Conduct Internal Research

Establish the foundations of your loyalty program by conducting internal research on business operations, current customers, and competitors.

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As you analyze current customer behavior, be sure to gather both purchase and engagement data. It’s important to build a full understanding of your customers, not just their transactions, to understand how they feel about your brand and what their motivations are.

Questions to consider

In order to start the foundational work to establish your program, begin by understanding current business operations. The research does not have to be complicated, but it should be thorough. Work with your team to evaluate your funnel, then consult your analytics and relevant teams. Aim to establish a baseline understanding of your current customer behavior.

What are our customers doing today?
What do we want our customers to do tomorrow?
How can we effectively motivate our customers to change their behavior?

Analyze existing customer data, conduct market research, and use tactical modeling to establish your framework.

Key metrics

There can be an endless supply of data your team can evaluate to glean behavioral insights. To simplify, the following are the key metrics your team should use to understand current customer retention.

Repeat purchase rate: What % of current customers are repeat purchasers?
Purchase frequency: What is the average number of purchases per customer?
Number of items: How many items does a customer purchase per transaction?
Average order value (AOV): How much does a customer spend per transaction?
Time between purchases: How long does a customer wait to purchase again?
Online or offline: Does a customer primarily purchase in-store or online?

Cohort customer analysis

The above metrics are essential for understanding the average customer, but it’s also important to take your research a step further. Rather than rely on complex customer data modeling to glean these insights, you can simply analyze lifetime value, behavior segmentation, and propensity analysis from these cohorts to better understand their purchase behavior.

Consider questions such as:

Are repeat purchasers buying from a particular category?
Is their first purchase indicative of their likelihood to purchase again?
What engagement channels are loyalty members most likely to adopt?

You don’t need detailed metrics on all your current customers to answer these questions. Rather, choose a few customer cohorts and seek to understand how they’re behaving currently, as well as how you’d like them to behave in the future.

For example, assess repeat buyers and non-repeat buyers. How are you treating those cohorts differently to incentivize them to take the action you want? If you aren’t, evaluate how loyalty can influence more nuanced experiences.

Financial modeling

Financial modeling is an important part of the buying process, but determining loyalty program ROI can be complex. Partner with your finance team to build key metric models. Focus on three key internal metrics: average order value, repeat purchase rate, and customer lifetime value.

Your financial models should clearly showcase the risks and rewards of a loyalty solution. Consider a variety of variables, including reward costs, liability, and churn prediction. Understand your KPIs to provide a projected ROI and determine how your points economy will offer value to both your customers and your organization.

Conduct customer surveys

If your cohortized analytics aren’t providing the qualitative behavioral insights you need, run a consumer survey. Emotion drives action, making customer sentiment an important barometer of how your program might perform. Your business needs to account both for how customers feel about your brand as well as how they act toward it.

Ask your customers what they care about, and what they’d want from a loyalty program from your brand. Share the survey through social media to drive engagement.

For repeat purchasers, you might ask questions such as:

What benefits would you like to see in a loyalty program?
What VIP experiences would you enjoy?
What would prefer to redeem points on: brand experiences or product redemption?

For non-repeat purchasers, you might ask questions such as:

What would motivate you to make another purchase?
What channels do you prefer to engage with the brand?
What products are you most interested in?

“First and foremost, we did a large quantitative survey, where we spoke to our customers who had made one purchase and never returned. We asked about loyalty programs, general brand affinities, and differentiators (i.e., free shipping, access to community) that would make them more inclined to purchase again. It’s not perfect, but it’s good enough to get an initial read, and what came across loud and clear is that people wanted a program where they didn’t have to think, and that would in turn drive stickiness.”

— Erica Richey, Director of Customer Marketing, Thirdlove