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The Challenge
The Right Mix
What You Need to Succeed

 


Customer Loyalty Program
- A Mature Business Model With Undiscovered Revenue Potential

 

What You Need to Succeed

Measuring the returns of investments into loyalty programs
The Affinity Partner Inc. Value Chart also serves as an approach to measure returns of investments into loyalty programs, linking direct and correlative measures.

Zoom in ++: Affinity Partner Inc. Enterprise Value Chart

Loyalty Programs allow to directly link additional sales to individual program members. Additional revenue from selling currency to program partners can be measured. In addition, the loyalty program serves as a great tool to utilize otherwise non-marketable inventory as awards. The program also allows for a variety of correlative measures like enrolment rate, call volume, activity rate, etc. These metrics serve as indications for acquisition, retention, income, price realization and marketing savings.

Manage the returns
Our experience with loyalty programs has taught us that many of these schemes fail to optimize the potential returns. We have distilled these lessons into 3 fundamental recommendations:

  • Quick Wins: Initial campaigns can fund your future Loyalty Program
    A simple segmentation based on profitability will help to derive future planning profiles; e.g. invest into profitable – de-invest unprofitable segments) Offers can be developed and tested for selected clusters in an all in market test.

  • Develop your customers full potential
    Increase the relationship profitability, by thinking of customers in terms of ROI. Define the right level of service level (cost) to the right customer spending level (revenue) Increase the number of good relationships. The program database can identify your most profitable customers and their profiles. This profile should help to find the right future customers. Increase the relationship duration.

    Long term customers buy more, they are less price sensitive and they might refer friends and family to your business.



  • Manage Partner Fees
    Every loyalty programs will create a currency of points. Partners will offer this currency to members for certain purchasing behavior. Members will accrue these points in an account held by the program owner until a sufficient level is reached which may be redeemed for an award. When the program credits a member's account with points earned for activity with a particular partner, that partner will pay the program owner a negotiated monetary rate for each point. The revenue of the accrual rate per point is the basis of the business model and has to be managed well.

    The average accrual revenue per point will be sufficient to cover the average cost per point of the awards, as well as the administrative costs of running the program and a profit margin. (The American Airlines AAdvantage program collects more than $1Billion revenue per year from it's program partners)

    An additional source of value is the time value of money. The program owner will receive the accrual revenue when the points are earned; points are generally redeemed, with the associated expense for the award, two to three years later on average.

    In addition to this delay in redemption expense, some points are never redeemed. This “breakage” varies by program but can represent a significant percentage of the points earned.

 

Consider Affinity Partner Inc. Loyalty Print to launch or redesign your program
Building a loyalty program from scratch is a complex project that can be achieved in 28 weeks. We offer end to end services for Loyalty Programs, helping clients through vision & strategy, development & launch and operations & enhancement to achieve the competitive edge desired.

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