According to the 2020 State of Loyalty Report from Bond Loyalty, US consumers belong to an average of 14 loyalty programs but are only active in about half of them. What makes consumers actively participate in some programs and not others? First and foremost, consumers need to see value in using the program; not just monetary value, but the overall value provided by the program.
If your business offers a loyalty program, you must regularly audit the value provided by your program in order to create sustained engagement with your current and potential program members. This is especially critical if you have recently made changes to your program or are about to implement changes.
A classic loyalty program article in the Harvard Business Review offers a very useful framework for assessing loyalty program value. In this article, we remix this classic framework to offer six criteria you should consider in evaluating the value of your loyalty program. We illustrate how several well-known loyalty programs fare on these criteria.
Criterion #1: Cash Value
This first criterion is a no-brainer. It is the financial value consumers receive from participating in your program.
You can determine your program’s cash value by calculating its reward ratio. That is, how much does a member receive in terms of free reward for every dollar spent?
To calculate your program’s reward ratio, use this general formula:
Reward ratio = (Reward value ÷ Points required for the reward) x Number of points earned per dollar.
If you already know the average value per point, you can also directly calculate your reward ratio as the average dollar value per point × number of points earned per $1.
Take Starbucks Rewards as an example. Here is what we know about the program:
- Consumers earn between 1~3 stars for every dollar spent. 1 star per dollar for own payment; 2 stars per dollar using Starbucks digital cards; and 3 stars per dollar with Starbucks Rewards Visa card.