How do you measure customer loyalty? Let me count the ways.

mixed up measure

I recently interviewed a number of companies about their approach to customer loyalty. In each conversation I asked a variation of the question "How do you define and measure customer loyalty?" And what struck me is that while many companies define loyalty using various terms like share of wallet, length of relationship, engagement, and customer value, they often measure it using only transactional metrics. Now, there are various reasons for this. Some don't have access they to the data they need to gage emotional loyalty. Others don't have the analytics capabilities or resources they need to pull the pieces together. But loyalty if multi-faceted, complex, and has emotional and rational aspects that aren't mutually exclusive, and certainly can't be reduced to a single metric.

So what should you do? First, heed my rallying cry: It's time to push past purchase as a proxy for loyalty. Second, Forrester can help. Loyalty may be difficult to measure, but it's not impossible. My latest research report provides a framework that buckets loyalty measurement into four, cooperative levels:

  • Programmatic measurement assesses loyalty program health. These metrics explain how the loyalty program grows in size, scope, and activity level over time. Sample metrics include enrollment rates, offer response rates, and program usage.
  • Purchase measurement quantifies the customer relationship. These metrics explain how the loyalty strategy improves customer profitability. Sample metrics include average order value, frequency, and basket assortment.
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The Landscape Of Loyalty Providers: Everything But The Kitchen Sink?

I field a lot of inquires from clients in various stages of loyalty vendor selection projects. Some come with a tightly defined short list, but more often than not, they aren't even sure where to start. Customer loyalty initiatives take several forms including highly structured programs and loosely tied customer service, marketing, and product development tactics spread throughout the organization. As such, vendors of all types -- from loyalty-specific service providers and platforms to customer engagement agencies and analytics service providers -- bring loyalty strategy, management, and marketing chops to the table: 

Loyalty provider categories

With so many different providers knocking on their door, it's no surprise that marketers feel overwhelmed by the selection process. My most recent report cuts through the clutter by organizing loyalty providers into categories based on their core offerings and delivery models. But, before you start dropping vendor names into a shortlist, you first must answer these three questions:

  • How does your company approach loyalty? Take stock of your existing retention tactics and how customers currently interact with your products, services, and brand. Outlining your organization’s approach will help you select new partners but also potentially enrich relationships with existing partners.
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Do you have what it takes to be a loyalty legend?

There are more than a few loyalty-esque proverbs that float around marketing departments and boardrooms everywhere: "repeat customers spend more," "it costs five times more to acquire a customer than to retain a customer,"  "80% of your revenue is driven by 20% of your customer base." If you are reading this blog post, chances are that you have uttered at least one of these phrases at some point in your career. But, if you've ever tried to put your money where your mouth is, you also know that achieving true customer loyalty requires strategic alignment, deliberate planning, and financial and cultural commitments. Loyalty is both behavioral and emotional, and companies that really want to compete for their customers’ loyalty need an evolved approach that extends beyond the program.

To help you understand where your loyalty strategy stacks up, Forrester has developed new self-assessments that examine loyalty from two points of view: the business' and the member's:

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Perking Up Your Loyalty Program Benefits Is As Easy As A-B-C

Consumers and marketers don't always see eye to eye when it comes to customer loyalty programs. Consumers tell us they enroll in programs for the points, discounts, and savings, while companies tell us boosting customer engagement is a top goal for their loyalty programs. Sixty-seven percent of consumers consider themselves active in programs they join, yet the marketers who run loyalty programs report that only 16% of customers are active program participants. Regardless of which camp you fall into, one thing is clear: a program is only as strong as the members who participate in it. And, the value exchange a program creates is central to attracting members today and getting them to come back tomorrow, next month, and next year.

But, choosing program benefits can create some anxiety. Marketers need a mix of rewards that satisfies consumers' desire for savings while encouraging deeper engagement, and acknowledging/recognizing customer value. Forrester clients often ask me questions like "What can we offer besides points?," and "How do we make customers feel valued?." The short answer is that there are a lot of options that have varying objectives for the customer:

Table of benefits and customer impact

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Get With The Program (Or Not): It’s Time To Evolve Your Loyalty Strategy

In 2014, customer loyalty is a bit of an anomaly. Customers are empowered, informed, and have myriad options to choose from. They don’t really need to be loyal. But for companies doing business in the Age of the Customer, earning customer loyalty is more important than ever before. Satisfied loyal customers are the only reliable source of growth.

So, what do loyalty strategies look like today? For most companies I talk to their loyalty program is their strategy. While narrow, this approach doesn’t completely miss the mark. After all, the premise of a loyalty program is to create a mutually beneficial exchange for rewarding customers and collecting customer insight. And, for many marketers I talk to in retail, hospitality, and other industries, their most valuable customers are active participants in their loyalty program. The issue is that programs today are better positioned to “lock-in” customers rather than leverage member insights to drive personalization and improve the way they serve their customers. The traditional means of “driving” loyalty with points and discounts are no longer sufficient. It’s time for companies to evolve their approach to loyalty programs and strategies with a focus on relationships, advocacy, and engagement.

