Australian retailers are taking a fresh look at their loyalty programs, bringing in new tech and focusing more on what customers actually want.
While collecting points is still common across the industry worldwide, the most savvy players are now using AI to personalise the shopping experience, driving more value for customers and generating greater revenue for their business.
This year, UK grocery retailer Tesco marks 30 years since launching their Clubcard loyalty program in the UK. It’s one of the pioneering retail loyalty schemes in the world.
In the past three decades, loyalty schemes have boomed, with companies spending big on developing and refreshing their offerings. But like any business expense, it’s vital for businesses to know what they’re getting back; that’s why loyalty ROI matters.
Tracking the return on a loyalty program gives organizations the clearest picture of its true business impact. It reveals which aspects of the program are working and which need a rethink. Plus, it helps marketers explain the value to the leadership team in charge of the budget, making it easier to secure ongoing investment for loyalty initiatives in the future.
How to Measure Loyalty ROI
The basic formula for Loyalty ROI is straightforward: Gain from investment minus cost of investment, divided by cost of investment, multiplied by 100. However, taking a closer look, organizations should consider these steps:
1. Choose the Time Horizon:
A 3-5 year horizon is ideal for pre-launch, while established programs should continuously track performance year-on-year.
2. Understand the Commercial Baseline:
Calculate business performance without a loyalty program, including baseline revenue, total unique customers, average revenue per customer, transactions, and customer churn.
3. Determine Program Engagement:
Measure program penetration (percentage of customers enrolled) and tag/swipe rate (percentage of member transactions where benefits are earned).
4. Calculate Incremental Revenue:
This represents additional revenue generated by the loyalty program, including acquisition growth rate and increases in member spending.
5. Account for Program Costs:
Consider both implementation costs (design, build, launch) and operational costs (human resources, technology, marketing, rewards).
Measuring loyalty ROI isn’t a one-off task, it’s an evolving process that adapts to the changing dynamics of a program. Companies are advised to start small by focusing on insights, then iterate and refine the approach as more data is gathered.
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Common Challenges and Solutions
While measuring loyalty ROI is essential, committing real figures to a report can put up challenges. One such challenge stems from today’s omnichannel environment, where customer data gets scattered across various siloes and touchpoints.
As customers interact with brands through different channels, such as in-store, online, and through mobile apps, it’s hard to attain a complete view of customer behaviour. To overcome this obstacle, organisations should invest in tools that consolidate data across channels, creating a unified view of each customer’s journey and enabling more accurate ROI calculations.
Attribution presents another puzzle for loyalty managers. When customers engage with multiple marketing touchpoints before making a purchase, determining which specific elements of the loyalty program influenced their decision becomes difficult. Was it the points accumulation, a special offer, or perhaps the tier benefits that drove their action?
Advanced analytics and customer journey mapping can help untangle these relationships, allowing businesses to better understand the exact role loyalty plays in customer decisions and providing a clearer picture of program effectiveness.
Many businesses also struggle with balancing short-term measurement against long-term value creation. While loyalty programs are fundamentally designed to foster enduring customer relationships, there’s often pressure to demonstrate immediate financial returns. This tension can lead to undervaluing the program’s long-term benefits like increased brand advocacy and customer retention.
The best approach in this case is for businesses to take a more balanced view. Organisations should track both the immediate numbers while also measuring longer-term indicators such as customer lifetime value, repeat purchase rates, and brand advocacy to capture the full spectrum of loyalty program benefits.
Strategies to Maximise ROI
Now that we understand how to measure loyalty ROI and the challenges involved, let’s explore some effective ways to maximise a program’s returns.
Smart loyalty design makes a big difference to the bottom line. Member pricing, for instance, offers exclusive discounts to loyalty members, incentivising sign-ups and driving higher spend while being simple to implement and understand.
Building on this, the traditional earn-and-burn model creates a system where everyday spending builds value while targeted promotions drive specific behaviours; the key here is balancing base earn rates with more dynamic promotional rates.
Tiered programs add another layer by giving the best customers increasingly better perks, keeping them loyal and boosting their lifetime value over time.
Beyond program design, thoughtful partnerships can further boost ROI by expanding program value while at the same time making it more cost-efficient. One approach is reward sourcing through collaborations with complementary brands, which offers rewards at reduced costs while providing partners with a direct sales channel to customers.
Furthermore, data monetisation turns member insights into revenue opportunities by creating valuable datasets where suppliers and merchants can collaborate to grow the business.
Complementing these strategies, retail media transforms a loyalty program into a marketing platform by selling advertising space to partners, creating an additional revenue stream while enhancing program appeal through new offers.
By taking this customer-first, data-driven approach to loyalty program management, businesses can create initiatives that maximise value for both customers and the organisation, ultimately driving sustainable growth and profitability.
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