According to Colloquy Loyalty Census, there were 2.6 billion loyalty program memberships in the U.S. as of 2012.  This represents a growth of 27% since the year 2000.  About 40% of these memberships are in the retail industry, followed by 31% in the travel and hospitality industry.
 
The A.C. Nielsen Global Survey of Loyalty Sentiment 2013 found that 84% of global respondents are more likely to visit retailers that offer a loyalty program.  In the Philippines this number is even higher with 91% of Filipinos more likely to patronize a retailer that offers a loyalty program.
 
Loyalty programs are no longer "nice to have."  In many countries and industries, they have become a hygiene factor, an entry level attribute for patronage.  Yet, many companies still hesitate in introducing a program and even companies that have a program question its value.  Like any endeavor, a poorly conceived, unimaginative program will produce little or no results.  In some cases, it will even be the source of substantial losses for your company.
 
An effective program, however, can lead to numerous benefits, such as more customer purchases. More often, the ability to mass customize marketing communications and offers, give you valuable customer data that you can use to improve your business, the ability to track trends, and minimize waste.How can you ensure the success of your program?  There are many elements that affect the success of your program, from value proposition, program design, competent, and consistent execution.
 
The Mansmith 3-Coin Criteria to Assess Loyalty Program Effectiveness
 
In evaluating the effectiveness of your program or even in designing a new program, there are 6 criteria that you will need to assess.  Three of these criteria are assessed from the customer's standpoint, while the other 3 are assessed from your company's internal considerations.  Each criteria reflects two sides of the same coin, hence, the 3-coin criteria.  There is Relevance-Reputation, Rewards-ROI, and Recognition-Repeatability.
 
For the customer, the 3 criteria are relevance, rewards, and recognition.
 
Relevance:
The program has aspirational value, that is, target customers want to belong to the program.  It resonates with them.  It has accurately targeted marketing campaigns. What doesn't work are "me-too" or copycat programs that have no differentiation from its competitors.
 
Rewards:
Rewards are attainable. They are deemed attractive to the customer but also affordable to the company.  It rewards only the right behaviour, recognising customers in the right circumstances. It has unique and uncopyable benefits. What doesn't work are schemes that are tantamount to discounting or paying people to buy.  Ironically, when you do this, youonly succeed in creating greater disloyalty.  You will inevitably be drawn into the equivalent of a price war with your competitor leading to lower profitability all around.
 
Recognition:
The program does not treat all customers equally.  The higher the value of the customer, the more recognition is given.  There are customized rewards commensurate with customer value.  What doesn't work is treating all customers equally.  Not discriminating between more or less loyal customers in the size of its rewards.
 
On the company side, pay attention to the three criteria of Reputation, ROI, and Repeatability.
 
 
 
Reputation:
The program enhances corporate reputation and citizenship.  It is compatible with brand positioning and personality, and enhances these.  What doesn't work is conceptualizing a program that could actually damage your corporate reputation in the form of poor or inconsistent execution or failing to deliver on promises or touted benefits.
 
ROI:
ROI pertains to the economic viability of the program.  This should consider cost of set-up, maintenance, expected returns over what period of time, expected savings from advertising, funding rate, and exit strategy if needed.  What doesn't work is cutting into profit margins with costly rewards or failing to properly forecast expenses related to the set-up and upkeep of the program.
 
Repeatabiity
Repeatability refers to the extent to which the program triggers repeat behavior.  It is effective in influencing the behaviors that were targeted, sustainability of the behaviors, and ownability.  What doesn't work is a program that does not have a clear goal on which behaviors it wishes to influence, and which behaviors have the most impact on profitability.
 
Loyalty programs are time consuming, expensive, and difficult to implement.  The 3-coin criteria is a quick and practical guide to gauge your program on these critical success factors.
 
Loyalty programs are an ingenious marketing tool that, when done right, can reduce customer churn, increase sales and profitability, and produce the kinds of insights that can leada company to provide better products, services, and experiences to its customers.  Careful attention to the details of the program design from rewards, relevance and recognition for the customer, and reputation, ROI and repeatability for the company is paramount to ensure success of the program.

 
Frances Yu is the Chief Retail Strategist of Mansmith and Fielders, Inc. She runs breakthrough Mansmith programs, 2nd Power Brands: Attaining Retail Marketing and Branding Excellence and Power Tools: Earning and Keeping Customer Loyalty. For comments and other inquiries, email mentors@mansmith.net