X.O.

METRIX

M e a s u r a b ly B e t t e r D e c i s i o n s

Thought @ X.O.METRIX

WHITE PAPER Ten Questions You Need to Ask About Your Loyalty Program
June 2007

Executive Summary
Management teams responsible for the operation of customer loyalty programs should be able to answer some key questions. Primarily, management must understand their reasons for operating a loyalty program, and dene a clear set of goals and objectives for the program to achieve. It is critical to ensure that the structure of a loyalty program, which includes both the benets that customers receive and its internal operational design, is aligned with and properly supports the programs goals. Other marketing eorts implemented by an organization should be designed to complement, or at least not conict with, the loyalty programs marketing message. The ability to eectively measure results is essential to successfully operate a loyalty program. A well-designed approach to reporting and analysis will produce actionable information that can be used to beer manage the program. Analysis, being a complex and resource intensive task, requires a properly trained and organized analytical sta equipped with the proper tools. The data produced by the program must also be eectively managed to handle its volume and complexity. Finally, management must monitor a programs return on investment (ROI) to make sure it is performing as expected. Returns from loyalty programs cannot always be measured strictly in terms of dollars; however, results must be quantiable in order to be objectively evaluated.

XOMETRIX, Inc. 841 Worcester Road, Suite 106 Natick, MA 01760 508.655.5430 www.xometrix.com

Ten Questions You Need to Ask About Your Loyalty Program

Introduction
A record number of companies now operate customer loyalty programs. Yet despite their popularity, many organizations are unable to demonstrate clear returns on their investments in these programs. Whether these returns do not exist, or whether rms are simply unable to quantify them, is subject to debate. In either case, businesses that sponsor loyalty programs must make sure they understand their reasons for operating them and have mechanisms in place to actively manage and measure the programs results. This paper discusses a set of questions that any management team responsible for a loyalty program must be able to eectively answer. The questions posed here address both strategic and tactical issues, and are as follows:

1. 2. 3. 4. 5. 6. 7. 8. 9.

Why does your organization operate a loyalty program? What are your programs goals and objectives? Is your programs structure well designed and in alignment with its goals? Are your other marketing eorts complementary to your loyalty program? How do you measure your programs performance? Do you have an eective reporting and analytical process in place? Is your sta able to support your analytical process? Do you possess the proper tools to perform analysis? Are you making eective use of your programs data?

10. Is your program achieving the return on investment it should? Completing this exercise will enable an organization to beer articulate its reasons for having a loyalty program, provide insights into how the programs goals and objectives can be best achieved, and dene requirements for being able to eectively monitor and analyze its results.

Copyright 2007, XOMETRIX, Inc.

X.O.METRIX

M e a s u r a b ly B e t t e r D e c i s i o n s

1. Why does your organization operate a loyalty program?

The rst question an organization with a loyalty program should ask is: what are the strategic reasons for operating this program? Although the answer may initially seem self-evident, upon closer examination the reasons are usually much more complex and layered. Unfortunately, companies too oen respond to this question with platitudes (e.g., To create more value for our customers,) rather than cogent explanations of strategy. Without a foundation of clearly articulated principles to support a loyalty program, an organization will nd it almost impossible to improve its performance, let alone calculate its return on investment. There is no single correct reason for operating a loyalty program. Some organizations use them as a method to improve the eectiveness of their promotional eorts; others to beer understand customer behavior. Whatever its current application, the rst step in dening the programs raison dtre must be to determine how it is viewed by management. Management rationale for operating a loyalty program can be classied among four categories: Core Values, Legacy, Competitive, and Functional. While some programs may t neatly in a single category, many tend to span two or more. These categories are dened as follows: Core Values This category includes companies that view their programs as integral to their overall business strategy. These rms invest a great deal of time and eort designing their programs and formulating specic goals and objectives. Signicant emphasis is placed on ensuring that all customer-facing initiatives integrate with and support the programs overall purpose. Legacy These rms have inherited a program. These programs have typically been in place for years, and may even date back to the companys founding. At their inception they may well have had a clear strategic purpose. However, while the strategic vision of the organization has evolved over time, the loyalty program has not. Management teams saddled with legacy programs usually do not have any real belief in the programs value. The program is maintained primarily due to fear of the negative customer reaction that might accompany its termination.

