The Gap is currently test marketing a new loyalty program entitled ‘Sprize in Vancouver, BC.
Here’s how it works:
Make a purchase at a participating Vancouver area Gap store. It’s easy.
After 45 days, if the prices on the items you purchased have dropped, we will automatically credit the difference to your Sprize account.
Come back and use your SprizeMoney on whatever you want in our stores.
So basically, you buy something at the Gap, even if it is steeply discounted, say already 50% off or more, you will still get a credit to your ‘Sprize account if the price drops any further within 45 days of your purchase. Under normal circumstances, you can take an item back to the Gap within 7 days and get a price adjustment if your item has gone down in price since you bought it, but 45 days is unheard of. With the advent of ‘Sprize, I believe the normal price adjustment policy will remain intact, though it remains to be seen if you can “double dip” (ie. get a price adjustment and get ‘Sprize credit). On paper this promotion sounds pretty great for the consumer, the only catch is, the money goes back into your ‘Sprize account as opposed to your pocket. For this pilot program to become a chain wide reality, I’m guessing that the number crunchers at the Gap will have to see some or all of the following behavior:
1. Shoppers coming back to Gap retail stores more often (ostensibly because of ‘Sprize),
2. Shoppers forgetting to spend the ‘Sprize credit that they have accumulated (“breakage” is the industry term for unused gift cards and store credit), and/or
3. Shoppers spending more than their ‘Sprize credit on return shopping trips (preferably double the amount or more).
Here’s an illustrative example of ‘Sprize economics at work:
Example 1. Customer A purchases two items on two separate trips to the Gap.
Scenario 1: No ‘Sprize
For simplicity’s sake, let’s say Item 1 costs $10 and Item 2 costs $5. Without the ‘Sprize program in place, the Gap gets $15 in total revenue on the two transactions.
Scenario 2: $5 ‘Sprize Reward Redeemed on Second Purchase
In scenario 2, Customer A makes the same two purchases, but on the second trip, they redeem $5 in ‘Sprize credits. In this case, the Gap only earns $10 in total revenue (since the second item is essentially “free” to the customer). So here you can see that in this scenario, the Gap essentially loses out on $5 in revenue because of ‘Sprize. To get that same $15, consumer A would have to spend at least $10 on their second item (ie. they would need to spend double their sprize credit).
However, in scenario 2, if the consumer spends more than $5 on their second item but less than $10 (say $6), then while the Gap theoretically loses some revenue on this transaction vs. scenario 1, ‘Sprize may have encouraged the customer to make a purchase they otherwise wouldn’t have made. If that is the case, then Gap is ahead of the game by $1, at least in theory. I assume calculating the number of these types of “unplanned purchases” (or what have you) will be a big factor in deciding whether or not to roll out the program on a larger scale. Not sure how one goes about doing that exactly, but I’m not an economist or a statistician.