Saturday, January 24, 2009

Is the Free Ride Worth It?

A motorcycle manufacturer in India, with over two million loyalty customers, has one of the largest customers bases for a loyalty programme. The customer proposition is quite simple and relevant to the target audience. However what makes it different, is that its a paid programme. Customers need to pay upfront for a three year membership.

Most loyalty programmes have very low entry barriers / qualification criteria for its customers. The benefits via ease of enrolment for the customer & for the brand owner easy access to a large customer base to which it can communicate and potentially convert to increased wallet share and hence revenues are quite obvious.

In any loyalty programme, there is a clear pyramid of customers that is formed within 18 - 24 months, wherein the Pareto principle quickly falls in line...Less than 20% of the customers contribute to the value from the overall base.

Which takes me to the set of (existential) questions.....
1. Do they clearly understand the value proposition...OR rather...Do they take the time enough to understand the benefits of the programme?
2. Does the customer actually value the benefits that your are offering her...(OR is that too brave a question to ask for the programme manager?)
3. Does this customer take your programme seriously enough?

The third question is the most vital for the success of any programme. It is vital that the customers views a clear give and take in this relationship and has his skin in the game. You may believe that her business over the life of the programme is the "skin", but it may just not be it.

Most loyalty programmes have attained success via word of mouth from its loyal consumers and not as much from the programme communication. Hence the programme is always susceptible to a risk of failure if the word of mouth does not reach the customer in adequate and frequent dosage.

So, why leave it to chance? Pricing the access to a loyalty programme has the following potential benefits:
a. It ensures that the customer clearly understands and believes in the value of the programme
b. Ensures that the organisation stakeholders are more involved in the customer engagement and education at the time of enrolment
c. Gives your P&L immense latitude, by covering huge administrative and financial costs that you would incur.

Pricing a programme would face huge resistance across internal and external stakeholders, the programme size build up would take substantially longer, but the P&L does look rather different.

Take your customer seriously, but they should take you seriously too!

p.s. There is a difference between a customer communication programme and a loyalty programme...

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