WWW.XOMETRIX.COM

Ten Questions You Need to Ask About Your Loyalty Program

Competitive These companies have established their loyalty program as a reaction to a competitors program. Very oen these rms mimic the design of their competitors program without aempting to understand the strategic purpose behind it. Active program management may involve nothing more than shadowing, merely adjusting the program to match any external design changes made by a competitor. Functional These are generally smaller companies that have adopted loyalty programs simply because they can. With many POS, ERP, and CRM systems providing built-in loyalty program support, the technical aspects of adopting a program have become much easier. Unfortunately, while eectively implementing its functional aspects, many rms do not give appropriate eort to dening an overall strategic purpose for the program. While it might appear that programs in the Core Values category will be the most successful, this is not necessarily the case. Management support must be in line with the strategic aims of a program for it to succeed. However, dening realistic, measurable expectations for a program is also extremely important. Programs with overly ambitious objectives may lose their true focus, while those with simpler aspirations may go on to achieve beer returns. Companies struggle most with the challenge of dening a programs strategic principles. To facilitate this process, many organizations nd it benecial to move forward and outline specic program goals and objectives before nalizing the overall strategy. Seing goals and objectives is oen a less daunting process than dening strategic principles, and proceeding in this fashion usually leads to a more sound strategic vision.

Copyright 2007, XOMETRIX, Inc.

X.O.METRIX

M e a s u r a b ly B e t t e r D e c i s i o n s

2. What are your programs goals and objectives?

A loyalty programs success is predicated on determining what it can realistically accomplish and then seing appropriate goals. Goals and objectives provide actionable steps for operating the program and measurable benchmarks for gauging if it is achieving its strategic purpose. As with the overall strategy, goals and objectives should be thoughtfully designed to ensure they accomplish their desired results. Careful consideration should be given to the impact a goal may have before incorporating it into the program. Once implemented, results must be monitored to ensure the goal functions as anticipated. Goals and objectives need to be treated as a collective. This system should be viewed as a whole, with goals dened to support one another and operate in a cohesive fashion. The eects and interrelationships of a programs goals must be clearly understood for management to eectively direct the program. It is not unusual to discover conicts between goals when analyzing existing loyalty programs. A common example is the aempt to simultaneously maximize program participation and customer protability. Promotions oering discounts for joining the program are a favorite choice to drive increased enrollments. Unfortunately, while eective at increasing membership levels, this type of promotion generally has a negative impact on customer protability. This example of a potential conict underscores the need to not only exercise caution in designing goals, but also vigilance in monitoring program results. Careful observation and analysis will lead to the quick identication of conicts that exist among goals. Sometimes conicting goals can be harmonized, leaving both in place. However, this is not always the case, and occasionally one goal must be eliminated to preserve the programs integrity. Only aer an integrated set of goals and objectives has been properly dened should the operational structure of the program be created. A programs operational structure puts a public face on its goals and objectives. A consumers entire perception of a loyalty program is based on its customer-facing structural aspects. It is these characteristics that will ultimately dene what the program truly is, and if it is successful.

WWW.XOMETRIX.COM

Ten Questions You Need to Ask About Your Loyalty Program

3. Is your programs structure well designed and in alignment with its goals?
A loyalty programs structure is comprised of an internal and an external component. The internal component encompasses the programs functional design, which provides a roadmap for its operation. The external component is the programs public, customer-centric face. For the program to be successful, both structural components must be properly aligned with its goals and objectives. From the point of view of customers, a loyalty program is a reward mechanism driven by their relationship with the company. The external structure of the program details to customers what benets exist, the ways they are earned, and how to redeem them. When developing this external component, an organization must design benets that eectively motivate customers to help it realize the programs goals and objectives. Companies oen make the mistake of designing program benets solely from the vantage point of the organizations underlying program goals. While this method may appear to be a valid way to achieve the programs strategic objectives, it seldom results in a successful loyalty program. Customers have no direct knowledge of the programs goals and objectives, nor would they be interested in them. Such inward-facing designs fail to properly engage and motivate customers. For a program to be successful, its benet structure must be designed from the customers perspective, while still supporting the programs goals and objectives. The programs internal structure is responsible for the successful operation of its publicly dened benets structure. It must also support other integrated marketing eorts (e.g., targeted promotional campaigns) to further assist the program in achieving its goals. In executing these functions, management must ensure that it delivers a consistent message to customers. Loyalty programs by their nature must be viewed as long-term marketing eorts. Because of their continuing nature, providing a consistent message is critical to the programs success. The overall structure of the program must be exible to accommodate change over time. As the nature of business practices, customers, competitors, and other relevant factors change, the

Copyright 2007, XOMETRIX, Inc.

