“Bribes”

October 25, 2006

O.K… so it is a bit radical to call “incentives” “bribes”… but isn’t that really what they are? Furthermore, who really benefits from these incentives? I am talking about the cash rebates, coupons, sweepstakes, etc., that are constantly being thrust on our society. I believe that manufacturers see a benefit in conducting these campaigns and have done so for well over 100 years.

The truth is very few companies really know what real benefit they derive from these incentives. Do they attract new users or just subsidize loyal purchasers? And to what degree? If they attract new users, are those customers likely to stay with the product long-term?

Sometimes we should all “be careful what we wish for”…. or, we may get it! An old saying but true. Let’s look at the airline business. Remember when American Airlines introduced their frequent flier program. Fairly radical at the time. The goal was obviously to increase loyalty… particularly among business travellers. So, what happened? Every airline copied that program and today, every airline is “stuck” with billions of unredeemed miles as a potential liability. Over the years they have all tried numerous ways to “modify” their programs to help ameliorate this problem such as less “free” seats available for flights, miles redeemable for gifts, etc. Nevertheless, the “problem” still exists and each program looks just like the others. This is the commoditization of an incentive if I have ever seen one!

What about coupons… every weekend you can find dozens of coupons in your Sunday paper. Who really redeems those coupons. On most products, my bet is loyal customers are the ones redeeming or totally disloyal consumers looking for a “bargain.”

So, is there a real role for incentives? Of course… and each case varies. But, you need to clearly understand your strategy (e.g.: trial versus continuity, versus loading, etc.) and know the risks of your incentive programs before you dive into this potential cesspool.

Rich

Bizvice:  Strategy, Marketing & Entrepreneurship

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