Profitably Managing Related Products to Increase the Value of Commodity Sales

Over the last 5 years, what I refer to as spurious sales incentives — membership mileage programs for air travelers, membership points programs for people using branded credit cards — have delivered diminishing value to their sponsors. These programs no longer stimulate much consumer enthusiasm. The reasons are simple:

  1. Apparently, sponsors can no longer afford them, so it is increasingly more difficult for consumers to benefit. A free international plane ticket, in 2000, was generally available for 35,000 air miles points. Today, travelers are lucky to obtain the same for 100,000 points.
  2. Consumers have little loyalty to specific brands, regardless of whether or not a membership reward program is connected, or not.

But sponsors have gotten much more adept at managing components of reward programs to their advantage. So what looks, on the surface, to be a marginal program for a sponsor, may actually be a real producer.

Delta airlines successfully manages what I refer to as the negative consumer reward program experience to its advantage. A hypothetical consumer earns the 35K points required for a free international round trip ticket on Delta. But when this consumer attempts to identify a suitable reward (meaning a round trip flight), he/she fails, leaving the consumer with a negative impression of the reward program and of Delta, itself.

When this same consumer approaches Delta to explore other possible applications of his/her points, he/she is informed they can be used to purchase other goods, but only when he/she uses the Delta branded American Express credit card. Of course, by using the Delta credit card, regardless of whether my consumer opts to pay with points, only, or with a combination of points and cash, Delta benefits from the merchant services charge (at least 3.5% of the acquisition cost for the item).

This example illustrates how Delta has successfully managed a key component of the sale of its commodity — meaning the cash required to pay for a ticket — by promoting the use of its own branded credit card, to its sole advantage. Certainly the quality of customer service takes a big hit in this type of scenario, but with fickle air travel consumers, does Delta really care?

Ira Michael Blonder

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

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