Incremental Sales Lift vs Revenue Cannibalization

Loyalty marketing with measurement

In a retail loyalty program, the big problem is you need to ensure that the incremental sales lift from this program are not caused by the cannibalisation of existing revenue by selling at a discount, product that would have been bought anyway.

The cannibalisation of existing revenue is easy to measure with a VIP system.

In your VIP marketing system, divide your customers into two arbitrary groups say A and B. Say all you joined from the 1st to 15th of the month are A and the rest are Bs. Check to see that in marketing they are about the same and if not adjust by putting a few from the stronger group into the weaker one.

Now give your offer a whirl by sending it to the A group. You should be able in a short period to compare the results of A to B.

Now make a table.
A purchased X times, and the profit was P.
B purchased X1 times, and the profit was P1.

Now do some figures, generally when you do this the results are fairly obvious say A's buy 20% more times and the A's profit is 15% up. Now is that good?

If you really have to think about it, then I would say the idea is marginal and it is back to the drawing board.

If it works, do not stop. Try to refine the idea further. For example, maybe you could try reducing the offer to group B instead of say $2.00, try $1.50 for group B if you are still getting good results at $1.50 try setting group A to $1.00 and so on.

As over time, the world changes you need to be continuously updating. The key to a successful marketing program is not just ideas but ongoing measurement over time.

This is the only way to ensure a positive return.