Loyalty Program Assessment. KPI-Based Evaluation of Customer Loyalty Programs

Loyalty programs are booming, but the evidence of their effectiveness is controversial. Many companies are unsure whether and how to use loyalty programs profitably. Measuring the effectiveness of a customer loyalty program is important, but not easy.

In contrast to the common practice of measuring loyalty programs based on the “outside-in” approach (competitor benchmark or customer surveys), this article suggests measuring them using the “inside-out” principle (i.e., from the company’s perspective and using key performance indicators [KPIs] based on available data and financial figures). This is the only reliable method, albeit a harsh and rigorous one, to determine whether a loyalty program is working or not.

However, this principle imposes certain requirements: Assessing the success and health of a customer loyalty program requires continuous monitoring of KPIs. The challenge is to know the relevant KPIs (which is the focus of this paper) and to draw actionable insights from them in order to improve program performance. Both in research and in practice there are major deficits; this study closes this gap.

The study presents a compendium of relevant loyalty KPIs for measuring loyalty programs. It is based on a literature review of the last 25 years and interviews with 12 leading international loyalty experts from business and academia. With its comprehensiveness, the compendium represents a novelty on the loyalty market. Following a final expert ranking of the compendium’s KPIs, the study concludes with a list of the top 10 loyalty KPIs.

Through this independent and critical study, companies can learn how to measure the health of their customer loyalty programs and improve their performance in a sustainable and targeted manner. Program management becomes more fact-based and less driven by intuition or blind copying of competitors.