How to Evaluate Loyalty Program’s Value Proposition

Last Updated: February 2024

Standing out from the competition is becoming more important than ever for e-commerce brands. In the post-pandemic scenario, customers are willing to experiment more often, and brands will need to put in more effort to keep them coming back. The key question to ask is: why should a customer buy from you rather than one of your competitors? Unfortunately, the answer isn’t as simple as it once was.

Today, the value proposition of a brand is more market-driven than ever before. Why? The competitive landscape has undergone a sea of change, and there’s probably very little difference between what you have to offer and the rest of the market.

Marketing can help in creating product differentiation but only in the short term. It is only by creating a deeper connection with customers that you can win their hearts and minds over the long term. This holds true for your loyalty program too. Remember: just ‘good’ is no longer good enough when it comes to meeting customer expectations. You need to objectively assess the performance of your loyalty program over a period and evaluate whether or not it provides the right mix of value and engagement for customers.

If you are just getting started with your loyalty program, set aside only a modest budget for it. This approach makes sense because you would need first-hand data to decide the best approach to running it. From the customer experience perspective, you would also need to identify the right mix of rewards and benefits that are truly ‘valuable’.

How to Evaluate the Value Proposition of your Loyalty Program

At different stages of the customer journey, customers tend to value different things. For example, if customized rewards are attractive to new customers, regular ones may prefer insider (VIP) status and recognition. This is Abraham Maslow’s Hierarchy of Needs at work!

Here are 5 proven strategies to assess and optimize the value proposition of your loyalty program:

1. Participation rate:

One of the biggest indicators of your loyalty program’s success is the number of customers enrolled or participating in it. If you don’t have a steady inflow of new customers, you have a problem. This is especially important if it has been a few months since you launched your loyalty program.

According to Datanyze, the average loyalty program participation rate is 23%. This is the goal you would want to aim for. If the participation rate of your program has already crossed this benchmark, it is likely to be profitable in the long run.

Here’s another way to look at it: what percentage of your overall customers are enrolled in your loyalty program right now? So it follows that the higher number of customers you may enroll, the better your loyalty program is likely to perform.

2. Customer lifetime value (CLV):

Is your loyalty program meeting your expectations in terms of sales and revenues? If yes, the relative difference between the share of revenue contributed by program members versus non-members should make up for the costs of your program. You can also compare the incremental share (additional) of revenue to the original amount spent per customer to calculate its impact on the bottom line.

In fact, research shows that loyalty program members spend an average of up to 18% more than regular customers across their journeys with a brand. This means you are likely to get a higher share of the customer’s ‘wallet’ with the help of a loyalty program.

If you have a multi-brand e-commerce store, you can also measure the Customer Lifetime Value (CLV) for each product line separately.

3. Average length of membership:

Engagement creates retention. So if your retention rate has been consistently high, your loyalty program is indeed working well. Of course, this depends on the exact goals you have in mind for your program. If you are just starting, you are better off using participation rates over one or more business cycles to measure the success of your loyalty program.

You can even include the original enrolling date for returning customers when calculating the average length of membership. As customer acquisition costs rise steadily, retaining existing customers is a priority area for brands. Loyalty programs are popular with customers, too as 71% of customers consider it a meaningful part of their journey with a brand.

4. Operating costs:

Marketing budgets are not what they used to be. Investing in loyalty programs is one way to lower the overall operating costs of your business. However, loyalty programs come with costs of their own, related to rewards and program administration. Therefore, before launching a loyalty program, it is necessary to figure out the loyalty margin – the difference between the benefits it provides and how much it costs to run it.

A good ROI depends on lower operating costs as much as it does on conversion or participation rate. Thus, in the post-pandemic era, it is critical to scale a loyalty program gradually to ensure good returns.

Last Words:

While loyalty programs can take a while to show results, their success depends, in no small part, on the customer experience of your brand. As the number of customer touchpoints grows, brands need to focus on every interaction to drive differentiation. A strong 24X7 customer service team can give you that edge over your competitors. But scaling a customer service team can be an expensive proposition for small businesses.

However, outsourcing to an experienced customer service partner like Helplama can be an optimal solution. Helpama has years of experience in running customer service operations for a wide variety of brands across industries. Depending on your needs, we provide fully managed customer support or handle specific processes. Either way, we see ourselves as an integral part of your team. Our plans can be extensively customized and come with zero contract-related hassles.

What’s more, our Zero-Risk Money Guarantee gives you your money back if you aren’t satisfied for any reason. Contact us today for more information!

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