Only if your customers have a natural reason to buy several times a year, and the program makes them buy more than they would have without it. For a rare purchase, it adds cost and changes nothing.
The benchmark
Profitability comes down to subtraction: the extra margin the program creates, minus the cost of rewards given to customers who would have bought anyway, minus the tool subscription.
Only a control group gives an honest answer: comparable customers who aren't offered the program during the same period.
The rule
Before you launch anything, look at your purchase frequency. If most of your customers order once a year, work on the first experience and repeat purchase first. The points system can wait.
At a highly seasonal brand the authors work with, tens of thousands of customers acquired over two years place an average of 1.12 orders, and about one in twenty comes back the following season.
The brand does have a club. Our read is that it works downstream: it rewards purchases the offer doesn't yet generate, so the offer and the annual win-back campaign are what we proposed working on first.
Another brand had invested a five-figure sum in a club built with an off-the-shelf tool, never launched for lack of a clear plan.
Its two co-leaders wanted to pick it back up. We had no numbers to promise them it would pay off, so we suggested starting smaller, with a simple referral program sent from their email tool, to check that their most devoted customers brought in others before paying to reward them.
The steps
- Frequency. Measure the number of orders per customer over twelve months. If it stays close to 1, start with the second purchase.
- The hidden cost. Take your top quarter of customers by purchases and calculate what the program would have paid them last year. That's the amount you'd hand to people who were already coming back.
- The control group. Randomly pick part of your base and offer them nothing for at least a quarter, then compare orders and margin across the two groups.
- The nature of the rewards. Favor perks that don't look like a discount: early access, a service, a piece reserved for the club.
- The line for leadership:
"Our customers order [X] times a year. The program would cost [Y] euros in rewards paid to people who were already buying. We'll test it for three months against a control group before deciding."
The trap
The most common mistake is to compare members with non-members and conclude that the program works. Members spend more because your most loyal customers are the ones who sign up. The program didn't make them loyal. It just counted them.
Researchers measured this gap on supermarket loyalty cards in the Netherlands.
After correcting for the fact that the most loyal shoppers join on their own, the programs' effect on share of wallet was still real, but seven times smaller than the raw comparison suggested.
Keep that ratio in mind when a tool shows you your members' average order value. And remember that a point handed out is, on your income statement, a deferred discount, paid largely to people who were already paying full price.
