Saturday 28 February 2009

Keeping up with the Joneses (or better still leaving them for dust)

I had my first computer when I was 11 – it was a Sinclair Spectrum 48k+ which still brings back fond memories today.

Now I knew this was good for a number of reasons. Firstly it had 48k, trumping the 32k BBC Micro and the 16k ZX Spectrum - secondly it was a "plus" version so it had to be better. For a while this was the cutting edge of home computing – until that was my friend got a Commodore 64.

A few years on and my computing needs got upgraded. Eventually I had amongst others an 8088 IBM PC with MDA green screen and a full 10mb hard disk. As I started my career in software development it was easy to understand the evolution of PC hardware – we all knew that the Intel 386 was better than the Intel 286. There was great excitement at the Intel 486 – I was working for IBM at the time and I remember getting an opportunity to use one when its price tag was over £9k! (I also remember being overjoyed at the colour printing offered by the IBM desktop plotter – essentially remote control felt tips)

The operating systems followed the same pattern. Your level of MS-DOS or more latterly Windows told you that one was better (or at least newer) than the previous one – life was simple.

Then for some reason it all changed. Intel brought out the Pentium which even I could work out translated to the "586", but giving it a name rather than a number was the beginning of the change. We now have Intel Core, Celeron, Centrino and Atom processors - now I have no idea which is better and which is worse and the name also lends little direction as to their intended uses.

Microsoft did the same – first changing from a version number to a year with Windows 95 and then to a name with Windows XP and Windows Vista (there was Windows ME in there somewhere as well – but we won't resurrect that memory).

It seems a little strange to me that both Intel and Microsoft had relied on the fact that users upgraded and this meant users had to understand that something had changed and was better. I clearly know that a BMW 8 series is better than a BMW 3 series or at least it will cost me a heck of a lot more. I can also work out that a Mercedes A Class is probably going to be smaller and cheaper than an S Class. However what I can't tell you is the difference between a Ford Focus, Fusion or C-MAX in the same way as I can't tell the difference between recent Intel processors.

I don't know either way whether the movement from a clear numbering system for Intel and Microsoft has affected their recent sales but no one can deny that Vista certainly hasn't flown off the shelves at the rates expected and many machines "sold" with Vista on have subsequently been downgraded by companies to XP.

Now this may appear as an excuse for a trip down geek memory lane (and to a point it is), but there is a link here (I'll leave it for you to judge how tenuous) and that is essentially how a product or service description can bestow status and hence motivate behaviour.

In a research report on loyalty programme tiering by Nunes and Dreze entitled "Feeling Superior: The impact of loyalty programme structure on customers' perceptions of status" they discuss the effects and benefits of loyalty programme tiers (i.e. Silver, Gold, Platinum) and begin by looking at how people perceive status. Not unexpectedly, people apparently like to compare themselves to others and where possible would rather feel superior than inferior – even though most people aren't aware that they are doing this (or wouldn't admit to it).

The research has lots of interesting information with regard to how to design tiers and what is the optimum number and size of these tiers – and I hope to touch on this in another blog. However what interested me most was how customers perceived the naming of tiers. Within their research, when they named tiers with non-status laden names (blue, red, yellow), versus names which a customer can recognise as bestowing an increasing value (Bronze, Silver, Gold), the non-status names did not provide the same benefits to the programme.

This is interesting because it suggests that it's not necessarily just the rewards that a tier brings which attract customers (i.e. lounge access or priority queuing), it's actually the fact that the tier itself bestows an element of status on the holder – a knowledge that they are in a more elite position. This is backed up by the fact that the benefits are lost when this tier is increased in size so that it becomes more "mass".

There is obviously a correlation here within product marketing – whether its early adopters paying a premium to be part of a small group of people with the latest gadget and the bragging rights it brings, or the highly priced handbag which is no different to its high-street version except for the logo and the associated "exclusivity" this endows.

It's interesting that within computing, as customers have lost the reference as to what is deemed "better" ( I can't tell if my laptop is quicker than my peers) the focus seems to have moved from the internal processor to the external product. Screens have got bigger, laptops glossier and it seems to be all about the show. I can't brag about having a "686", but I can have a 17" widescreen laptop with DVD Blu-ray – or more recently and much more in demand a slower but sleeker Asus Eee PC - and quite frankly I don't really care what the processor is.

Whether we like it or not, we all want to feel a little special some of the time and creating a means to let people set themselves apart can be a great way of gaining additional loyalty and increased motivation - whether this is to encourage an upgrade of a product or upgrade of a loyalty programme tier.

The golden rules from the Nunes and Dreze research would seem to be however that firstly, the product, service or tier needs to have a limited membership - at least initially - in order to command a higher price and/or increased activity. Secondly, the customer needs to be able to recognise that this is something better and more importantly know that their peers can recognise this too.

I would probably add that there is also a need to innovate – what is new very quickly becomes passé and those consumers looking to remain on top will look elsewhere. This is why many loyalty programmes have "hidden" top tiers to which they invite some of the very best customers.

By the way, if you're reading this blog you're currently part of a small and exclusive group. I hope this helps in some way to keep your loyalty – but feel free to invite selected friends – there's room for a few more ;o)

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