In Greek mythology, Sisyphus, the father of Odysseus, was condemned in the Underworld to push a weighty stone up a hill for eternity. Each time he pushed the stone to the top of the hill, the stone would roll back down to the bottom, forcing Sisyphus to start all over again.
Likewise, the tendency of some marketers to pursue quick fixes to win customer loyalty can result in that familiar here-we-go-again feeling as one promotion after another rolls backward — and usually rolls over you in the process. To get that rock resting permanently at the top of the hill, marketers must take the long-term view, find allies in such alien realms as Technology and Finance, and build a solid foundation of testing and financial measurement. And keep repeating the phrase “incremental benefit” until it becomes a mantra around the office.
Mounting a customer retention program that complements your core brand can be intimidating. One technique is to use a strategy “wheel” to inventory and assess progress across the myriad tasks involved: selecting the target audience, creating the value proposition, designing the promotional currency, fulfilling rewards, enrolling customers, activating them, engaging them, communicating with them and measuring their responses are all points on the wheel.
After you complete this “wheel” of tasks, you must build a financial model that compares the bounty of incremental income from added visits, heightened spend or reduced attrition with the program's cost. Whether you call it Net Present Value, Program Incremental Benefit or just plain old Incremental Income, the net benefit of the program must be a positive number if it's to be successful over time. We're all used to budgeting for advertising, events, promotions and direct mail, and in only a sad few cases can we accurately assess success or failure. But when judged on the ability to justify their existence through quantitative means, loyalty programs stand alone.
It is therefore incumbent on us to fully inform our organizations of the chances for breakeven, as well as the longer-term benefit to the bottom line, before the program is launched. Establish a measurement plan and solicit a blessing from the Executive suite and blood oaths of support for it from Accounting. While it might be the financial model that helps get the loyalty stone moving, a solid measurement plan helps keep it in motion.
That's because within 12 to 24 months following your program launch, you can bet the farm that the eyes of the organization will shift slowly away from the incremental income it generates, and glare rudely at its liability. Customers may love the program; it may generate lift across product lines and throughout the enterprise; but just as the Sisyphus-like marketer shoulders that rock to the top of the hill, concern about program liability may cause it to crash down just as quickly.
If this happens to you, don't be surprised. While loyalty programs are unique in their financial accountability, they also bring with them a unique balance sheet albatross known as “accrued program liability.” Defined as the value of the equity held by program members, liability sits on the balance sheet like a fat kid on a seesaw, and your friends in Finance just can't have any fun until they rid themselves of this playground menace.
The best way to redirect this focus on liability to the incremental income generated is to have a rock-solid measurement plan in place. Pity those marketers who choose not to create the measurement plan prior to program launch. Those poor souls will join the mythical Sisyphus at the shoulder as they witness their rock head south.
Those with foresight should not have to suffer such a fate. If your shoulder is to the rock at present, be certain that you understand your organization's tolerance for accrued program liability. If you think it will become a program-threatening distraction, then build the outsourced management of program currency into your pre-launch plans. That way, if you later see storm clouds brewing over the Finance cubicles, you can reach for your measurement plan, update your numbers, and talk to a reliable third party about a currency management solution.
Remember that myths are myths, after all. There's no reason you have to suffer the same fate as Sisyphus. Follow a solid measurement plan and help your organization keep the focus on why you started pushing the loyalty rock up the hill in the first place — to create and build incremental income for your business.