Thursday, June 13, 2013
Does Your Loyalty Program Generate Incremental Income? Are you Sure?
Do you have a customer loyalty points
program? Does it work? We just heard about an automotive tune-up and oil change
franchisee that reports loyalty program members spending an average of $106.11 per transaction versus only $68.29 for non-members.
In addition to spending more money, members of the loyalty program also reportedly visit more often -- an average of
1.4 visits per year versus 1.1 avg. visits for non-members (that's 27% more visits from program members).
9:57 am edt
That all sounds great, but here’s the unanswered question. Did the loyalty program
really cause members to buy more and visit more frequently, or are customers who visit more frequently and spend more
simply the ones that are more likely to take the time to sign-up for the program?If it’s the former, then the program is generating additional income. But if it’s
the latter, then all the franchisee has done is spent marketing dollars and resources to run the program, and given away services
as awards. When the costs are taken into account they may even have lost money. Assuming a cause and effect can be an expensive way to run a business. Yet most
loyalty programs never establish a process to objectively measure the real program costs or the true volume of incremental
sales that are generated.