalty teams have often evolved around the email team, some businesses will set loyalty KPIs around email performance and repeat order rate. Simplicity is attractive when faced with a lack of reporting technology, siloed data, and not enough available analyst resources.
How to measure loyalty
Are customers being loyal only when they are placing orders? I’ve known brands where even the most valuable shoppers also shopped with their main competitor and high spend with them usually meant more spend within the market generally, rather than a distinct loyalty to that brand. So, loyalty can’t be all about orders, can it.
Building and nurturing loyalty will require you to knit together multiple data sets, behaviors, and channels. In the same way, measuring loyalty will also require you to model all the things that indicate affinity to what you do as a brand. Loyalty is a sum of parts; it is not about finding the single golden metric.
Aim to put measurements against all the actions and behaviors your customers demonstrate to you when interacting with your brand and when visiting your site. To begin, consider this very broadly, not just those in the closing stages of the sale. Don’t overlook behaviors outside of the purchasing cycle as well as during and particularly immediately before and after an order.
Most importantly, acknowledge that the 2 or 3 KPIs you use to measure the performance of loyalty managers on a weekly basis are not sufficient to measure the degree of loyalty your customers are showing to your brand.
Loyalty as an investment
You contribute, your customers contribute and as a result you see growth. Each area of your business that you invest in, innovate, and improve will make a contribution. Those results form part of a dashboard that indicates your loyalty health factor.
Each metric may be made up of 2 or 3 results and those metrics then form the component parts of how loyalty can be reported in your business. The objective then, as a loyalty manager, is to keep the loyalty health factor strong by fine tuning the component parts. Over time you will need to speculate in some areas and pull back in others depending on which performance metric you want to influence.
Dips in some areas will adversely affect that factor and increases in others will compensate. For example, recruitment of new customers may compensate for loss of existing customers but in times when you know there will be lots of orders but an operational delay, you may need to take action to keep satisfaction steady.
By approaching loyalty this way, you will be clearer on what your customers want, how they are responding, and how that is impacting your performance. Then you’ll be able to plan, as a business, what you want to do about it.
This approach builds a picture of what loyal customers ‘look’ like in terms of their behaviors day by day, week by week. When you know this you can, not only take action to keep those customers loyal but you can also identify other customers who look similar and start to predict the right behaviors from them too.
Need AI, I hear you say? Maybe, but think also about whether you can see more obvious things. Do loyal customers adopt the use of your app, use premium delivery, shop multiple categories or engage highly in a particular channel? If you know this type of information, you can start to promote the use of this to other customers.
Always think simple first
Begin with what you can measure right now rather than not measuring anything at all. Value is usually most easily measured and plays a considerable part in the loyalty factor. Get an accurate read on order value, frequency, margin and lapse rate at customer level. Then, without delay, build in regularity as this will allow you to monitor likelihood to churn and also use your recencey frequency value data more tactically.
In addition to spend, look at the breadth and depth of purchase across categories, particularly around the adoption of new products and periphery categories. A tendency to buy beyond your core offering would indicate trust. Where you can, monitor average order value across these categories to understand category preference.
Having these measures in place will start to move you towards calculating a lifetime value which will reveal the value of the customers you have rather than the value of the orders they place. I favor lifetime value models within loyalty measurement because loyalty doesn’t happen overnight. When we try to measure it with metrics that are short term and linear, we miss the bigger picture.
Lifetime value encourages businesses to consider the entire sale process rather than just the placing of an order. As a result, these measures can then start to positively inform and influence both the acquisition and retention budgets within your business.
Then, behavior tracking is key
Attention should then turn to intent measures such as engagement, referral, and trust. Are your customers engaging, reading, opening, following, liking and telling others about what you do? Are they buying into your business initiatives, the campaigns you create and how you do business? What does their visit and session quality look like? We’re talking ‘fandom’ here, those people who love what you do.
You can’t measure what you can’t track but start to explore the behaviors you want to understand to contribute to loyalty and agree upon an event that indicates these. For example, you may consider that following you on social media is a positive behavior, but what does the customer ‘do’ that you can track to indicate this? Customers may also show positive behavior in their use of features like wishlists or even in their adoption of premium delivery services.
I would also always recommend involving different areas of your business and getting them to define what loyalty would mean or look like in their business unit. These can then be incorporated into your metrics and tracking and makes the loyalty factor something that can be bought into across the business.
Remember, if everyone in your business is not prioritizing loyalty, you will struggle to nurture it. Examples here might be the use of your app, breadth of purchase across categories, percentage of ‘new in’ orders, use of subscription services, interaction with blog content, referral rate, NPS or their return rate.
Approaching measurement – final tips
Finally, don’t read this wrong. Being multi-facted doesn’t make measuring loyalty complicated. But we are guaranteed to overlook opportunities if we do not consider a wider set of metrics beyond retention. For a start, we may consider that a low order customer is less valuable to us and invest in the type of customer who brings us more order value.
But if the lower order value customer is purchasing more frequently then they may actually be a better investment than the high order value customer who only ordered once. Using engagement metrics to determine email send lists means your messages are being seen but if they are not acted upon there’s no return on investment.
Approaching measurement in this way can quite fundamentally change the decisions marketing teams are making on customers, rather than channel and level. Moving the needle on results is hard enough. When you realize that maybe you are laboring away by considering customers to be valuable who are actually costing your business money – it’s a rude awakening.
This certainly made me realize why it felt so arduous trying to get improvements in channel revenue from disengaged customers. There is flexibility needed when working with a set of metrics as they can be used to differing extent to drive growth as required. Your lead generation becomes more efficient, your post sale satisfaction and repeat order rate improves and then all of a sudden, your boardroom is speaking of customers rather than orders.