X.O.METRIX

M e a s u r a b ly B e t t e r D e c i s i o n s

program structure must be capable of adapting to meet the challenges presented by a continually evolving marketplace. It is important that the loyalty program and other marketing eorts be modiable in a manner that will not disrupt the customer base or negatively impact the business. The long-term success of the program also relies on its ability to seamlessly integrate with a companys other marketing and promotional initiatives. Ideally, non-loyalty program marketing eorts should be designed to complement the loyalty program, and not compete with it. Presenting a uniform and consistent message to customers is important not only to the success of the loyalty program, but to the overall perception of the business as a whole.

WWW.XOMETRIX.COM

Ten Questions You Need to Ask About Your Loyalty Program

4. Are your other marketing eorts complementary to your loyalty program?

It is rare that any company operates all of its marketing and promotional eorts solely under the auspices of its loyalty program. Large organizations typically have multiple areas empowered to run marketing initiatives, as specic campaigns may be required to support dierent lines of business, channels, or merchandising eorts. Firms of all sizes generally like to retain the exibility of executing some promotions outside the constraints of their loyalty programs. The reality is that marketing and promotional eorts from multiple sources will reach consumers. Therefore, it is essential to ensure that these campaigns do not compete with or detract from the loyalty programs primary mission. Customers are highly perceptive and will quickly sense when conicting messages are presented by a vendor. Most customers will ignore these messages; however, some may discover ways to use them to exploit the organizations weaknesses. The special care that must be taken to keep other marketing messages compatible with the loyalty program stems from its unique nature. Most marketing initiatives have nite durations, but loyalty programs are perpetual by design. While missteps made in other marketing programs will be dulled by the passage of time, errors made in loyalty programs may be impossible to fully erase. Short of resorting to autocratic management rule, there is no simple way to guarantee that all marketing and promotional eorts will properly integrate with a loyalty program. There are, however, a few simple guidelines that can be employed to ensure that general marketing eorts remain in concert with the loyalty program. Good communication between loyalty program management and other marketing managers is perhaps the best route to success. By eectively communicating the loyalty programs goals and objectives throughout the organization, potential conicts will be easier to identify early in the planning process. Especially in larger companies, loyalty programs need to promote themselves internally to other parts of the organization. Educating other areas about the benets they will enjoy by aligning, or even integrating, their marketing eorts with the loyalty program, is a positive way to foster cooperation.

Copyright 2007, XOMETRIX, Inc.

X.O.METRIX

M e a s u r a b ly B e t t e r D e c i s i o n s

In any enterprise, even one without a loyalty program, it is useful to employ some method to coordinate marketing initiatives. Proper alignment will ensure that eorts do not conict. Some companies orchestrate this process through the use of an executive marketing commiee or some other form of marketing clearinghouse. Regardless of the approach used to integrate marketing eorts, analyzing results and measuring performance are essential once they are operational. This is particularly true for the loyalty program whose results must be measured longitudinally as well as on a discrete basis.

WWW.XOMETRIX.COM

Ten Questions You Need to Ask About Your Loyalty Program

5. How do you measure your programs performance?

Many marketing managers believe their experience allows them to make good decisions by gutfeel alone. However, with loyalty programs now claiming memberships into the millions and generating terabytes of data, this is denitely not the case. Only through accurate measurement and careful analysis can a loyalty program be successfully managed. This requires a comprehensive methodology to eectively analyze and interpret the massive amounts of information generated. The rst step in designing such a process is to determine what should be measured and how it should be analyzed. Companies with well dened loyalty program goals and objectives will discover this groundwork readily enables the formulation of metrics. As the process matures, some individual metrics will prove more valuable, while others may only demonstrate meaning when used in combination. These management metrics should evolve over time along with the programs goals and objectives. Measuring and interpreting program results is an ongoing eort that needs to be tightly integrated with the programs operation. This process is built around two primary functions: reporting and analysis. Reporting is the process of producing answers to predened questions. The generation of static reports is an established practice with which most organizations are procient. Reports play an important role in allowing management to monitor their programs operation. Analysis provides the means to determine what new questions need to be asked, and then facilitates answering these new questions. Many organizations are not procient at analysis, although most believe they are. This misperception arises because companies may view their reporting eorts as also performing all necessary analytical functions. Because of the competitive advantage proper analysis provides, it is important to reiterate the primary distinction between it and reporting. While reports provide details on what has

