One of the common critiques of loyalty marketing as a customer strategy is that programmes merely "subsidize" behavior, rewarding loyal customers for shopping habits they would exhibit anyway. Loyalty marketers, however, know that well-designed programmes do change behavior- and the key to convincing the C-suite of the programme's value lies in your ability to measure incrementality: to demonstrate, as definitively as you can, that your loyalty investment is driving profitable behavior that would not occur absent the programme stimulus. At Tnooz.com, commentator Cornelius Kaestner offers a useful primer on how to determine if your loyalty promotions are really driving incremental behavior.
Kaestner's primer isn't necessarily news to seasoned loyalty practitioners, but it does provide a useful summary of measuring incremental behavior for those marketers just beginning their journey as loyalty practitioners. The entire article is worth reading, but here's the money quote, using airline marketing as an example:
By trying an idea - such as a new loyalty benefit or fare bundle pricing - with a small subset of customers, flights, or markets, airline executives can gain a view into which programmes drive increases in KPIs that would not have occurred without the programme.
These KPIs can include revenues, booking volume, customer satisfaction or met profit, among others.
This "test and learn" approach consists of four key steps:
1.Generate hypotheses and collect testing ideas for new programmes from across the organisation. Marketing, loyalty, revenue management, ecommerce and strategy teams should be involved.
2. Compare the subset of customers, employees, flights, or markets that were affected by the initiative to a set of highly similar "control" group. Similarity can be in terms of level of spend, demographics or even flight duration.
3. Measure the incremental impact of the initiative in real time and understand how results varied across channels and categories to determine if it was successful.
4. Segment results by various customer, flight, or market attributes to understand where the programme worked best and inform a targeted, profitable roll-out.
Kaestner's outline is textbook best practice for loyalty marketers. Not every business has the luxury of and the bank account to set up isolated control groups. You can always, however, implement incrementality measurements along a continuum of budget and control; for example, if you can't properly set up a control market to which to compare customer behavior with your loyalty programme test market, you might instead compare member behavior to that of non-members. It's a less precise and more anecdotal approach to measurement- but it's better than not measuring incrementality at all.
The bottom line: If you don't already have a measurement approach in place similar to the one Kaestner advocates, then do yourself a favor and implement one. A loyalty programme is only as valuable as its ability to drive incremental revenue. Absent such results, then you really are only subsidizing existing customer behavior.
Read Kaestner's article here.
-Rick Ferguson
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