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Just Published: Our Forrester Wave™ Evaluation Of Loyalty Program Service Providers

We recently wrapped up our second evaluation of loyalty program service providers. From a potential pool of over 30 loyalty providers, we selected eight leading vendors that offer soup-to-nuts loyalty strategy, technology, and program management services. What has changed since our last evaluation? Notably, we found an increased focus on building programs that go beyond transactional rewards and loyalty technology. Wraparound program management services are still a key component of their solutions, but every vendor included in this Forrester Wave evaluation offers a productized platform that can be configured to meet client requirements.

In our final evaluation of eight vendors in“The Forrester Wave™: Loyalty Program Service Providers, Q4 2013,” we found a relatively competitive field of providers. Each firm has strengths and weaknesses in its current offering, but the leaders differentiate themselves through their forward-thinking company strategies. From a road map and development perspective, further increasing customer engagement capabilities, continually improving technology, and investing in more sophisticated loyalty analytics are major focus areas.

I want to extend my sincere thanks to each vendor in the report — Aimia, Brierley+Partners, Connexions Loyalty, Epsilon, Kobie Marketing, Maritz Loyalty Marketing, Olson 1to1, and Tibco Loyalty Lab — for committing to and participating in the often grueling Forrester Wave evaluation process. In addition, thank you to my CI colleagues Samantha Ngo, Carl Doty, and Shar VanBoskirk for supporting and editing this research.

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Make Mobile A Loyalty Priority

I belong to more loyalty programs than the average consumer. As a result, on any given day, my wallet is overflowing with loyalty cards and loyalty program related paraphernalia. At the register, I’m often rummaging through my purse to locate reward certificates, half-filled punch cards, coupons, and the like.More often than I would like to admit, rewards go unredeemed simply because I didn’t have access to them when I needed or wanted to make a purchase.

I am also — like 42% of US online adults — a perpetually connected consumer. Whether I’m “just looking,” comparing specific products and prices, searching for coupons in my email, or making a purchase, I rely on my smartphone as a trusty sidekick. In that vein, my mobile phone has recently helped me reduce some of the physical bulk that comes with loyalty program membership. I have an app that digitally manages all of my membership cards in one place, a loyalty program folder to corral branded apps that offer loyalty program functionality, and more than one retailer lets me scan rewards barcodes at the POS.

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Calling All Loyalty Program Marketers: Take Our 2013 Customer Loyalty Program Benchmark Survey

Do you manage or make decisions about your company's customer loyalty program? If so, we want to hear from you. We're teaming up with Loyalty360, The Loyalty Marketers Association, to investigate loyalty program size, organization, performance, strategies, and challenges. Take our 2013 Customer Loyalty Program Benchmark survey, and we'll send you complimentary a copy of the resulting research.

Take the customer loyalty benchmark survey

You can use the survey results to:

  • Spot trends and see best practices to incorporate into your loyalty strategy. 
  • Compare your program performance, spend levels, and loyalty technology adoption to those of other loyalty marketing professionals. 
  • Provide justification for a business case in your 2013 loyalty road map. 

The survey will close on Friday, February 15, and the completed research report will publish later this spring. I will also present the findings in a free Webinar and in advisory sessions to interested clients.

Take the customer loyalty benchmark survey 

Please share this blog post and survey link with friends and colleagues who share an interest in customer loyalty programs. Thanks in advance for your involvement!

330 Days Left To Mobilize Your Loyalty Program In 2013

New Year’s resolutions were so last month. But if devising a mobile loyalty strategy wasn’t already on your to-do list, you should add it ASAP. All signs point to continued explosive growth in consumer adoption and use of mobile devices across the customer life cycle — from discovery to purchase and beyond. And as the charter for loyalty programs expands to encompass emotional as well as transactional engagement, mobile will be crucial to meeting evolving consumer expectations. Still not convinced? Taking your loyalty program into the mobile channels yields three key benefits:

  1. More access to your members. Most loyalty programs interact with members through purpose-driven activities such as enrollment, online profile completion, point-of-sale (POS) transactions, and reward redemption. But this approach has a limited line of sight into further opportunities for engagement. Enabling a mobile strategy literally puts the loyalty programs in members' hands — wherever they are in the customer life cycle — and creates the potential for a wider range of customer interactions.
  2. Expanded member knowledge. Empowered consumers increasingly rely on mobile devices as companions to their interactions with a brand and generate behavioral, transactional, and location data. Since mobile channels are highly trackable, loyalty programs that collect that information can create deep customer insights that drive personalized communications, experiences, and offers.
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Shiny Pennies Beware: Our Latest Research Vets 13 Loyalty Program Tools

If Loyalty 1.0 was all about discounts, points, and miles, Loyalty 2.0 is all about differentiation and engagement. Competition for customer attention is steeper than ever, and companies are always looking for innovative ways to set their loyalty programs apart. But the loyalty landscape is chock full of shiny pennies (and some not-so-shiny pennies) claiming to offer a solution to this engagement problem. Throw rapidly evolving technologies, channels, and tactics into the mix, and marketers have a lot to consider when deciding where to make their bets.

If you’re nodding your head, you aren’t alone, and you are in the right place. Cutting through the clutter is exactly what our latest report, “TechRadar™ For Customer Intelligence Professionals: Customer Loyalty Programs, Q1 2013” (subscription required) is all about. We spent the past several months investigating the current maturity, business value-add, and future trajectory of 13 loyalty tools, including affiliate networks, card-linked rewards, coupons, location-based services, mobile applications, program websites, and social rewards. At a high level, we came away with two key observations:

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