Fulcrum Creates Incremental Value for a Video Rental Retailer
Challenge: Increase the Value of Rewards Program Customers
A leading video and game rental retailer asked Fulcrum to develop a marketing program that would increase the value of its rewards program customers. These customers paid an annual membership fee of $9.95 and were already one of the company’s more valuable segments. A monthly mailing offered them discounted or free offers on rentals, as well as preferred availability on new titles.
We wanted to test if a separate mailing could generate incremental value for the rewards customers and cause them to buy more games and movies. In-stock sales served a twofold purpose: the retailer could generate immediate revenue and reduce inventory of older titles that would otherwise need to be liquidated. Knowing that because the industry has transitioned from VHS to DVD, consumers tend to make less rentals and more purchases, we wanted to see if a new program could create new buyers.
Approach: Accelerated Testing in FulcrumLab
Because we already managed a database containing a randomized sample of several million customers used for testing new concepts and offers, we deployed our accelerated testing solution, FulcrumLab, several months earlier to support a large battery of direct mail tests in the lab environment.
The end result was a standalone mailer that offered a rewards member a $5 off coupon towards the purchase of a movie or game. We created two test populations: one with higher historical net revenue (A), and another with lower revenue (B). In addition, a non-mail sample was reserved for evaluation. All participants in the test received the standard monthly mailer, which also meant that the non-mail sample represented the “business-as-usual” (BAU) strategy.
Results: 40% Gain in Revenue
Perhaps the most significant result of the program was its ability to produce new buyers rather than just more renters, as well as its ability to generate a 40% gain in revenue. The baseline purchase rate among control customers was about 10%; in other words, about one-tenth of the control group purchased a movie or game during the promotional window. By contrast, 24.4% of those in the A segment purchased a title, demonstrating that new buying behavior could be stimulated. Based on the success of the test, the program was rolled out and produced a new revenue stream for the company from its rewards customers.