Six key questions to audit a loyalty program

These are the six key questions which you would use in an audit of a company’s customer loyalty program:

What virtues of your business have the largest impact on your customers’ satisfaction?
How do you divide and define your customer segments?
Whose responsibility is customer service?
What is your retention rate and what is the trend?
What is the lifetime value of a typical customer?
What percentage of new customers comes from recommendations and how has this changed over time?

So, why ask these questions? Answering these questions will help you to comprehend where you are at the moment, and will then help to lead you in the right path. I do not believe customer satisfaction is the right measure to evaluate the success of your loyalty program. Loyalty mangers should rather, monitor and assess the source of new customers: is the number of word-of-mouth recommendations increasing, and if not, why not? Retention rate of customers should be evaluated, by defined segments. There are number of businesses where all customers are equally profitable. Customer retention is a focused strategy and you probably do not want to keep all customers; so you should track by segment the retention and, by implication, defection rates of different customer groups. These two measures will tell you whether your customers are satisfied – are they telling other people about your services and are they staying with you?

Profits are really made when customers spend more or buy more, or when costs are reduced. It is critical to understand that to get customers to brag about your service, you will need to surpass their expectations. If you do not surpass their expectations they will not tell other people about the quality of service or product they have received. But surpassing customers’ expectations does not mean exceeding them on every dimension – you have to be selective about what is important to the customer. In companies I have worked with or looked at, there are three main dimensions on which to exceed expectations. These are value, service, and dealing with complaints.

Personally, I feel there is a significant difference between making more customers satisfied and making customers more satisfied. The best way of increase profits is in making several customer segments much more than just satisfied. A customer satisfaction rating alone is not the right measure for pointing out customer loyalty towards your business.