Changing the Retail Game With the Loyalty Measurement TriangleNovember 9, 2012 By Dennis Goodman
Retailers play a fast-paced game in which their success — or failure — is measured by yesterday's sales. To stay in the game, the best retailers measure the results of all programs in every area, including operations, merchandising and marketing. Smart marketers calling for a loyalty program need to respect that mind-set, but can gain acceptance on a new set of rules using the "loyalty measurement triangle."
Different Game, Different Rules
Retailers are used to measuring everything, so when they decide to launch a loyalty program, they want to see return on investment on the program immediately. Loyalty programs don't play by those rules: costs are up front and benefits appear in the future. Worse yet, staffs are generally lean and they're not typically trained on measurement in the first place. Even with a full staff trained in measuring different types of programs, traditional ROI on loyalty is difficult to capture and communicate for several reasons:
- loyalty is usually how transactions are identified, so holding out customers is often impossible;
- the benefit of a loyalty program isn't immediate, rather it manifests itself in more visits over time;
- strong results among a small amount of loyalty participants doesn't offset declining business of the rest of the base; and
- organizations are uncomfortable thinking in terms of customers instead of products.
So it's no surprise senior executives get frustrated trying to pin down the exact value of a loyalty program. Studies show that almost half of surveyed companies list measuring market value and effectiveness as one of their top challenges in program execution. Not knowing the true value of their customers’ loyalty is universally frustrating for retailers.
Being able to pin down a traditional ROI doesn't mean there's nothing to measure, however. Like a NFL official who uses multiple replays to assess a play, loyalty program value can be triangulated by looking at multiple sources and metrics.
The Loyalty Measurement Triangle
Selling this perspective starts by remembering the source of executives’ frustration: expectations and understanding. Senior executives understand traditional ROI from other areas, so it can be challenging to suggest a different form of measurement. When new metrics are introduced, executives don't know how to tell good from bad. Getting them to accept this solution depends on how well you pre-sell the concept. That's where the loyalty measurement triangle comes in.