Participation Rate Is More Important than the Number Of Loyalty Members.
Many loyalty programs boast high number of downloads during the launch phase. The number of users that have downloaded the app and signed up for the program gets flashed around as a significant KPI.
Is that wise?
The number of loyalty members, active and inactive (typically 90+ days), is only a relevant KPI during an active acquisition campaign, when the business is focused on just that – driving up the number of new users in the program. Outside those occasional bursts of acquisition activity, I wish everyone could forget about the number of users and focus instead on the more important metric - program participation rate (AKA program penetration rate).
Participation rate = Loyalty Transactions/Total Transactions (measured over a pre-determined time period).
Your POS-connected loyalty software will easily give you this magic ratio.
Note that we are talking about the participation rate in terms of transactions, not guests.
Wouldn’t it be better to know what % of your guests are the members of the loyalty program? I bet it would be, but right now there is no easy way to calculate it.
For loyalty members, we know how frequently they visit; loyalty software attributes each of their transactions to the same account.
The non-members are typically “unknown” – if Jane, a non-member, grabbed a sandwich from your shop twice this week, we have no way to understand that these two transactions were associated with the same customer. Worse yet, if Jane was a member who forgot that she has an app and rushed out without scanning the receipt, we’d still have no idea that it was the same person.
(Ok, that’s not 100% correct for everyone; if your store is deploying a beacon based technology similar to what Zenreach provides, you may be able to see Jane’s phone’s MAC address checking in twice in the system with a dwell time that implies she was in-store and not just in front of it on the way to pick up dry-cleaning next door. If you follow through with your analysis to attribute those transactions to Jane, more power to you – please teach me the most effective way of doing this!)
Here is why participation rate matters so much more than the total number of users in the program:
Participation rate determines what percentage of transactions involve a loyalty member.
Frequency of those transactions starts feeding into the virtuous cycle of loyalty program self-promotion. The magic of this number somewhere around 15%, or roughly one in 8 transactions. At this 15% threshold the loyalty program starts making a difference.
• Enough to make an impact on sales. At this participation rate a 10% bump in loyalty checks translates to 1.5% total sales growth – that’s a big deal!
• Enough for the organization to keep focus. Loyalty program shifts from the “initiatives” shelf to the center of the marketing plan.
• Enough to keep program top of mind for staff, even with turnover. Servers and cashiers start hearing a “yes” to the mandatory “Are you a rewards member?” question often enough to continue asking it to everyone. (Let’s be honest, if you heard nothing but “nope” time after time, at some point you’d be skipping that mandatory question too).
• Enough for guests to overhear other guests using the program. Don’t underestimate this one. The random guy in line behind me telling his buddy about getting a free pizza with his points is a much stronger selling point than an activation table tent.
Unlike the number of users, which is virtually guaranteed to do nothing other than increase (albeit not at a constant rate), the participation rate tracked over a pre-determined rolling period (i.e. 7 days) will fluctuate. It may even decline if the users are not utilizing the app and don’t find your promotional offers relevant. It’s a much better indicator of the overall health of the program.
If your participation rate is below 15%, your program requires urgent attention. When this rate is too low you will start seeing attrition and you will not be seeing organic increases in the number of loyalty users.
Once you hit 20-25% participation rate, you can be confident that your program is here to stay and drive frequency and spend. Anything above it is excellent.
What’s your experience with critical mass for loyalty program participation? What was the magic number for your brand? Please let me know in the comments!