Building the Business Case for Loyalty

May 29, 2015

Building the Business Case for Loyalty

Let’s get down to cases. Business cases, that is.

One of the greatest frustrations a marketer can face is preparing for a loyalty initiative only to find a roadblock at the approval stage.

Because a loyalty program is a serious investment, senior management will always take a very close look at the potential costs and returns – as they should. But if you are prepared with a sound business case, and take the right steps to socialize it, you’ll find it’s much easier to get the support you need to succeed. Here are a few tips we’ve learned from our experience designing and launching loyalty efforts.

Get other departments to buy-in early. Marketing can’t go it alone; Operations, customer service, IT and merchandising all play vital roles in making a program succeed. Don’t wait until your program is designed to bring in these colleagues – make sure the program you put forward incorporates input from all stakeholders and addresses their concerns. A loyalty program will fail if only marketing drives it.

Know why you’re launching the program. You’d be surprised how common it is for a company to launch a program without clearly stating the objectives and the business needs that the program is designed to achieve. Make sure expectations throughout the enterprise are reasonable, and are based in a good understanding of what a loyalty program can – and cannot – do.

Achieve alignment on success metrics in advance. Understanding – and agreeing on – how the program will be measured and evaluated is critical; getting aligned early in the design process can help avoid surprises or misunderstandings. Articulate the program’s KPIs and lay out expectations, complete with anticipated milestones on the road to success.

Construct a robust financial model. No one can predict the future. But a well-designed model is a tool to help management understand and quantify the risks and rewards associated with any loyalty initiative. Collaborate with Finance early in the program design phase. Be sure to account for such complex variables as reward costs, booked liability and reward breakage. Understand the potential sources of incremental revenue, including the program’s ability to drive more visits, more purchases, a better basket mix and other profitable behaviors. Be realistic about the likely return driven by “softer” behaviors such as social interactions and “likes.” Develop a range of scenarios to test using your model; a well-constructed model should provide insight into a wide range of possible actions and likely outcomes.

Use research and benchmarks to validate your assumptions. Every business case involves making some assumptions. You can help ensure they are reasonable by comparing to other programs in your industry and in the broader marketplace. Consumer research can provide directional guidance to how your customers will likely respond to potential features, benefits and rewards.

Clearly identify how the program will affect customer experience. Loyalty programs can expand or limit options for the rest of the customer experience. Be deliberate in your approach when making these decisions and defend your tradeoffs with financial models and research.

Develop a roadmap. Look down the road and think ahead. Programs lose excitement and engagement if they don’t evolve. Have a plan for introducing new features, new partners, and new ways for customers to engage. But remain flexible, listen to customers and stakeholders, and be prepared to alter course.

Hope for the best but prepare for the worst. Develop a plan to mitigate risk. Find your most pessimistic colleagues and brainstorm with them, identifying likely – and unlikely – developments. Competitors, the economy and many other factors could derail even the best-planned program. You and your colleagues will be more confident knowing that you’ve anticipated worst-case scenarios and have planned how to respond.

Build a solid business case, collaborate with all stakeholders and you’ll multiply your chance of success many times over.

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