Phy-gital Roundtable: Breakfast Roundup from Germany and Netherlands

02 May '15 | Debjyoti Paul

German Shoppers: Meet Them in the Fast Lane to Phy-gital

15 January '15 | Ralf Reich

Shoppers Will Share Personal Information (But They Don’t Want to be “Friends”)

15 January '15 | Anil Venkat

Modernize or Perish: Property and Casualty Insurers and IT Solutions

14 January '15 | Manesh Rajendran

Benelux Reaches the Phy-gital Tipping Point: Omnichannel Readiness is Crucial

13 January '15 | Anil Gandharve

The New Omnichannel Dynamic: Finding Core Principles Across Industries

13 January '15 | Debjyoti Paul

Technology does not disrupt business – CIO day 2014 Roundup

02 December '14 | Anshuman Singh

Apple Pay – The Best Is Yet To Come

02 December '14 | Indy Sawhney

Digital transformation is a business transformation enabled by technology

01 December '14 | Amit Varma

3 Stages of FATCA Testing and Quality Assurance

06 October '14 | Raman Suprajarama

3 Reasons why Apple Pay could dominate the payments space

18 September '14 | Gaurav Johri

Beacon of Hope: Serving Growth and Customer Satisfaction

05 August '14 | Debjyoti Paul

The Dos and Don’ts of Emerging Technologies Like iBeacon

30 July '14 | Debjyoti Paul

What You Sold Us On – eCommerce Award Finalist Selections

17 July '14 | Anshuman Singh

3 Steps to Getting Started with Microsoft Azure Cloud Services

04 June '14 | Koushik Ramani

8 Steps to Building a Successful Self Service Portal

03 June '14 | Giridhar LV

Innovation outsourced – a myth or a mirage or a truth staring at us?

13 January '14 | Ramesh Hosahalli

What does a mobile user want?

03 January '14 | Gopikrishna Aravindan

The Question of Loyalty

Posted on: 04 November '11

Every business wants its customers to be loyal, i.e. customers choosing to buy products from their business, rather than the competition.  Offering promotional discounts is an approach that is universally followed to garner this loyalty. In Free: the Future of Radical Price, Chris Anderson provides several examples of how discounts lead to other avenues for sales and relationships, but critics remain unconvinced. As YouTube has remained a black hole for Google and with Facebook churning out really low conversion rates for advertisers: Is “Free” or discounted prices really the way forward? What do we, as customers want? Do discounts really generate loyalty or do they just mess up the market?

Useful Nonetheless
A campaign based on promotions definitely has great uses. Some of them are:

  1. Providing a low utility service for free with a paid upgrade (e.g. LinkedIn, MS Express Editions, Flickr)
  2. Providing a discounted trial period to get people to experience the product (ISPs, Gyms etc)
  3. Pre-empting competition by shifting future demand (CPG)
  4. Relying on cross product subsidies or loss leaders (Google, Facebook, CPG etc.)
  5. Others

Our Framework
But our question takes the opposite view: How do we get customers to be loyal despite price premiums, and especially when it comes to a long term & profitable relationship? Our framework points to the three foundational elements:

  1. Aspirational value: Can we set goals that our customers would aspire or journey towards as they engage with us? (e.g. the coveted platinum gold club membership, the trip to the Bahamas, status on the web community as “The Social Citizen” etc. – I made the last one up but I’m sure it’s coming)
  2. Experiential value: Do your customers feel differentiated and can they brag about it to their peers? (e.g. the free valet parking, the reserved corner table for dinner, early access to concert tickets, the red carpet to board the flight)
  3. Gratification value: This is where the rubber hits the road for many of us and refers to the two% universal cash back on my Citi card, the weekly grocery coupon, the Buy One Get One Free promotion etc.

As we can observe all around us, the framework for loyalty seems to be gravitating towards gratification value which is manifesting itself as demand shifting, low switching barriers and a tendency to reduce the price to value perception. Worse yet, especially in this new digital economy, the products themselves seem to be gravitating towards free, with the real revenue streams implicitly hidden from consumers. Not necessarily a bad thing, but it nevertheless causes the real power of the business model to be ignored, reflecting it instead in terms of the free.

No doubt factors such as product quality, first to market, user base and perception are really important. Google or Facebook are great examples where their sheer mass (Facebook) and quality (Google) of the offering has allowed them to surge ahead. Especially for Google, the quality of the output has been unsurpassed. But competition comes from unexpected sources. MasterCard and Visa are threatened by the mobile payment providers and banks. Similarly, digital ecosystem networks based on specific interests such as Apple iTunes riding on the wave of a digital delivery and aggregation, have usurped the established music industry model.

Advances in not only digital, but business in general are only expected to grow. What can companies do to retain their customers? Here’s an approach:

  • Identify the weak links: What relates you to the customer? Are you taking these links for granted?
  • Fill the white spaces: Is there a gap in how you meet customers’ needs? Do they have to look for a part of the need elsewhere through another product, service or channel? You may not be able to fill every white space but can you ensure that a partner will do it, and not a competitor.
  • Evolve the loyalty concept to move towards aspirational or experiential rewards. They are much stickier. Or if you can’t, then at least try something in between. The Giant Eagle Fuel Perks programs in PA was a smashing success because people saved for their weekly fill-up, linked various types of purchases to this program and saw the savings climbing up at the gas pump. Apparently there’s something about indirect gratification, and people actually spread the word by linking status to it as well – “We get good fuel for less because we’re a member.”
  • Strive for early redemption: Redemptions are an expense and also a liability, but if they happen early and more frequently, they drive earning which gets a great cycle going.
    None of the above steps are easy, especially for companies that have an inherently low Customer Interaction Index (will speak about this in my next blog), but to say that we forego continuous analysis is a surefire recipe for a dark horse to come galloping by and scoop up the prize.

The means to achieve the following are easier and yet complicated in the world of smart phones and social media. We can reach customers quickly and everywhere, but are we starting this encounter with an offer of gratification value or are we engaging in a slow dance for a longer term ecosystem? Advertising and spreading the word is nice to have without a side effect, and a much sought after goal in the frenzy of blogs and Facebook likes. But for brands that are already great, it must never be at the cost of diluting the power of what’s at offer.

You’ve worked hard to create the brand, and if it’s linked to price alone, the game is over.



Mindtree Blog Archives

Mindtree blog Archives are a collection of blogs by various authors who have independently contributed as thought leaders in the past. We may or may not be in a position to get the authors to respond to your comments.

  • Amit Varma

    Good points, Manish! The Groupon IPO actually sets up this piece very well because their model is completely based on the premise that discounts will bring new customers in and then foster loyalty through repeat purchase. I must say, though, that I completely disagree with that model because the only one who wins in this scenario is the consumer and the businesses lose out big time!