Maximising a loyalty program’s return on investment (ROI) may still be a challenge for many retailers.
Sarah Jarvis, Communications and Propositions Director of Eagle Eye, co-wrote with Hunter Murray and Anand Patel from Loyalty & Reward Co, an article which may help shed light on how can businesses navigate this opportunity:
Australian retailers are taking a fresh look at their loyalty programs, bringing in new tech and focusing more on what customers actually want.
While collecting points is still common across the industry worldwide, the most savvy players are now using AI to personalise the shopping experience, driving more value for customers and generating greater revenue for their business. This year, UK grocery retailer Tesco marks 30 years since launching their Clubcard loyalty program in the UK. It’s one of the pioneering retail loyalty schemes in the world.
In the past three decades, loyalty schemes have boomed, with companies spending big on developing and refreshing their offerings. But like any business expense, it’s vital for businesses to know what they’re getting back; that’s why loyalty ROI matters.
Tracking the return on a loyalty program gives organisations the clearest picture of its true business impact. It reveals which aspects of the program are working and which need a rethink. Plus, it helps marketers explain the value to the leadership team in charge of the budget, making it easier to secure ongoing investment for loyalty initiatives in the future.
How to Measure Loyalty ROI
The basic formula for Loyalty ROI is straightforward: Gain from investment minus cost of investment, divided by cost of investment, multiplied by 100. However, taking a closer look, organisations should consider these steps:
1. Choose the Time Horizon: A 3-5 year horizon is ideal for pre-launch, while established programs should continuously track performance year-on-year.
2. Understand the Commercial Baseline: Calculate business performance without a loyalty program, including baseline revenue, total unique customers, average revenue per customer, transactions, and customer churn.
3. Determine Program Engagement: Measure program penetration (percentage of customers enrolled) and tag/swipe rate (percentage of member transactions where benefits are earned).
4. Calculate Incremental Revenue: This represents additional revenue generated by the loyalty program, including acquisition growth rate and increases in member spending.
5. Account for Program Costs: Consider both implementation costs (design, build, launch) and operational costs (human resources, technology, marketing, rewards).
Measuring loyalty ROI isn’t a one-off task, it’s an evolving process that adapts to the changing dynamics of a program. Companies are advised to start small by focusing on insights, then iterate and refine the approach as more data is gathered.
Smart Loyalty Program Design to Maximise ROI
Smart loyalty design makes a big difference to the bottom line. Member pricing, for instance, offers exclusive discounts to loyalty members, incentivising sign-ups and driving higher spend while being simple to implement and understand.
Building on this, the traditional earn-and-burn model creates a system where everyday spending builds value while targeted promotions drive specific behaviours; the key here is balancing base earn rates with more dynamic promotional rates.
Tiered programs add another layer by giving the best customers increasingly better perks, keeping them loyal and boosting their lifetime value over time.
Beyond program design, thoughtful partnerships can further boost ROI by expanding program value while at the same time making it more cost-efficient. One approach is reward sourcing through collaborations with complementary brands, which offers rewards at reduced costs while providing partners with a direct sales channel to customers.
Furthermore, data monetisation turns member insights into revenue opportunities by creating valuable datasets where suppliers and merchants can collaborate to grow the business.
Complementing these strategies, retail media transforms a loyalty program into a marketing platform by selling advertising space to partners, creating an additional revenue stream while enhancing program appeal through new offers.
By taking this customer-first, data-driven approach to loyalty program management, businesses can create initiatives that maximise value for both customers and the organisation, ultimately driving sustainable growth and profitability.