Tuesday, 4 November 2008

The best things in life are free

One of the questions I’m asked quite often is how do we measure engagement within a loyalty programme - how do we know people are "getting it".

There are obviously a number of indicators to a loyalty programme working well including enrolment levels and tracked spend, but the number one measure of engagement is normally expressed in terms of redemption. Where 30-60% of customers are redeeming within a programme we’d class this as working well - over 70% probably too well and under 30% not well enough.

It’s a simple measure but it makes sense.

For someone to go to the effort of carrying a card and swiping it they must feel there is an achievable reward in the future. Driving loyal behaviour is a balance between having rewards the customer wants (the goal) and how achievable the rewards appear (reward divisibility). The level of redemption within a programme validates the number of people seeing this benefit and working towards achieving it - low levels of redemption suggest low levels of engagement.

This measure was called into question though earlier this week when I was reviewing a US retail loyalty programme. This programme had 80% basket penetration (% of visits with loyalty card used) yet only 5% redemption. Given the low level of redemption you’d expect low engagement and hence low levels of card carrying/usage. Customer research carried out for the programme also showed that customers were not aware of the benefits of the programme even though they had apparently worked towards them and received them. So here was a programme which customers didn’t really know about, didn’t redeem for and yet had high levels of usage.

Digging into how the programme worked revealed some interesting findings however. The employees of the retailer were trained to ask for the card on every transaction and where the card wasn’t being carried could use the customer’s phone number to link the transaction.

I know from my own experience at retailers like Wickes in the UK that when they suddenly ask for your post code at point of purchase you simply provide it - sometimes a little uneasy as to why they asked - but they asked so you provide it. I've also seen the same effect on a programme we ran where we simply asked a customer if we could put that purchase on a specific card type and managed to significantly move the needle on spend towards that card - for free - just by asking.

It would appear the same thing is happening here - customers have high levels of inertia and are taking part in the programme just because they are asked to on every visit. Although this makes the programme successful in terms of the amount of spend tracked through it and the data this affords the retailer, it could be significantly more successful if customers actually valued the programme, saw achievable rewards within it and changed behaviour to reach them.

That said, it is a great example of what can be achieved by engaging employees in a programme - something that is key to all successful loyalty schemes - and best of all its free.