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Too often, loyalty program managers are focused on retaining all members equally. This is not to say that you shouldn't be concerned with retention — but which members you retain is far more important. Successful loyalty programs are designed around motivating and incentivizing high-value members for optimal spend. However, before optimizing your program, there are a few things you'll need to understand about how to measure customer loyalty.
It's important to remember that your loyalty program members are living and breathing people and you should treat them as such. But they're also assets, and not all assets are equal in worth. The house you own now is worth more than the first home you bought on a busy road — and your dog who never leaves your side is priceless.
The point here is that some members are worth more, some are worth less, and some are loyal no matter what. Understanding this is the first step to measuring customer loyalty and building a successful loyalty program. The next step is understanding which members have a high Customer Future Value, or CFV.
You might be asking, "Aren't my high-value members those who spend the most?" Not always. Successful programs know which members have a high CFV. These members may have spent very little in the program initially but will eventually become extremely profitable. The only way to truly identify CFV is through data. This is something Jeff Bezos, founder, CEO and President of Amazon, has excelled at and built his brand around.
Amazon Prime was created entirely around the belief that incentivizing customers with high CFV would benefit the company long term. The program was essentially Bezos' way of putting a moat around his most valuable customers. Prime not only rewards members who spend more, but it creates incentive or 'uplift' for customers with high Customer Potential Value, or CPV.
Much like CFV, CPV exists when a customer with the right incentive or 'uplift' can be nudged to spend large amounts of money in your program. Amazon Prime does a remarkable job of nudging its members with high CPV in the right direction.
Prime has incentivized customers who initially only purchased books or novelty items such as televisions and massage chairs, to purchase staples like groceries and light bulbs through the program as well. It's a real life example of CPV in action, and it's what Amazon does best. Incentivize those with high CPV.
You might be wondering, "How can I identify customers with: high value, high CPV and high CFV?" As previously mentioned you need to use data. However, to correctly analyze CLV, CFV and CPV you'll want to use a tried and tested solution. Sadly, all of this can't be done with a calculator and spreadsheet.
Once you've started measuring customer loyalty, and decided which members to incentivize and specifically target, you're off to the races. Finding out what high-value members want and providing it for them before they ask is a staple of any good program. Taking a predictive analytical approach will not only improve dollar retention but will also keep your members happy. A happy and incentivized membership leads to a healthy program that continually compounds profit.
Founder and managing partner of KYROS Insights. I'm an analytics nerd and recovering actuary. I use machine learning to help loyalty programs predict member behavior so they can identify their future best customers, and recognize and reward them today.