April 26, 2012

Impact of a Loyalty Spoiler

When all things are equal, it's important to not focus marketing activities on Loyalty Spoilers.

Here's an example that I ran on a recent dataset:

  • An item sold 400 units last year in Q4, at a price of $49.
  • Customers who purchased comparable items repurchase at a 20% rate.
  • Customers who purchased this item repurchase at a 15% rate, though equal in every other manner to customers buying other products.
  • Each customer who repurchases is worth $150 in the next three months.
So, you earn $49 * 400 = $19,600 by selling the item.

Then the item spoils loyalty, costing you the following:
  • 400 * (.15 - .20) * 150 = $3,000 of future demand.
The net productivity of the item, then, is not $19,600 ... but is $19,600 - $3,000 = $16,600.  You run a profit and loss statement on the current value of the item and the future value you either spoil or build.

Make sense?


Now go out there and run a Loyalty Spoiler analysis (hint --- email marketing is the best place to start, it is so easy and straightforward here).

If you don't have the resources to run your own Loyalty Spoiler analysis, contact me (click here)