Contenders in Commodity Markets Do Better Without Spurious Incentive Offers

We file cash and gas rewards programs, frequent flyer miles programs, and even membership rewards programs in the category of spurious incentives designed to prod customers to habituate on non durable products and services brands.

We don’t advocate businesses contending in commodity markets to implement any of them.

Either an exceptional customer service program, or a “lowest purchase price” program can, and should, be implemented in lieu of one of these efforts.

Over the long term, either spectacular customer service, or a guaranteed lowest price, will go much further to build a sustainable relationship with high probability repeat buy customers. Neither of these programs pose any serious threat to brands.

We counsel clients to be very wary of spurious incentive programs. When they become too expensive to handle, they can certainly contribute to diminished customer loyalty.

Manufacturers of non durable items and providers of related services should quantify the risk threat to core brand when they consider the advisability of implementing spurious incentive programs and adjust assumptions accordingly.

Here’s an example: When participants in frequent flyer programs, in 2013, can no longer obtain an international round trip ticket for less than 75K to 100K points, the program sponsors risk serious damages to core brands. These damages can be very costly. We think these businesses will do better by suspending, or even terminating these programs, than to continue to offer them in an environment where the average mileage holder cannot use them to acquire a ticket to a targeted destination.

The same problems characterize membership rewards programs. Operating conditions are always changing. What may be an affordable promotional expense today, may not be one tomorrow. Businesses will do better to plan on what it will take to operate, profitably, in very poor markets and, only then, add in the expense of possible promotional methods before leaping into these offers.

When customers with all the characteristics of long term, loyal buyers (who will habituate on the same brand to refill needs) evaporate, and literally run for the hills to competitors, then the cost of the program is enormous and, potentially, life threatening.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

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