One of the biggest loyalty programmes in Europe wanted to quantify the impact of online discounts, in exchange for loyalty points, and how they affect sales and profitability.
The Solution
A typical loyalty model is to collect points and then redeem them to get special offers and a specific set of promoted products. Our client wanted to move from exclusive full redemption, i.e. exchange your loyalty points for a product or service once you have enough points to buy the full product, to partial redemption i.e. use points to get a discount and pay the rest of the product as you’d normally do. This would apply across all of its products as opposed to a specific set of their inventory.
The challenge was to find a methodology to accurately quantify the impact of these readily available discounts once a customer accessed the website. Our team created a custom methodology that clustered customers into control groups based on their historical behaviour. Once we have created homogeneous groups we then applied a sophisticated A/B approach to see whether there was an uplift on conversion and sales for visitors that were exposed to the new discount scheme vs those that weren’t.
Once that was done, we then extended our findings and created a forecasting and pricing what-if model that would predict the change in demand under different discount ranges, based on a customer’s characteristics and the product attributes.
The Impact
- Quantify the impact that the loyalty programme has on sales
- Understand the elasticity profile for each product
- Identify opportunities to increase margins
- Provide the foundation for a dynamic pricing engine
