In my previous articles, we talked about the biggest struggles for loyalty finance professionals along with the challenges being faced by accountants when booking loyalty program liabilities.
Moving on, loyalty marketers also have a significant hurdle they must overcome – convincing the CFO to invest in loyalty. This article examines the progress that loyalty marketers wish to make as well as detailing the many struggles they encounter along the way.
The Progress Loyalty Marketers Desire
Marketers are great at finding ways to drive customer engagement. They know how to use quantitative and qualitative data to uncover insights that drive desired behaviors. They empathize with the voice of the customer and are constantly thinking about optimizing customer experience.
Marketers use all these skills to create campaigns and initiatives to drive customer engagement, build the brand and grow the said business. At the root of it, the progress they desire is related to implementing their initiatives, seeing them thrive and feeling the thrill of success it’ll bring.
The Struggle to Achieve Progress
The number one challenge I hear from Marketers is convincing the CFO to invest in loyalty. Finance usually asks very tough questions that many marketers struggle to answer in a satisfying manner. The three most common questions are:
- What is the incremental lift?
- How big is the impact on Customer Lifetime Value?
- What is the impact on short and long term financial statements?
Let’s go through each of these:
What is the Incremental Lift?
In the case of many loyalty programs convincing the CFO to invest in loyalty starts with proving the incremental lift.
That is, the CFO wants to know if the campaign will drive extra profit above and beyond the status quo without the campaign.
If this incremental lift is sufficiently large, then the company should invest.
In a perfect world, measuring Incremental lift would be easy. You’d set up two identical universes. In one universe you’ll run the campaign and in the other you’ll keep the status quo without the campaign. You’ll then observe how each behaves over the long horizon.
The difference in profit between the two universes is your incremental lift. Quantifying the incremental profit over a long horizon is essential when it comes to capturing the campaign’s total impact.
But convincing the CFO to invest in loyalty isn’t easy. Also, we, of course, as humans, don’t have the ability to peer into alternate universes. One can’t measure incremental lift with precision.
With that said, predictive models can measure incremental lift in a reasonable and defensible way. Incremental lift is likely the best tool a marketer has for convincing the CFO to invest in loyalty, so it’s worth the investment.
What is the Impact on Customer Lifetime Value (CLV)?
In addition to knowing the incremental lift, convincing the CFO to invest in loyalty requires marketers to know the impact on CLV.
Finance 101 teaches us that the value of a company is more or less equal to the sum of the stream of future profit from all of the customers. CLV is a metric that captures this. That is why it’s a critical metric for any company.
It stands to reason that any marketing campaign or strategy that improves CLV is a sound financial decision. While it may be true it isn’t necessarily the rule used for making decisions because companies need to manage financial statements.
The timing difference between recognizing costs and revenue can complicate the decision.
The challenge here is that CLV requires the ability to predict customer behaviors over short and long horizons. This is very hard to do. Most companies, therefore, limit themselves to predicting over shorter horizons, such as just a few months.
As a consequence, such businesses limit themselves to only the possible opportunities that can pay back over these short horizons that have been considered. These opportunities are likely few and far between.
Take note that there are numerous opportunities that can pay back over longer horizons. Marketers benefit greatly if they have a believable models that can make long term predictions. This makes convincing the CFO to invest in loyalty a little easier.
What is the Impact on Short and Long Term Financial Statements?
There are also some practical considerations beyond CLV and incremental lift that are important when it comes to convincing the CFO to invest in loyalty.
All companies need to manage their financial statements, particularly publicly traded corporations. This is a marketplace reality that isn’t going to change any time soon. This often creates short term financial pressures since companies are expected to meet their numbers for Wall Street. Consequently, the ability to set correct expectations for financial results is critical.
The financial risk associated with loyalty programs is often under appreciated. Most people don’t realize that the loyalty program liability is often one of the largest on the balance sheet.
It’s common for these liabilities to come up to being anywhere in the hundreds of millions to several billion dollars. Furthermore, even the minutest of change to liability has the ability to cause a significant financial impact.
For more information on liabilities, check out “What is a loyalty program liability?” and “The 1st Question to Answer if You Manage Loyalty Program Finances.” and “The 2nd Question to Answer if You Manage Loyalty Program Finances.”
All marketing strategies, campaigns, and initiatives you want to implement are not making it easy for your finance colleagues.
These changes are all designed to drive more engagement, which in turn will impact expected member behavior, which also affects the liability and expected future revenue. This makes it hard for Finance to set the right expectations for financial results.
To get finance to buy in, you need to gives them confidence about the short and long term implications of financial statements.
They need to have confidence intervals on your expectations and methods to monitor the underlying assumptions as new data emerges so they can continually manage expectations. This is the key to convincing the CFO to invest in loyalty.
Imagine Convincing the CFO to Invest in Loyalty
Regardless of whether you’re trying to measure incremental lift, CLV or impacts on financial statements – all three of these questions have the simple necessity of requiring the ability to predict member behavior over short and long horizons.
Now, going about predicting such behavior isn’t an easy task. But imagine if you had the models you require. Imagine that these models were operationalized so that any new data was continually scored and progress against expectation was easily monitored.
Imagine that you could use these models to quickly answer finances’ questions, and always have these key metrics available in your back pocket when you need to prove the value of your campaigns.
Think of all the exceptional progress you could make!
Do you share problems when convincing the CFO to invest in loyalty or similar struggles? Go ahead and schedule a call to begin learning about how SnapshotML can help.