Copyright 2007, XOMETRIX, Inc.

X.O.METRIX

M e a s u r a b ly B e t t e r D e c i s i o n s

happened, analysis focuses on explaining why it happened. Although most companies can dene who are their hundred most protable customers, few can explain why they are their most valuable customers. Businesses operating loyalty programs must make sure their reporting and analytical functions provide the information and insights necessary to successfully operate the program. Management also needs to make sure that it has an ecient and eective process in place to support its reporting and analytical needs.

10

WWW.XOMETRIX.COM

Ten Questions You Need to Ask About Your Loyalty Program

6. Do you have an eective reporting and analytical process in place?

Supporting the reporting and analysis needs of a loyalty program can be a complex and resourceintensive process. Many large organizations discover that the cost of these functions becomes excessive over time. Smaller rms are oen faced with insucient resources to adequately perform both analysis and reporting. In either case, sacrices are oen made which unfortunately result in operational oversights and missed opportunities.

By creating an eective process to support the reporting and analytical needs of a loyalty program, organizations can perform this work more eciently, thereby requiring fewer resources without forfeiting analytical value. The proper design and oversight of this process ultimately rests with the loyalty program management team.

Sometimes loyalty-program managers aempt to transfer operation of the analytical process to the information technology (IT) organization. The rationale for this transfer is that since IT controls the program data and systems, IT personnel are in the best position to determine what data to analyze and how. Ooading the design and oversight of the analytical process is a strategic mistake frequently made by non-technical managers.

In some situations it may be appropriate to transfer the responsibility for the generation and distribution of static reports to the IT organization. Once reports have been properly designed, their development and ongoing maintenance is usually best le to technical stas that have the appropriate tools and expertise. The loyalty-program stas responsibility lies in monitoring the information contained in these reports and dening new reporting requirements as the program evolves and its needs change.

Since the delineation between reporting and analysis is not always well understood, the analytical process may end up bundled with the reporting function and outsourced as a whole to the IT organization. Transferring this core analytical process out of the hands of program management is a critical mistake. Doing so will negatively impact both the successful operation of the loyalty program and sta productivity.

Copyright 2007, XOMETRIX, Inc.

11

X.O.METRIX

M e a s u r a b ly B e t t e r D e c i s i o n s

As previously discussed, reporting provides answers to well-dened questions. Analysis, being much more ad hoc in nature, consumes more eort than reporting, but at the same time returns far greater value. The key factors embodied in an eectively structured analytical process include: Reusability Although the analytical aspects of the process are specically classied as being ad hoc, this is not to say that each new analysis is unrelated to those that preceded it. New analyses tend to be derivations or extensions of previous ones. Based on this knowledge, practices should be established to facilitate the creation of reusable analytical and reporting components. The ability to leverage prior eorts will signicantly enhance productivity. Specialization Dierent areas, and even individual sta members within those areas, possess dierent expertise. A well-orchestrated process makes optimal use of each area or persons strengths. For example, the technical aspects of data retrieval should be le to IT stas who understand it best, and not placed in the hands of marketing stas whose expertise lies elsewhere. Maximum benet cannot be achieved if personnel do not take advantage of their co workers specialized skills. To create the most ecient process possible, each persons highest and best value must be leveraged. Coordination The advantage of having specialization among dierent parties gives rise to the challenge of coordinating these eorts. Gaines made through the division-of-labor can quickly be lost by ineciency in orchestrating eorts. Care should be given to planning the division of labor among various groups. The coordination process should not be overly bureaucratic, nor exist as a freefor-all. The best method for optimizing coordination is to start somewhere between these two extremes and tune the process over time to maximize its eciency and productivity. Best Practices Perhaps the most important component in analytical process design is the capture and use of best practices. Because analysis is oen viewed as ephemeral in nature, organizations may not fully value the vast array of intellectual capital it generates. In almost any enterprise, the knowledge of how

