The costly futility of “loyalty programs”

    “Brother,” he says, “accept my heartfelt greetings!” Didn’t I see you in the south of Missouri last summer, when you were selling half a dollar colored sand for a teaspoon and insisted that you just put it in a lamp and that kerosene never explodes?

    “Kerosene never really explodes,” I reply. - Only gas explodes.

    O'Henry “The Noble Rogue”

    Before you do anything, you should always think about your goal.
    If the goal cannot be clearly and convincingly formulated, then most likely you intend to take nonsense.



    Even more important is a preliminary awareness of the goal of your own business ventures / If you can’t model a realistic situation in which the result of your event will be a profit increase - don’t go to the grandmother, you thought up stupidity.

    This incredibly simple test rule, applied consistently, would save trillions of dollars to businessmen from all countries. But ... In general, you understand.

    We apply it to the topic of publication - “loyalty programs” (PL).

    All submarines, regardless of their external design, ultimately constitute a distribution of money to customers. Whether through “bonuses”, whether giving discounts, gifts or something else.

    Theoretically, the submarine of a single market player should somehow differentiate it from others, and thereby increase the likelihood that the buyer prefers this particular player (ceteris paribus).

    But ... Comrades, the submarines are the same for everyone! / Something we wrote about this earlier: www.ultimaerp.com/results/gangnam_style

    And the same submarines are unlikely to be able to single out anyone. Well, if only stamped stupidity.

    Massively used submarines have the following unavoidable consequences:

    1. The loss of importance of submarines to the consumer is because all active buyers have cards from all competing networks. Because, in turn, these cards are distributed to everyone and everyone: “do you have our card? want to arrange? ”

    As a result, everyone has a fucking fat house full of colorful cards with colorful cards at home.

    Which, undoubtedly, very differentiates each issuer.

    2. In a highly competitive market, the margin is always squeezed so much that you simply cannot give your customer any substantial discount. Well, who is motivated by a 1-3% discount, guys? From a check of 300 rubles. Or even at 5000.

    3. Even these ridiculous for the buyer discounts are damn expensive for the seller. The mathematics is simple: if your net profit is the usual 2-4% of the turnover, then by abandoning the PL, which consists in an average discount to customers of 3%, you can, roughly speaking, double the profitability of net profit (in fact, the final profit will be even higher, as we will show later), without losing, by virtue of clause 2, nothing in sales.

    4. In addition to direct losses in the profitability of sales, you bear the costs of processing the submarine - printing, distribution, card accounting, litigation with problems with bonuses etc. Monkey job whose goal is to reduce profits.

    5. In all submarines, the main beneficiary is not the buyer, but the seller’s employees who steal very good money on this.

    Due to the arithmetic of paragraph 3, sellers-managers-cashiers, depending on the technology of processing submarines, can earn much more shareholders of the company. Such non-isolated cases are known to us for certain.

    On the contrary, we are not aware of any cases where the work of submarines in the company would NOT be accompanied by remote theft of personnel. This is for a normal buyer 2% discount bonuses from a purchase of 800 rubles - three pennies. And for the cashier, letting in hundreds of such customers a day, figure out how much? Especially in comparison with his salary from the employer.

    And do not hope, dear managers, for their control systems - firstly, their content is also not free, and secondly, employees always win in the competition between employees and managers / shareholders “whoever deceives \ will bring them to clean water”. Both due to the number of the latter, and as a result of many times stronger material motivation and the possibility of focusing on a single goal.

    If you are counting on the opposite, we sympathize with your naivety.

    Exactly with tax incentives \ state support for business, officials (and not business and investors) will always earn (= steal) it, and the best option is a flat tax scale and no state support.

    So our valuable recommendation to almost all (almost! Who DO NOT - see below) sellers - give up this nonsense and enjoy the growth of profits and relaxation from monkey labor.

    Direct the saved efforts to what is really important to your customers and really affects the increase in the probability of sale: the

    correct marketing strategy of the company is the correct positioning (think for yourself or contact us) of the

    range and prices (in our time a whole series was published about it , Start:www.ultimaerp.com/results/purchase_matrix ) the

    correct location of stores for offline retail (here the location is even more important than the assortment and prices) and the correct design and structure of the catalog for online merchants the

    overall effectiveness of the organization of business processes of the company (http: // www. ultimaerp.com/ecommerceerp/)

    PS Nevertheless, there is a very small percentage of cases when the discounted PL really works. A combination of the following features is required: the

    size of the average check makes the purchase so important for the target audience of buyers so that the proximity \ convenience of the location of stores is secondarily neglected by

    players in the market segment, therefore, points of sale are not located on every corner

    the business is so marginal that it allows you to give such serious interest discounts that the money saved in kind would be significant for a CA

    submarine is highly selective: getting cards is not easy, owning them is prestigious, switching between submarine steps requires spending a considerable amount (for CA) of money each next step gives a significant increase in advantages.

    From what the author recalls, only comrade has a working discount submarine. Kusnirovich - Bosco di Ciliegi.

    And further. There is a vanishingly small set of cases where due to the coincidence of so many factors that it makes no sense to analyze them, it turns out to realize a working submarine, the essence of which lies in the plane of consumer involvement in the game.

    Discounts are also present here, but this is a completely secondary factor. Here is an example of our authorship program: www.ultimaerp.com/results/on_heaven

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