Does the loyalty programme pay for itself?

What this shows, and what it does not

The shop takes about 12,400 orders a month at an average of €39.65, about €490,000 of sales, from the 44,935 customers who ordered in the last 12 months.

Under the shop’s rules today, points last 12 months and a euro earns one point, and 40.0% of the points earned in the programme’s first year were never used. Under the rules you set, the shop’s two years are replayed as the example review replays its own decision: members order exactly as they did, and a member who orders holding 500 points or more redeems on 40.4% of such months, the rate in the data. At today’s rules every figure is the review’s own; under yours, each is today’s figure plus the change the replay shows. The points never used, the liability and what the points cost move with the rules. The margin the programme adds does not.

What it cannot show. The spending the programme adds is read from two years under one set of rules, so the demo holds it fixed: it cannot show how members would buy under rules they never had. In the replay, the shorter points last, the less they cost: at 3 months, 93.1% of the first year’s points go unused and the points cost €0.02 a member a month. Whether members buy less when more of their points expire, and by how much, is not in the data: every member in it was on the same rules. A richer earn rate costs more: at 5 points a euro and 12 months the points cost €0.89 a member a month, 78% of the margin, and any extra spending a richer programme brings is not counted.

What the margin is. Against customers who had not joined but bought the same way before, the programme adds €2.86 of spending a member a month, €2.01 to €3.71 at 95%: the example review’s matched comparison. The margin is the shop’s 40% gross margin on that spending. If the comparison overstates the extra spending and the truth is at the low end, the margin is €0.80 a member a month, still more than the €0.13 the points cost. What the programme costs to run, its software, staff and marketing, is in neither figure.

The liability, and past 13 months. The liability is gross: every point on account, at a cent each, as if all of them were redeemed; expected breakage is not taken off. Past 13 months, some of the first year’s points are still on account at the end of the two years, with months left to run: the share never used is then a ceiling, and what the points cost is a range, the shade above the cost line.

The full analysis: the example loyalty programme review, with the points account, how fast members redeem, how the programme’s own part of members’ spending is measured, and the decision on letting points last 24 months.