12

WWW.XOMETRIX.COM

Ten Questions You Need to Ask About Your Loyalty Program

to best perform a particular type of analysis is likely to reside solely in the head of an individual. When that individual leaves the organization, that knowledge leaves too. While companies would never consider allowing employees to take physical assets with them when they depart, they are far too willing to allow them to leave with the only copy of an analytical process in their head. This situation occurs when management fails to suciently value an individuals expertise, believes that other workers can easily reconstruct this lost knowledge, or disbelieves that this type of process knowledge can be eectively captured and reused. All three of these notions are incorrect. Management teams that wish to maintain their competitive advantage should carefully consider the appropriate value of retaining this process knowledge. Designing the analytical component around these elements will ensure that the process is ecient, stas are productive, and the maximum possible value is derived from program analysis. However, creating a well-designed analytical and reporting process is only part of the solution. For reporting and analysis eorts to be successful, the marketing and technical stas tasked with performing these functions must be capable of eectively supporting this process.

Copyright 2007, XOMETRIX, Inc.

13

X.O.METRIX

M e a s u r a b ly B e t t e r D e c i s i o n s

7. Is your analytical sta well organized and productive?

The success of a loyalty programs analytical and reporting process depends on a stas ability to properly execute it. As the majority of issues faced by the reporting processes at this time are primarily technical in nature, this topic will limit its discussion to those factors which aect analysis. The thoughtfulness and labor-intensive nature of analysis makes it rely heavily on the personnel tasked with its performance. Stas responsible for supporting analysis must be properly trained, organized, coordinated, and equipped. Training is required to educate sta about proper methods for performing analysis, the eective use of available tools, the data available for analysis, and the loyalty programs goals and objectives. Education must be ongoing and should be provided via both formal and informal methods. Developing eective methods of knowledge transfer are also crucial to quickly bring new analysts up to speed, improve the existing stas prociency, and preserve the organizations intellectual capital. The organization of analytical personnel is also important. No maer how good training and knowledge transfer is, prociency and expertise among sta members will always vary. Some sta members will possess years of experience, others will be new to their positions. To foster a productive analytical process, a sta must be well organized. Creating teams of experienced and junior analysts is oen a successful approach. This pairing helps to improve communication, facilitate knowledge transfer, improve productivity, and limit risk. Eorts must be well-coordinated, not only among analytical sta members, but also between analysts and other areas involved in the process (such as IT). A major productivity drain faced by many organizations is the ineective coordination of analytical eorts. Poor coordination results in duplication of eort, unnecessary work product, and incorrect or incompatible results. The single most important factor in improving coordination is creating and maintaining good channels of communication. Finally, analytical sta must have appropriate tools to support their eorts. Improper tools can quickly nullify all other eorts to create a productive sta. Tools designed specically for the analysis process will also support training, knowledge transfer, and communication.

14

WWW.XOMETRIX.COM

Ten Questions You Need to Ask About Your Loyalty Program

8. Do you possess the proper tools to perform analysis?

The enormous amount of data produced by loyalty programs makes it imperative to have appropriate analytical tools. Relying on inadequate tools for analysis means that time and resources are used ineciently, which inevitably leads to awed results with costly repercussions.

The single most popular tool used for reporting and analysis is the spreadsheet. Although ill-suited to most loyalty program applications, the spreadsheets ubiquitous nature and its straightforward rows-and-columns approach to information have created strong spreadsheet cultures in most organizations.

Despite the spreadsheets reputation for low-cost and ease-of-use, in truth it is neither inexpensive nor intuitive when used for reporting or analysis. While the dollar cost of a spreadsheet license may be low, its true cost must take into account the resulting loss in productivity. Spreadsheets are unable to eectively handle the volumes of information that must be analyzed in loyalty programs. Additionally, aempting to manipulate this type of data in a spreadsheet is both unwieldy and prone to error. With every spreadsheet containing its own separate version of data, untold permutations of outdated or incorrect information are oating around most organizations. Despite these issues, the spreadsheet seems to be in no danger of imminent extinction.

