It is but natural that in any commercial transaction, every party strives to maximise own value. While loyalty programs create preference, they are unable to keep customers faithful, when it goes against this commercial interest. Then, you ask, what is the true purpose of a loyalty program?
Loyalty programs incentivise customers to the point that it influences behaviour, without eroding margins. This influenced behaviour is a measure of the activity a member has with a program.
By definition an Active Member is someone that is highly engaged with your loyalty program and is most likely to continue purchasing from you. They speak highly of you, want to spend more time with you, bring their friends and family to visit, and give you a greater share of their wallet.
Customer become more active when they feel valued and that is when they begin to identify as a member of the tribe. They trust that the brand will do right by them and expect value in-return, at every interaction with the brand. The frequency with which customers interact with your brand and loyalty program is a key measure of their level of interest, engagement, and activity.
There are two types of frequency that we use as key indicators of activity.
Getting customers to purchase at pre-defined intervals is the holy grail of loyalty influenced customer behaviour.
Transaction frequency = total orders / unique customers
Transaction frequency varies by industry, and with it the threshold of active may also vary. For example, CPG brands may consider less than one purchase a month to be inactive, whereas 1 - 2 visits per year would be considered highly active for an Automotive manufacturer.
Transaction frequency is usually measured over a long period of time, typically 12 months and is considered as a lag indicator of loyalty program performance. Customers who purchase more frequently, and follow the prescribed schedule are also more likely to advocate the brand, hence it is an essential metric to track member activity.
While loyalty programs vary in degree, research suggests that the intensity of customer engagement can have a direct impact on purchase behaviour, with engaged customers showing lower price sensitivity. Further, point-based programs that also offer points for non-transactional activities, create switching barriers for customers to move to a competitor.
Non-transaction frequency = total “identified” interactions / unique customers
There is a large spectrum of non-transaction based incentives that are offered across brands, and the internet is rife with examples. However, as we learn from best practice, marketers should be delibrate in identifying and prioritizing engagements that have the largest impact on member behaviour.
Assigning an engagement score based on frequency of impactful, non-transaction interactions can help segment and identify active members. Adding transaction frequency will give you an insight into your most valuable audiences. There are many uses cases where these active member segments can be activated - lookalike audiences for acquisition, personalization, refining incentives and rewards structures etc. The next time customers are faced with a commercial choice, these most active members that you identify and cultivate will be the ones that continue preferring your brand.
By Rohan Bhalla, Senior Director, CXM Solutions