Friday, June 20, 2008

Profitability v/s Delight!

In most consumer (B2C) industries, the definition of customer profitability is fairly straightforward. The more you buy, the more profit you generate for the seller and hence the more valuable you are....

In the case of airlines, the uber elite flying club class quite often deliver substantially higher gross margins to the airlines. Hence loyalty and relationship programmes quite often fall head over heels in flirting with the blue blooded chaps.

However the credit card industry offers a twist. Customer Value is not directly proportionate to the amount spent, but a blend of how much you revolve and pay. This leads to quite a few unusual scenarios...
........Jack, a top spender - non revolving, requesting for an annual fee waiver is politely denied as the he has accumulated tons of frequent flier miles and the card company know that he is "stuck" to the proposition
.......Jill, a medium spender but high revolver is often extended the courtesy of fee waivers and a bouquet of other treats as well!

Increasingly banks and financial institutions have commenced differentiated pricing and "service" strategies for their customer segments basis current and potential profitability. Quite justified from a business value perspective (and rather tough to implement), but what of the customer?

Am all for differentiated pricing, but have been debating this differentiated "service/gesture" approach for a while now. Would Jack be tipped over eventually and take his business elsewhere & what would be the brand impact of such tactics.

Would welcome your views?...

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