For more than a decade, organizations have aempted to move analysis from the realm of the spreadsheet into the realm of the business intelligence (BI) tool. While BI tools lend themselves to reporting, they have proven too complex for adoption by non-technical business users. Most organizations must rely on their IT stas to develop and distribute reports using these BI tools. The sole interaction of most businesspeople with these tools has been the receipt of static report data or the execution of parameter-driven reports.

Over time, many of the reporting issues faced by organizations have been successfully addressed, while unfortunately analytical issues have continued to worsen. The exponential growth of customer data, and the ever-shortening time frame available to analyze it, lay at the heart of this analytical dilemma.

Copyright 2007, XOMETRIX, Inc.

15

X.O.METRIX

M e a s u r a b ly B e t t e r D e c i s i o n s

To successfully meet continually evolving analytical challenges, organizations need to begin adopting analytical tools specically designed for non-technical businesspeople. This new breed of analytically-focused tools is not only business-friendly, but also allows the capture and reuse of analytical best practices. These tools will allow enterprises to eectively address the volumes of data that must be analyzed and do so in a timely and thorough manner. While spreadsheets will always have their place, management teams seeking to grow productivity and improve results are seeking out specialized analytical tools for their stas. These tools must not only support the analytical process, but they should also be agnostic in their approach to data, embracing the many shapes and forms it comes in.

16

WWW.XOMETRIX.COM

Ten Questions You Need to Ask About Your Loyalty Program

9. Are you making eective use of your programs data?

The amount of data generated by a loyalty program can be daunting. Some organizations become overwhelmed by the sheer volume of data, and end up limiting or even foregoing analysis. The solution is not to limit analysis, but rather to properly manage how this data is used in the analytical process. There are a number of factors regarding data that must be eectively addressed, including: volume, multiple sources, varying formats, and diering levels of completeness. All of these items impact the analytical process and must be properly managed to ensure ecient and accurate analytical results. Handling the volume of information is typically the largest data-related challenge that organizations face. There are several methods for managing data eectively. One method is working with only a subset, or sample, of the data. From an analytical perspective, looking at a valid statistical sample of the data can yield the same results as the complete data set. A second method is limiting the type of data that is analyzed. For example, it may not be necessary to regularly examine transactions at the item detail level, especially if doing so limits the quality of other analysis. Finally, new database hardware and soware technology designed to support the analysis of massive quantities of data are now available. The insights that faster and more complete analysis can provide may justify adopting such technology. Data coming from multiple sources, in diering formats, and at varying levels of completeness elicits a second set of issues. Aempting to relate this data into a synergist whole for analysis can be extremely time-consuming. As all this data can never be fully reconciled, many organizations view the process as futile and do not even aempt it. A number of steps can be taken to facilitate the reconciliation of this data, including the use of: metadata, predened queries, data marts, and best practices. Each of these items is discussed in detail below. Metadata are structures that dene the interrelationships and business meaning of raw data. Many Business Intelligence and analytical tools provide support for creating metadata layers. Ideally, a tool should allow the reuse of anothers metadata rather than requiring multiple copies to be created and maintained. Once metadata is in place it can be used as an interface to the raw data, allowing business users to successfully extract the information they require.

Copyright 2007, XOMETRIX, Inc.

17

X.O.METRIX

M e a s u r a b ly B e t t e r D e c i s i o n s

Predened Queries are another useful data productivity tool. Oen the same information must be obtained repeatedly over time for the same analysis or for multiple analyses. To facilitate this process, the required query can be predened and encapsulated. This query may either be based on a metadata denition, or, if too complex, directly constructed by the IT organization. Data Marts are databases constructed to support specic analytical needs. It is generally more ecient for an IT organization to physically bring analytical data together in a single repository than to aempt to design and support queries across multiple data sources. Objections that storing multiple copies of the same data is inecient or error-prone have been proven unfounded, especially in enterprises with well-managed IT organizations. Best Practices leverage all of the abovementioned methods. By preserving and communicating the knowledge of how best to obtain the data for particular types of analysis, sta need not reinvent the wheel each time similar work is performed. A formal repository should exist for these practices, ideally within the context of the analytical tools themselves. Although complex, successfully integrating data from various sources provides signicant analytical benets. The main benet of such integration is the ability to discover relationships that can be used to create actionable objectives. Organizations oen lose faith in the analytical process while aempting to perfect their data. Data, especially data valued for analytical purposes, will never be awless. Aempting to remove all of the datas blemishes only delays its availability, making it less valuable for analysis. To successfully deal with analytical data, companies must embrace the chaos inherent in this data and learn to work with it eectively in its incomplete and imperfect state.

