Why you need to evaluate the effectiveness of a loyalty program
In creating a marketing strategy, a specialist should first focus on the long term. It is important not just to attract a client, but also to keep him, to build a relationship of trust with the brand. Loyalty programs are used to ensure that the customer after a one-time purchase turns into a permanent one. However, it is not always possible to understand whether such a tool works or not, so it is important to evaluate it correctly. The effectiveness of a loyalty program depends on various factors, which need to be analyzed regularly.
The first and essential indicator is LTV or Lifetime Value. It assesses how much profit a company gets from one customer over the entire period of their interaction. However, the purchase cannot compensate the business for the expenses spent on promotion. Therefore, you need the customer to purchase as many products or services as possible. The more people stay with the company, the faster the latter will be able to cover its marketing costs. This is exactly the goal a business is pursuing by introducing a loyalty program.
LTV depends on the product and communication with the customer. The better the offer and communication with the consumer, the higher the LTV. The index is calculated by the formula: LTV = Lifetime * ARPPU. Lifetime is the period from the first to the last purchase of the client, and ARPPU is the average return on one customer for a specified period. The latter is calculated by dividing the revenue figure by the number of customers over the selected time period.
Another metric for evaluating a loyalty program is AOV or average revenue per purchase. In this case, the total income for a particular period is divided by the number of purchases made. The average receipt provides a measure of a customer’s buying power. It helps to better understand the target audience, and as a consequence, to present them with the ideal conditions for a loyalty program. To increase AOV, it is important to hold various promotions and special offers for customers.
To understand whether a loyalty program works, it is also necessary to analyze various factors, such as market trends and surveys of the target audience. This is especially important when creating a new product, to anticipate how warmly it will be received by customers, and whether it meets the requirements of consumers.
The goal of any business is to increase revenue and reduce costs. The ROMI indicator allows you to estimate the return on your marketing investment. To calculate how effective the investment is, you need to subtract the cost of implementing a loyalty program from the amount of income from the investment. This gives us the first value, and it should be divided by the result obtained by multiplying the cost figure by 100%.
By understanding the effectiveness of a loyalty program, you can optimize a number of processes. For example, by reviewing the client base, and creating personalized offers for those customers who would like to increase their activity. This way you can increase your company’s income without investing a lot in the promotion.