Practical Application: Tracking Customer Loyalty Programs & Analyzing Results

Instructor: Amanda Robb
This scenario based activity will help you determine if a company should continue a customer loyalty program. After reading the scenario and analyzing their metrics, you'll use your knowledge to analyze the success of their program.

Customer Loyalty Programs

Do you have any frequent flier accounts? Or maybe you collect hotel points, or stamps for every cup of coffee you buy from your favorite shop? All of these are all examples of customer loyalty programs.

As you read in the lesson Tracking Customer Loyalty Programs & Analyzing Results, customer loyalty programs are reward programs designed to incentivize customers into shopping with a particular company. They can take many forms including frequency-based programs such as buy ten coffees and get one free, or points programs, like airline frequent flier accounts.

But as a business owner, how do you know if your loyalty program is a success? Today, we're going to look at an example of a loyalty program, sample data from their program and analyze if the program is a success or not.

Scenario

James owns a pizza shop. With lots of other competition in the Italian neighborhood, he decides to start a customer loyalty program to improve his sales. James decides to use a frequency-based program, where customers get a stamp for every pizza they order.

When they order ten pizzas, they get the 11th free. James decides to run the promotion and gives customers a card to keep track of their loyalty status when they come in. He runs the program for six months and collects data each month about how many people are enrolled in the program, how many are actively participating, and the revenue generated by the shop.

The Data

  • Enrollment

James makes sure that everyone that comes in gets a card to keep track of their purchases. Thus, enrollment goes up every month.

Dec Jan Feb March Apr May
Enrollment Numbers 50 100 180 210 300 415
  • Participation Rate

Now, not everyone who gets a card will wind up participating in the program. James tracks how many people are taking advantage of the program by how many free pizzas were awarded each month. This is his marker for how well people are using the program.

Dec Jan Feb March Apr May
Free Pizzas 0 4 5 7 10 12

As we can see in the data, some people are taking advantage of the free pizza deal, but the rewards are distributed slowly. It's possible it takes people some time to earn a free pizza, since they need to buy ten to get the reward. James considers this when he's analyzing the data.

  • Revenue

Now it's time for James to look at the most important metric of the customer loyalty program, the revenue of the pizza shop. He wanted to increase his sales by 5% using the rewards program. Usually he makes $12,000 in profit each month.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support