Collinson article highlights a major challenge in loyalty programs—62% of companies struggle to measure incremental revenue and profit generated by their programs. Without clear metrics, businesses cannot justify continued investment or optimize their loyalty strategies.
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CollinsonCollinson article highlights a major challenge in loyalty programs—62% of companies struggle to measure incremental revenue and profit generated by their programs. Without clear metrics, businesses cannot justify continued investment or optimize their loyalty strategies.
Key takeaways:
Loyalty programs are a crucial tool for customer retention and revenue generation, but their true impact on incremental revenue is often difficult to measure. According to research, a staggering 62% of companies cannot accurately quantify the incremental profit generated by their loyalty programs. This raises fundamental questions about their effectiveness and sustainability. Without clear metrics, how can businesses justify continued investment in these programs?
1. The Core Question: Does Loyalty Drive Behavioral Change? The key to proving the value of a loyalty program lies in answering a fundamental question: “To what extent does a loyalty program drive a change in customer behavior?” Would a customer have made the same purchase decisions if they had not joined the loyalty program? Answering this requires businesses to establish a baseline for comparison.
2. Measuring Incrementality: Key Approaches. Loyalty operators need robust methodologies to determine the actual impact of their programs. The ability to track customer behavior before and after joining a program is the most straightforward approach. However, in cases where this is not feasible, alternative methods can be applied:
- Pre vs. Post-Enrollment Tracking. If a business can track customer transactions before and after they join the loyalty program, they can compare the change in spending patterns. This is often possible for eCommerce businesses, airlines, and retail banking, where transactions are directly linked to customer accounts. Payment-linked loyalty programs in physical retail can also leverage this method.
- Geographical Control Groups. When pre- and post-transaction data isn’t available, businesses can establish control groups in different locations. For instance, a retailer may launch a loyalty program in select stores while keeping others as a baseline. This approach ensures that the results reflect actual changes driven by the program rather than external factors.
- Hold-Back Control Cells. Another effective method is excluding a percentage of new members (2%–7%) from program communications. By comparing their purchasing behavior with fully engaged members, businesses can determine the program’s direct influence on spending habits.
3. Loyalty Score Benchmarking. Creating an engagement score based on frequency and type of member interaction allows businesses to analyze whether higher engagement correlates with increased spending. By comparing low-engagement members with similar-spending high-engagement members, companies can assess the direct impact of loyalty efforts.
Common Pitfall: Avoid Comparing Members to Non-Members
A frequent mistake in loyalty program analysis is comparing the spending habits of non-members with members. This creates a misleading baseline because high-value customers are naturally more likely to join a loyalty program and spend more. Instead, companies should track the same high-value cohort before and after joining the program or compare different engagement levels within the membership base.
Without a clear understanding of incrementality, businesses risk operating loyalty programs without knowing whether they drive real financial impact. By implementing robust measurement methodologies, companies can ensure that their loyalty efforts generate true revenue growth and long-term customer engagement.
If your business struggles with measuring loyalty ROI, companies like Collinson offer advanced measurement tools, including ROI calculators, to help businesses quantify and optimize their loyalty program effectiveness.
Source: Collinson
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