Loyalty Metrics That Prove Your Loyalty Program Isn’t Performing

March 2018
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For now, there are almost 3.5 billion US consumers, who participate in loyalty programs. An average person is a member of 8 rewards programs, more trends for this industry you can look up in this Harvard Business review loyalty research.

However, enrollment and engagement are completely different things.

McKinsey&Company A recent McKinsey study suggests that on average, they do not — and may in fact destroy value for program owners. The study, involving 55 publically traded North American and European companies, showed that those that spend more on loyalty, or have more visible loyalty programs, grow at about the same rate — or slightly slower — than those that do not (4.4 vs 5.5 percent per year since 2002). Notably, this trend appears to vary by sector, with loyalty focus having a positive impact on hotel growth, but negative impact on airlines, car rentals, and food retail, for example. However, as a whole, companies surveyed that had higher loyalty spend also had EBITDA margins that were about 10 percent lower than companies in the same sectors that spent less on loyalty. researched 50 publicly traded companies and found significant budgets spent on loyalty programs rarely bring expected results in customer engagement.

Bad news is that financial support and traditional approaches to building rewards programs don’t guarantee their success.

Good news is there are metrics to evaluate the performance of your program and transform it before it’s too late. Here are a few.

Key metrics to warn you about poor loyalty program performance

1. Breakage rate over 40%

What is it?
Breakage rate shows the percent of bonus points issued but not spent (expired or ignored by customers).

Why is it important?
Customers feel value of bonus points acquired only when they spend them. No spending – to tangible value and no motivation to earn more in the future.

How to calculate?



Successful loyalty programs usually show over 40% of issued points are spent.

How to improve the result?

  • Provide bonus points as soon as possible – there is nothing more discouraging than checking up your loyalty program account and see your points are still not there.
  • Send your customers surprise-points – it can be a birthday gift, an additional ‘thank you’ for a completed order or due to your company’s anniversary. It reminds of your business, and make customers think of clever ways to redeem these points without even noticing it.
  • Clearly show how to redeem points – use schemes and infographics on your website, app and on advertising leaflets to make sure your customers know exactly what to do.
  • Organize promotions to motivate spending points – make your bonus points temporarily worth more, for example, you can double earned points every Wednesday.
  • Remind of points waiting to be spent – a good idea is to have a mobile app developed and move your loyalty program there: this way customers always have access to their account, can monitor the number of points left and choose most captivating rewards right from their mobile devices.

2. Participation rate under 30%

What is it?
It shows the percent of customers actively engaged in your rewards program.

Why is it important?
These metrics help to understand how motivated your clients are to participate in your loyalty program. You get clear numbers to track the program growth and can adjust it to customer needs, if necessary.

How to calculate?



A study What You Can Learn From Your Participation Rate
A 40% participation rate tells us a couple of important things about the rewards program in question. First, it demonstrates that the rewards program is easy to find and equally simple to join, with a relatively frictionless adoption process.
A high participation rate is a good sign that your rewards program is both accessible and desirable to your customers.
Secondly, a high participation rate tells us that the rewards program offers a genuinely valuable proposition for the brand’s customers.
of over 2,000 rewards programs showed the average participation rate for successful ones was about 40%.

How to improve the result?
The steps are like those mentioned above. In addition, you should check, if you are offering rewards that your customers are actually interested in and if you promote your loyalty program prominently via different communication channels.

3. Redemption rate under 13%

What is it?
It has something to do with breakage rate but considers the percent of customers that do spend their points or redeem their rewards.

Why is it important?
Redemption rate proves customers get points, spend them and receive rewards. This forms positive associations with your brand and your rewards program and increases their motivation to keep going.

How to calculate?



The top quarter of successful loyalty programs have a redemption rate over 30%. The average ecommerce redemption rate is 13%. It would be reasonable to strive for 20% of points redemption rate and 75% of rewards redemption rate. See how average redemption rate varies by country:

How to improve the result?

  • Offer multiple ways to earn bonus points – there are 3 basic actions: purchasing, signing up and referring a friend. Loyalty programs showing higher redemption rates provide more than 5 various ways to acquire points.
  • Create rewards for increasing your brand awareness: sharing posts on Facebook or Twitter, using stickers with your logo on the car, whatever is suitable for your business.

Summary

  1. Keep track on your metrics monthly – to measure performance and avoid wasting time on ineffective marketing, you should know where you started and how far you’ve managed to come. Your metrics won’t rapidly change overnight, but it would be smart to renew your data monthly.
  2. Make your loyalty program a heart of your marketing – up-to-date loyalty programs have gone mobile. This way of communication helps to:
    • offer gamified experience with your rewards programs: all this thrill, tiers, redemption choices;
    • easier communication with your brand: enhanced functionality for easier program performance analysis for you, and online managers and customized recommendations in the shopping cart for your customers;
    • reminders of bonus points and encouraging profitable actions via push-notifications and a lot more.

If you want to get started with a loyalty program or look for opportunities to adjust it to changing marketing environment – VALFOR Company has a lot to offer.
We deliver rewards programs to mobile phones and improve omnichannel communication with customers via Android and iOS development. It helps to move brand recognition a few steps up. Our customers are retail businesses including stores, warehouse and logistics organizations.

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