Situation summary and business challenge
The customer loyalty programme and rewards scheme of a global retailer has been up and running for several years. The reward scheme consists of giving bonus points to card holders when their basket reaches a specific spend value. These bonus points can then be redeemed for monetary vouchers. Although the mechanisms behind the scheme have been researched in the past, there was a fresh need to better understand what worked and didn’t work and how it could be optimised further.
"How can we optimise our customer loyalty programme to maximise the number of card holders that will spend extra without giving too many rewards?"
Our proposed solution
To help our client achieve the best possible reward programme, we took a unique and very innovative approach. We implemented a conjoint methodology on a live test market.
Two million shoppers were divided into different groups based on their previous spending behaviour. These groups were further divided to test different reward scheme combinations. The conjoint model provided us with the best possible combinations, while the wealth of historical and current data on behaviour and transactions allowed us to translate this into extra revenue and to identify the impact of different shopper profiles.
Results and benefits to our client
As a result, we were able to identify the optimum ‘bonus points/extra spend’ ratio so that the cost for the retailer stayed constant (compared to their current programme expenditure) while yielding a maximum increase in revenue. We also delivered a tool which allowed our client to continually plan/optimise their reward scheme based on specific budgets and customer profiles.
This award-winning study has been presented at several international industry conferences and at a number of leading European business schools.