Question

Imagine your company wants to create a loyalty program with a tiered reward structure (e.g., top 5%, 10%, and 15% of all customers using spending data). Explain the statistical method you could use to find the corresponding dollar values so that you can assign new customers to the appropriate category based on purchase value.

Answer 1

Answer below:

So, basically you want to find cutoffs for top 5%, 10% and 15% of spending customers. To this we can apply the statistical method of taking out percentiles. In this we do the following:

Although answer is over, you can read below to get an idea:

1. Sort all spends in descending order , and then give a rank for them.

2. Then apply the following formula,

To give an example:

So, to find out the 15th percentile in a list of 200 observations, do the following:

The rank of 15th percentile is : 15(200+1)/100 = 30.15 or 30th value from the top ( rounded off).