Buy customer loyalty. It’s cheaper than you think.
Winning customer loyalty can be time-consuming. And expensive.
My favorite restaurant serves good food, gives me nice service. Yet, I seem to be preferring its competitor more often. Because it gives better food or service, or it’s closer? No. It offers better deals.
Every time I have to shop for clothing, I reach for Shoppers Stop. Not for variety or brands alone. But for the discounts and deals I end up getting as its elite First Citizen member.
I flew Jet Airways for years. A good airline it was, and I earned half a million miles as well. But soon I shifted to its competitors. Because they offered cheaper prices, even after factoring miles and meals.
We have all seen shopping habits change from offline to online. It’s not convenience, stupid! The deals got us.
And see how much we trust Google? All because it offers us everything for free. Eh! Sorry, they charge us a secret price. They read our mails. They know all our online secrets. They know every place we visit, the lats and longs, down to sixth decimal. The information is core to Google’s business. It’s their sauce to becoming the world’s most powerful and profitable company. (You can spend few minutes watching the video where Google’s CEO is being grilled by US Congress).
Buying loyalty is far cheaper
Recently, a client of mine asked, how would he fund customer loyalty if his company had to buy it? We have limited margin, he said. My answer: Increase the price and use the excess revenue to buy loyalty. Customers would never know they themselves are funding it. Because, customers are human, and human beings are suckers for anything free, discounts and deals, as long as it makes them feel smarter.
Yet, client after client I’ve managed worry about price of rewards they offer, spending zillions of hours debating the merits of offering 0.22% vs. 0.28%! I’m not joking! Run it on a spreadsheet and you’ll discover the difference between the two can be made to look really enormous.
It’s a penny wise, pound foolish argument. Offer pennies, you get no loyalty. Rather, you only lose money as your customers end up earning points for spending whatever they any way spend with you, shrinking your already poor margin. You are better off offering no points.
But if you increase the points value significantly, I guarantee you’ll see a big jump in sales revenue, even at higher prices.
My advice: replicate the Google strategy. Everyone can.
How?
No, not by offering your products for free! But by following, what I call a pound-wise strategy.
The Pound-wise Strategy
Be generous with the add-ons. Then figure a way to re-price your products and services. And finally, invest on analytics that can help you use the information and knowledge you collect. The strategy will help you improve revenue and leave your competitors behind.
Not convinced?
Here are a few more examples.
A grocery store in India has its hands tied as most products they stock carry a listed price. They cannot raise prices. But these grocery stores also sell ‘loose’ grains. Flour, rice, spices, daals. Also nuts and eggs. Some even sell vegetables and fruits. For most of the big retailers these items comprise a quarter of their sales, giving them 50–60 of their profit margins. Technology now allows stores to vary rewards by SKUs. By offering generous rewards on such items and tiny rewards on the rest, a customer’s loyalty can easily be bought.
Hardware, electronics and appliance stores can also replicate the grocery model on non-branded appliances, house-brands, and smaller items like cables and switches.
Let me return to Shoppers Stop. It’s typical to see at least 50% of the shopping being done by a mere 10% of the customers. This means, every time 1% of them shift their business, 5% revenue would disappear. If I was Shoppers Stop, I’ll fight tooth and nail to prevent such a switch. In other words, I’ll buy their loyalty. But the last time I shopped at Shoppers Stop, I was in for a surprise. The cashier informed me that my ‘in-sale’ shopping didn’t qualify for points any more. What, a dilution of deals? I’m certainly not very keen to return to Shoppers Stop anytime soon.
Jet Airways tried a similar ploy a few years ago when they launched JetLite to compete with the no-frill airlines. They announced that JetLite won’t qualify for miles. Nor would some fare categories in their regular carrier. In other words, if you are a member, and plan to fly Lite or that specific fare in regular carrier, please consider our competitors! But thankfully, they learnt their lesson quickly and restored the miles.
Many Indian restaurants now price the rotis (breads) very steeply. Upwards of Rs.25, leaving for themselves 90 to 95% margin. Similar logic is applied on steamed rice. Herein lies the opportunity. Reducing the prices of these items could help restaurants win more customers, I believe. They have the margin to play, and nearly 100% customers have either or both the items. Imagine as restaurant offering a roti free for every 1 you buy!
Recently, new telecom brand in India, Jio, bought loyalty — they offered their service for free! For six months! Where are they are today? They are sitting on astronomical valuation that’s several times more than what they may have lost by offering free services. If its competitors were smart, they could have also offered their services for free, blunting Jio’s strategy. But they were too slow to react, and the rest is history. Of course, some experts may argue that had they, they’d have bled. But aren’t they bleeding anyway?
I believe a customer is willing forgive or forego much today to get a deal or a generous extra for staying loyal.
Customers are not stupid — they know there’s little difference between one brand and the other. Engagement is standard. Everyone uses the same technology, and none answers their phone calls. So might as well go with the one who gives you the most, most of the time!
