Time to Retire These Commonly Cited Loyalty Metrics

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If you’ve relied on industry rules of thumb to help in your loyalty planning processes, some of the below might come as a surprise, and might change your perspective.  So read on!

I recently saw an interesting back-and-forth between two loyalty marketing experts, Steve Bocska and Denis Huré , as published in The Wise Marketer .  I’ll get to the meat of the arguments separately, but in the meantime, I was intrigued by the (unattributed) reference to “research” that suggests an extremely significant impact from loyalty programs (https://thewisemarketer.com/loyalty-isnt-dead-ai-is-its-greatest-opportunity-yet).

“Research consistently shows that 90% of companies maintain loyalty programs, with top-performing programs increasing sales by 15-25% annually.  Members of loyalty programs spend 20% more than non-members and generate 12-18% more revenue growth per year.”

What is the source of these “everybody knows” metrics?  Have they been validated?

This is a topic I explored with regards to personalization (https://www.linkedin.com/pulse/has-anyone-really-quantified-impact-personalization-1-john-c-keenan-ur7ie/) not long ago, finding that the commonly-used personalization metrics were extremely dated with only vague attribution.  And yet businesses rely on them to justify strategic direction and investments. Similarly, with regards to loyalty metrics, something as simple as a high-level review of restaurant industry financial results can quickly refute these blanket statements, as I’ll discuss another time. The big question is, what does this mean for those on the front lines implementing and/or managing programs?

• 90% of companies maintain loyalty programs. A quick search returns numerous articles unquestioningly citing this statistic, and they all ultimately point to the same source: an Experian Marketing Services report from November 2014, “Driving customer loyalty: Maximize loyalty program data collection to drive insight and revenue”.  I was unable to find this whitepaper online despite extensive searching, but it certainly got a lot of attention at the time.  Experian even did a press release (https://www.experianplc.com/newsroom/press-releases/2014/new-experian-data-quality-research-shows-loyalty-programs-are-plagued-by-bad-data), stating that “Ninety-one percent of companies have a customer engagement or loyalty program”.

One problem with this statistic: it is based on a study that “…surveyed more than 200 individuals in marketing, data management, customer service, IT, sales, finance, management and operations departments in businesses large and small in sectors including manufacturing, automotive, retail, financial services and travel.”  (https://loyalty360.org/loyalty-management-magazine/article/data-the-driver-behind-customer-loyalty,-insight-a)  Not exactly a scientific analysis on which an entire industry should be basing key metrics!

As a simple counterpoint, a review of the top restaurant chains as published annually in Restaurant Business Online suggests something very different.  Among the top 300 chains, around 200 currently have a loyalty program, or 67%.  And this is in one of the most prominent and commonly purchased consumer-facing categories. That alone makes me question the 90% stat.  The incidence of programs is even lower for retail.  Regardless, this has become an accepted rule of thumb, still trotted out more than 10 years later and accepted as gospel.  It just isn’t accurate.

• Top-performing programs increase sales by 15-25% annually. Another “ McKinsey & Company says…” moment.  From what I could find, with numerous backlinks, this stat appears to come from the quote: “Our research has found that top-performing loyalty programs can boost revenue from customers who redeem points by 15 to 25 percent annually, by increasing either their purchase frequency or basket size or both. “  This article was published in 2021 (https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/next-in-loyalty-eight-levers-to-turn-customers-into-fans).

There is no cite of any sort of source for this statement, or explanation of what research supports it. It is difficult to square this stat with the statement from the same article that “…we have observed that around two-thirds of established loyalty programs fail to deliver value, with many actually eroding value.” And again, looking at recent restaurant performance, it can’t be true.

• Members of loyalty programs spend 20% more than non-members … I could find two sources that are commonly cited for this metric, with multiple references to each.  One is from Medill Spiegel Research Center (https://spiegel.medill.northwestern.edu/loyalty-programs/), specifically examining purchase behavior of members of a coalition loyalty program in Canada that occurred in 2012 (!), and the other is paid content from a loyalty platform vendor related to restaurant performance, and with no sourcing whatsoever (https://www.restaurantdive.com/spons/customer-retention-relies-on-what-you-bring-to-the-table/731961/).  Neither of these sources supports the broad statement suggesting loyalty members spend 20% more than non-members. And this metric is notoriously tough to measure given the difficulty tracking non-member purchases.
• …and generate 12-18% more revenue growth per year. This one comes directly from an Accenture research report published in June 2016, another stat almost 10 years old that no one seems to want to validate in today’s environment.  The actual quote: “Members of retailers’ customer loyalty programs generate between 12 percent and 18 percent more revenue for retailers than do customers who are not members of the loyalty programs, according to new research from Accenture Interactive.”  So… this just applied to retailers, and not other categories?

As with the other stats, the slideshow associated with the Accenture press release around this report can’t be found to truly understand how they got to this finding.  But we learn that “Accenture interviewed 106 retail industry loyalty professionals across specialty retail stores, big-box/department stores, and drug/convenience stores”.  So I wouldn't want to rely on this stat that is not exactly based on a rigorous research methodology.

The bottom line from a cursory review of these commonly quoted stats: there isn’t really a strong foundation to believe that they are relevant today. They certainly don’t square with the impact of any program where I’ve been involved with analyzing results.  As mentioned above, a quick look at restaurant loyalty alone refutes the stat about program prevalence.  And I recently took a look at McDonald’s same-store sales changes and the implications for loyalty performance (https://nventiv.ai/resources%2Fblog/f/is-%E2%80%9C-of-program-members%E2%80%9D-a-meaningful-loyalty-metric), suggesting that the metrics on programs' sales increases and member spending lifts are probably not commonly achieved.

That means a couple of things.

1. If you’re basing loyalty program decisions on these industry stats, you need to be careful in setting expectations, because you may be over-promising.  How are you interpreting your own program's results in this context?
2. A set of more current and more rigorously validated metrics are urgently needed. It’s not enough to rely on some nebulous McKinsey or Accenture or Experian research that’s 10 years old.  Make sure any third-party statistics you are using are current and well validated.

Be careful out there!

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