Leveraging engagement modeling to reduce loyalty program breakage

Recently, I had the opportunity to present with my colleague Diana Lewis at Loyalty Expo in our workshop Data Selection, Monetizing and Measuring Performance. Planned workshop sessions are great. The topics of discussion are pre-selected by the subject matter experts presenting, metrics are pulled to prove discussion points and us as speakers are ready to go. But you know what my favorite part is? When you get onsite and the questions that are burning a hole in marketers’ pockets come up for discussion.

One burning question was: Why does loyalty program breakage happen and how can you avoid it? Marketers need to position loyalty programs as a barrier to exit; however, often times members ‘break away’ from the program. As a loyalty marketer, you need to understand these breakage points. You need to evaluate the design aspect of your existing programs and analyze the diagnostics to develop an understanding of why members are not redeeming. The reasons might be simple. Perhaps members are saving up for the experiential reward, or the promotion being offered is not a strong enough incentive for them to purchase or possibly they’re not finding anything in the redemption catalog that they’d like to redeem.

Understanding your customers' engagement level is a key aspect of your loyalty program. A simple engagement analysis can help you determine how your customers are interacting and their engagement level. Insight into why they are not redeeming is instantly gleaned from the engagement model and the relationship value becomes apparent. Consider implementing a survey to loyalty program members to further understand their needs. It will allow you to re-evaluate your program and ensure the proper member segmentation is in place.

Benchmarks are also key to leverage during program evaluation. As Diana shared, "Benchmarks shine a beam of light on performance indicators and point us in the direction of the items that need attention." There’s a handful of benchmarks that help to provide insight into the breakage challenge and modeling these benchmarks will help tell the story allowing you to shift your efforts to target your desired ROI. These benchmarks include:

  • Average number of redemptions per member (recent year)
  • Percentage of points redeemed (ever)
  • Percentage of total revenue through the program
  • Percentage total transactions through the program
  • Percentage members qualified for a reward (ever)
  • Percentage members redeemed a reward (ever)

Breakage will happen in your loyalty program, but through conducting the right program evaluation that includes engagement modeling, surveying and benchmarks, you will gain the insight you need to optimize loyalty program breakage.