Retailers - the difference between good and bad programs

Aberdeen Group has just published (with support from Carlson Marketing) a report that discusses the differentiation between a good retail loyalty program and a bad one (called Laggards in the report). 

This is a great yardstick to understand whether your program is doing all it should or whether your investment is being squandered.  

The headlines: if you have a retail loyalty program and you're not achieving, year on year increases of:

• 19%  - average basket value increase (the dollars spent by each customer on each shopping trip) 
• 16% - YOY lift in customer retention rate
• 5% - YOY decrease in customer attrition rate
  

...then you're not getting value for your investment (or more bluntly - you have a cost centre, not an investment).  Many of the retailer programs we analyse in New Zealand fall below these metrics and seem to have operated at this level for some time.

However - there's a number of simple steps to radically improving performance.  All of them flow from better using the data that already exists.   Start with financial requirements and make these aggressive.   How much do you want to grow sales by and how much do you want to improve your revenues over your costs?  Loyalty programs are there to grow profits; they're measurable investments that can compete on the P&L with any other investment.  They don't belong to the same family of marketing as brand building or advertising which have returns but not ones you can see in the financial statements.  

Once you know your financial targets  - roll down to the customer value proposition - what do you have to give customers to achieve the financial goals.  Be relentlessly mercenary - incentivise ONLY profitable behaviour.  

If a customer is already giving your business - don't incentivise them for that business.  Incentivise them to bring the next shopping trip to you - the one that they would normally have given to your competitor.  Offer points for uplift and points for growth. And offer points only for these if you're able to. This also suits a good financial model as the cost of the incentive comes out of the new margin earned and isn't a flat cost on the sales you already have.

Once you have these two factors nailed - its a simple matter to design the required business processes that will deliver the customer value proposition.  And once you know those - you know whether you have the assets internally to achieve your goals or whether you need an outsource partner to deliver.