Loyalty programs in retail have existed since the 18th century, when merchants are said to have doled out copper tokens redeemable for future purchases. Sound familiar?

The basic foundation of loyalty programs – give a reward for taking an action – haven’t changed much over the years. But consumer behavior sure has, and the fiercely competitive retail environment is impacting the performance of loyalty programs that used to be considered successful.

A well thought-out loyalty strategy can deliver short term sales gains and also increase lifetime value of the shoppers. However, many programs fall short of their intended goals due to a multitude of reasons; degree of personalization, ease of use, and overall design of the program.

A loyalty assessment can determine what is needed to boost the program’s effectiveness in supporting business needs and shopper expectations. There are many questions brands should consider when evaluating loyalty program’s performance:

• Does the program meet current needs?

• Does the program drive the desired shopper behavior?

• Does the program appeal to its target audiences?

• Does the program have desired levels of sustained and active membership?

• Does the program simplify participation for its members?

A five-step process can help you check the relevancy of your loyalty program, and identify new areas of focus or improvement. The improvements could range from simple retooling of messaging or rewards, or a more fundamental reimagining of the loyalty strategy, or both.

Assess Strategic Fit
Loyalty programs may lose their impact over time. This is often due to changes in the competitive landscape, shopper preferences, and overall expectations. In this assessment step, the goal is to evaluate two key elements; first, how well the program supports today’s business objectives, and second how to identify target customer segments and their preferences. This is crucial to ensure your loyalty program supports evolving business needs, and shifting shopper demographics and expectations. At one point, companies benchmarked against their direct competitors to measure success. Today, the assessment has to be broader and factor in the shopper segment experiences with other businesses, in order to truly understand what shoppers experience and how it may shape their expectations for all loyalty programs.

Review Program Structure and Operations
Strategy is only as good as its execution. This is where you see how well the program meets your needs as well as those of your shoppers. The key goal is to evaluate whether the benefits meet the expectations of the shopper, the relevancy of communications, and simplicity of participation. If the program has a rewards component, that has to be evaluated with the following two perspectives: First, are the rewards attractive to the shopper? For example if the shoppers are more attracted to immediate offers versus banking points for a future benefit, you need to evaluate whether that’s how your program is structured. Further, if your loyalty members represent a mix, should you consider empowering them to structure their own loyalty rewards?

Second, do the rewards maintain the right balance between driving a desired behavior and supporting existing behavior? Simply rewarding existing behavior (hit a spending threshold) can have a negative impact on profit margins, while rewarding just a desired behavior (writing a review)  may make the program seem less relevant. Retailers should look at what really drives behavior, and design the loyalty program appropriately. Keep in mind that the more commoditized the industry, the more a brand must do to support existing behavior. The program must strike a balance between maintaining existing behavior and encouraging desired behavior.

Evaluate Success Measures
In this phase, examine the metrics you use to assess overall performance. Analyze the key performance indicators and look at both program members and non-members. For members, it is recommended to evaluate by segment as well as length of membership. This helps to measure program performance for key target segments, as well as keep a pulse on how new members are adopting the program, and how sticky it is for existing members. To be sure, this is an involved task, but it’s the only way to assess how the program measures up to the objectives. Artificial Intelligence and advanced analytics can help tremendously in this area by reducing manual heavy lifting that analysts would have to do otherwise.

Identify Gaps
A deep analysis will uncover the gaps between business and shopper needs and its impact on program performance. Several different types of gaps can be identified; structural gaps that determine whether the program is attracting the best participants and has effective engagement, or is too skewed towards a segment with lower spending power or low purchase frequency. Another gap could be around program operations and whether the engagement strategies are effective.

Develop Recommendations – and Implement
With the previous four steps complete, you have a renewed understanding of what you need, how the current program is meeting that need, and what needs to change. Some areas may require a simple facelift, while others may require a reimagining of the approach to address  underperforming parts of the program. The key here is to look at both tactical short-term fixes, as well as longer term strategic shifts in how you envision loyalty and what is needed to deliver relevancy and personalized engagement to shoppers to drive loyalty.

But the journey does not stop here. The changes have to be tested before a complete rollout, and the program must continue to be measured against business objectives, adapting to changes in the marketplace, and staying relevant to shifting customer base and consumer expectations. Loyalty is ultimately a two-way street. To earn loyalty you have to display loyalty, and to do that you have to help customers find the value in your program, feel that its relevant to their needs, and make it a simple, satisfying experience that is ultimately worth their time.