Too much of a good thing

One of the things that advertisers and marketers frequently wrestle with are the offers and discounts to be given to customers. How much? How often? What are the ways to reward the most loyal customers better? How can it be done without diluting brand value? After hundreds of years of commerce, there’s still no black and white answer – only shades of gray.

Take, for example, the problem that American Airlines was trying to solve – giving large companies who were their biggest customers an incentive to buy more First Class tickets. They assumed that they could lock in this segment with VIP treatment and not have them cross over to a competitor. So they priced ‘lifetime’ free First Class tickets at $250,000 in 1981. That was serious money 30 years ago – or even today. To sweeten the deal further, they even offered a freebie – travel with a companion.

Given the normal flying pattern based on existing customer data, the airline would have come out ahead. What they did not expect was the change in customer behaviour. Instead of top executives alone, the idea was embraced by those who could afford it and loved flying. Within a few years, these customers had racked up millions of air miles – enough to give them unlimited privileges at airports, lounges and in-flight for free. And it was the airline that lost – in some cases, as much as a million dollars a year.

Groupon as a company is built on daily deals. At first, it seemed a great way to introduce people to new brands. The idea of sampling taken to an exciting new level. But there were too many instances of customers who took the deals happily and never returned. Sometimes, the deals were so good, they overwhelmed the company offering it and the loss was both bad for business and bad for customer perception. The number of Groupon imitators has multiplied. There are Indian ones like Snap Deal which have simply taken the same model and replicated it, hoping to reach an insane valuation in a short while and sell out… But they did not handle the primary problem. How do you ensure that the deal is good for both, the seller and the buyer? The danger is also that if the first experience of the brand is a discounted one, getting customers to pay the full price just gets harder.

It’s the classic chicken and egg problem. Does the customer come first or the brand? Actually, what comes first is anticipation. No customer buys a product alone. They buy into the promises and benefits associated with the brand – the shades of gray. And discounting a brand is an even greater headache. Because people have now come to expect that brands will have days on which they are sold at less than the regular retail prices. At the festival time. Or when a milestone is crossed – 1 million cars sold! In many cases the milestones are invented – summer sale, end of season sale, annual sale because there has to be an excuse to drop the price. Or else the brand value takes a hit. There aren’t easy answers to this one – and even the most experienced marketing managers can end up playing ‘eeny meeny myna mo’