Is your brand maximizing ROI when it comes to your loyalty program? Finance, marketing, and technology stakeholders want to know, sometimes with an irrationally accurate degree of certainty, exactly what the loyalty program will bring to the table and its impact on the bottom line.
Harnessing the power of financial modeling – forecasting and understanding how loyalty initiatives can yield successful results for the brand and consumer – can help answer the burning ROI questions.
In this series, we delve into the 3 ways of leveraging financial modeling, including:
- Understanding how it informs decisions
- Identifying market trends and how they influence models, and
- Prioritizing factors that impact outcomes for your brand
PART 1 – The Balance of Art and Science
Kobie views financial modeling as a blend of art and science. It is not just about calculating ROI, but also about incorporating context, creativity, estimation, risk assessment, and strategic decision-making. With a need for measurement and prediction in financial decisions, a well-informed financial model, when elevated by the right level of loyalty expertise, is the balance of art and science brands need today.
Brands, and particularly their finance stakeholders, must also understand the importance of connecting program design features and motivators all the way through to their influence on shareholders. A disconnect or miscommunication can lead to funding issues and a misalignment of program goals, posing threats to success beyond model accuracy. To best leverage financial modeling to successfully achieve a clear roadmap, consider the roles of communication, prioritization, and trade-offs in the model development process.
Communication, Prioritization, and Trade-Offs
Financial models serve as essential tools for organizations to make judgements about priorities and tradeoffs between different factors, not just money. These tradeoffs often involve monetary and non-monetary considerations, prompting the need for balance. While CEOs could prioritize ROI, CMOs could emphasize reaching as many customers as possible. Depending on the situation, one may need to sacrifice a larger customer base to achieve higher ROI or vice versa. To develop effective marketing strategies and forecast future outcomes, businesses should consider the emotional aspects of their products or services alongside financial interests. This highlights the significance of emotional value and brand recognition in consumer decision-making.
Understanding the modeler’s role of “communication, prioritization, and trade-offs” is something that will help them tremendously as they move forward with this work. Their ability to prioritize the work, communicate why, and then make trade-offs, when necessary, will be crucial. It will also empower modelers to feel comfortable in situations where it is necessary to explain why you are making those tradeoffs.
In these financial discussions, modeler expertise plays a crucial role. It is valuable because others in the organization may not bring the same level of understanding to the table. Modelers can anticipate and quantify outcomes, understanding how marketing decisions impact financial statements. However, it is important to avoid assuming roles outside of their expertise, such as a financial advisor or accountant, without proper certifications and partnerships. Avoid making promises or assertions about exactly what will happen, regardless of how strong their financial models are. Modelers are advising on next steps and what they predict will happen to people who they need buy-in from and need to be their partners. By effectively utilizing partnerships and engaging in open conversations, modelers can minimize risks and ensure desired outcomes. While financial modeling provides valuable insights, it is important not to overstep expertise boundaries and assume roles outside of one’s qualifications.
In Part 2, discover why financial models matter for your business and how understanding trends and distractions in the market only strengthen that financial model, translating into more informed decision making for better program health.
To learn more about Kobie’s Financial Modeling COE (Center of Excellence), reach us today.