NACS Daily News
Does Loyalty Make Economic Sense?
NACStech workshop speakers help attendees put a dollar amount to loyalty programs.
GRAPEVINE, Texas – Wednesday morning at NACStech, about 100 attendees gathered to hear Pat Lewis, partner at Oasis Stop N Go and CEO of Kick Back Rewards (and a NACS Board member) and Josh Petty, loyalty program manager at Tetco Stores, discuss the “The Economics of Loyalty Marketing.”
Tired of hearing every year after each loyalty session “How do I get a good ROI?” or “It’s too expensive to implement,” NACS, with the assistance of Lewis and Petty, conceived of this session, which put a dollar amount to loyalty programs.
Lewis drew a nervous laugh from the crowd when he shared a complicated-looking formula designed to determine the ROI on any loyalty program: { [ (S * C) P ] E } (100% - M) + (B + O) / S. But after a few minutes of explanation, this formula became easier to understand and proved highly effective in determining ROI. (key: S, total sales; C, capture rate; P, percentage reward; E, redemption efficiency; M, margin on reward; B, soft benefits; O, admin and software)
Setting the stage, Lewis projected a $2,063 investment per month to run a loyalty program. Costs included marketing, redeemed rewards, employee incentives and technology costs — to name a few. And to determine ROI, very modest gains were projected for increases in customer visits, ticket averages and margins as well as a decrease in customer defection. After everything was plugged into the formula, projected program returns reached $6,913.48 a month, or about a 335% ROI percentage. The ROI on any loyalty program seems quite clear.
In the second half of the program, Petty advised folks on the benefits of partnerships with vendors to subsidize loyalty programs. By not depending on vendors to fully subsidize loyalty programs, retailers can take any money gained and reinvest it into sustaining their loyalty offer. These partnerships create a win-win for both parties: retailers receive assistance in developing and maintaining loyalty programs and suppliers realize maximum brand exposure — up to 25,880,784 impressions, according to Petty.
Providing metrics — daypart analysis, demographics and basket data — to vendors is an important part of he relationship as well. Look for more information on the economics of loyalty in an upcoming issue of NACS Magazine.
NACStech ends today in Grapevine, Texas. Look for complete coverage of the event in the July issue of NACS Magazine.
