Co-Opetition - Adam M. Brandenburger [70]
Create loyalty by rewarding it.
Affinity programs are one way to say thank you to your customers. But you may want to set up your own loyalty program. Hotel chains offer their frequent guests guaranteed reservations, upgrades to executive-tower suites, and more perks. Car rental agencies, railroads, casinos, and others all have their own programs. We think every business should have a loyalty program.
Of course, there are better and worse ways of saying thank you to your customers. Our experience working with companies to develop loyalty programs has helped us come up with some guidelines on how to say thank you most effectively.
1. Say thank you in kind, not cash. The most cost-effective way to say thank you is to reward customers in kind, not cash. Imagine if the airlines promised travelers a $500 savings bond as a reward for 40,000 miles of flying.29 Customers would value this at precisely the amount it cost the airline to buy. It’s a large thank-you, but it’s also an expensive one—each dollar of thanks would cost the airline a dollar. A much more cost-effective way to say thank you is to give travelers something that they value at $500 and that costs much less than that to provide. The airlines accomplish this by using empty seats to give away free trips.
When you use your own product to say thank you, it’s cheap to provide in comparison with its value to the customer (or else you shouldn’t be in business in the first place). This is especially true if you have excess capacity. Even if you don’t actually give away your product for free, giving it away at cost or at a discount is still effectively saying thank you in kind, not cash.30 Done right, saying thank you doesn’t have to cost you much.
People understand the kind-not-cash principle very well in some contexts, but then forget about it in others. For example, insurance companies sometimes replace losses with product rather than cash. It’s more cost-effective this way. With their experience and clout, insurance companies can often replace damaged or lost goods at a lower cost than the customer could. To us, that says that insurance companies should also be helping their loyal customers buy new products. It would be a cost-effective way of rewarding loyalty. For example, auto insurers should help their customers buy new cars, a strategy we came at from a different direction in the previous chapter.
The same idea applies in business-to-business relationships. You may be able to say thank you to a customer by helping it get a better price on its raw materials. You use your superior clout or access to help your customer. Whether your customers are consumers or other businesses, look for ways to say thank you in kind.
2. Save the best thank-you for your best customers. Many companies offer the best deals to new customers. That’s backward. You want to treat your best customers the best.
New customers are an unknown quantity. You don’t know how profitable they’ll turn out to be. With your existing customers you know how things turned out. Figure out who are your most valuable customers and don’t ever lose them. Reward them to ensure their loyalty. It’s like remembering to send flowers even after you’ve turned a romance into a relationship.
The cellular-phone carriers could take this message to heart. There is currently tremendous excess capacity in the business that could be used to create much more loyalty among customers. For example, carriers could give their best customers free weekend and evening calls. Or they could give customers free incoming calls in proportion to the time spent making outgoing calls.
Some cellular carriers do give free weekend and evening benefits, but only to new customers. Others offer fantastic discounts on the new digital phones, but again, only to new customers. Wrong approach. This practically invites customers to keep switching service back and forth to get the promotions. It actually undermines, rather than builds, loyalty.
Once again, frequent-flyer—and especially Gold and Platinum card—programs get this right.