loyalty card

Question

Client has decided to launch loyalty program and wants to calculate what would be a 1-year break-even number of loyalty card members. Answer: 82k members. How do you get this answer? Do we need the control group data? Can't we just work with Store A data?

Profit margins:

– 19% for store A (pilot)

– 20% for store B (control group)

• Expenses on own loyalty card platform:

– $4M in capex to build

– $0.1M in annual opex

Answer 1

Instead of think about Store B as a different store, think about it as “Store A Profit & Loss Statement before the loyalty card”.

You need that data to isolate the specific impact of the loyalty card. Therefore:

Loyalty Card Profitability per customer = Store A Profitability per customer - Store B profitability per customer

I believe that with this in mind you should now be able to get to the result, so I won't solve the whole thing for you. But please let me know if you still have questions.

Answer 2

Hi there,

Yes, you 100% need to use the control group data.

First of all, normally when you see an exhibit with 2 clear segments of data, that's a sign that you probably need both!

Secondly, you need to measure the impact of the program. In order to assess change you need a base state to compare to the new state.

Answer 3

There are some clarifying questions I have:

For Store A - the #visits (12) is only for loyalty customers or averaged across all the 50k customers in the store?
The break-even should be calculated only for Store A as a pilot? Or should also include Store B customers - assuming they will also be put on the loyalty program?

In either case - here is the approach:

The control store gives us the annual profit ($) for a no-loyalty-card scenario (Pb)
The pilot store gives us the annual profit ($) for a yes-loyalty-card scenario (Pa)
The difference in the profits from both scenarios is how much benefit/loss you will reap every year by introducing the loyalty program (D)
Depending on the number of customers holding loyalty cards - this difference may increase or decrease.
Your annual opex is 0.1M. If D is more than 0.1M then your breakeven is achieved
Your Capex is 4M - you can see how many years it will take to payback the capex through D

Answer 4

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