18

WWW.XOMETRIX.COM

Ten Questions You Need to Ask About Your Loyalty Program

10. Is your program achieving the return on investment it should?

In the end, a loyalty programs success must be measured by the return it provides to the organization. Completing the prior steps in this exercise should enable an organization to quantify expectations for its loyalty program, measure the programs results, and understand where and why the program is succeeding or falling short. While loyalty programs produce returns that can be measured in dollars, they also produce so returns which are more dicult to quantify. Although complicated to measure, these qualitative returns need to be calculated and a value assigned. To gauge a programs overall success, both tangible and intangible benets must be measured and evaluated. If a program is not producing the returns expected, then the steps in this document should assist in determining what alterations need to be made to the program and how best to make them. Analysis will provide insight into the operation of the program. By developing a solid analytical understanding of how and why the program is functioning, steps can be designed and executed to improve outcomes. When planning changes to a program, it is important to eectively model the potential scenarios. Modeling does not need to be overly elaborate, but to be realistic it must adequately account for all signicant factors. When major design changes are contemplated, creating and evaluating multiple models may be appropriate as the number of unknown factors increases. Above all, organizations should understand that loyalty programs are long-term eorts and may not produce immediate returns. A programs strategy must include realistic expectations as to when, and to what extent, the program will begin generating measurable returns. Only aer an appropriate period of time has passed should management begin looking to make signicant alterations to the program. Major changes to the program should also be carefully considered to ensure they have the desired eects.

Copyright 2007, XOMETRIX, Inc.

19

X.O.METRIX
Conclusion

M e a s u r a b ly B e t t e r D e c i s i o n s

The operation of a successful loyalty program is an ongoing process that requires constant aention and continual improvement. The questions posed in this document should be revisited on a regular basis to determine if the existing answers are still relevant. Since loyalty programs are not static in nature, their strategy must be periodically reviewed and modied in order to adapt to changes in the business. A programs goals and objectives must also be regularly assessed to make sure they properly support the overall strategy. The message the program delivers to customers must be consistent. Ideally, the marketing messages customers receive from the companys other marketing eorts should complement that of the loyalty program. To determine if the programs structure is delivering the desired outcome, results must be continuously monitored and analyzed. This analysis will not only highlight potential problems, but should also help identify new opportunities. An eective analysis and reporting process is necessary to make sure these functions are both accurate and productive. To support this process, sta must be well-organized and properly trained. Suitable tools are required to support their analytical eorts. In addition to fostering productivity, these steps will also ensure that maximum potential value is extracted from the data collected. As part of the overall evaluation process, an organization must be aware of its loyalty programs return on investment (ROI). While achieving a quantiable dollar return is ideal, loyalty programs also generate so returns that should be taken into account. If the total ROI is not adequate, then steps must be taken to alter the programs design and improve its performance to obtain the required returns.

20

WWW.XOMETRIX.COM

About XOMETRIX
At XOMETRIX we enable organizations to leverage analytics, improving their performance and profitability. With our focus on generating actionable information, XOMETRIX assists its clients in maximizing the return on their analytical efforts.

For companies that operate loyalty programs, XOMETRIX offers LoyaltyMETRIX, a complete solution for analyzing and understanding customer behavior. LoyaltyMETRIX integrates best practices, analytical methodology, and visualization technology to help companies ask meaningful questions and obtain actionable results.

If you would like to learn more about LoyaltyMETRIX, please contact us.

XOMETRIX, Inc.
841 Worcester Road, Suite 106 Natick, MA 01760 tel: (508) 655-5430 email: info@xometrix.com web: www.xometrix.com

XOMETRIX, Inc.
841 Worcester Road, Suite 106 Natick, MA 01760 tel: (508) 655-5430 email: info@xometrix.com web: www.xometrix.com