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Is your customer loyalty program effective?

Perhaps the most important component to Customer Loyalty programs is measuring their effectiveness. A Forrester report found that 30% of companies pointed out that measuring the results of a loyalty program is one of the greatest challenges they face.

To overcome this challenge, companies need to identify specific KPIs. It is important to track the most essential metrics that indicate success.

Customer Loyalty Programs should increase customer happiness and retention, and below you will find the 4 most important metrics to keep track of.

1. Customer Retention Rate

Customer Retention is an indication of how long customers stay with your business. With a successful loyalty program, this number should increase over time as the number of loyalty program members grow.

A useful idea is to run an A/B test, against program members and non-program customers, to determine the overall effectiveness of the loyalty initiative. As stated by Fred Rechheld, author of the Loyalty Effect, “a 5% increase in customer retention can lead to a 25-100% increase in profit for your company”.

2. Negative Churn

Customer churn is defined as the rate at which customers leave your business. Therefore, negative churn is a measurement of customers who do the opposite. Namely, they either upgrade or they purchase additional services/ products.

3. Customer Satisfaction Score (CSAT)

Happy customers are loyal customers. Customer satisfaction score asks customers, “Overall, how satisfied are you with our e-shop?”.

A Harvard Business Review study indicates that 48% of customer who had negative experiences with a company told 10 or more people. Said that, customer service seems to impact both customer acquisition and customer retention. If your loyalty program focus on customer service issues this might be one way to measure its success.

4. Net Promoter Score (NPS)

Net Promoter Score (NPS) is a customer satisfaction metric that measures the degree to which consumers would recommend your company to friends, family or colleagues.

NPS is calculated by subtracting the percentage (%) of detractors (namely, customers who would not recommend you) from the percentage (%) of promoters (customers who would recommend you). The fewer detractors you have the better.

Improving your NPS is a way to establish benchmarks, measure customer loyalty over time, and determine the effectiveness of your loyalty program.

Conclusion

Well, you have now measured the effectiveness of your program; what will you do next?

Your work is not complete after you have tracked your KPIs. Analyze them over time to find trends and behaviors. Then use this information to clarify what is working and expand upon that. Then identify what is not working and look for ways to optimize those aspects.

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Also published on Medium.