Sunday, 4 December 2011

When excluding customers adds value

Winlose sml

I'm a loser.  I've been a loser lots of times.

When I play poker, I very rarely win big and tend to be happy if I break even.  When I was young and we'd play games like pass the parcel, I'd lose more times than I won.  Losing is part of life and it's what makes winning feel that much more special.

When my kids play games like pass the parcel now, every wrapper has a gift in it.  Everyone's a winner.  Yay!  Strangely enough they don't really play it that often.

If everyone is a winner then essentially no one is a winner.  All it does is dilute the whole process to the point where taking part ceases to have value.  Sure it's inclusive, but it doesn't take long to realise we don't want inclusive, we want exclusive.  We want to be winners.

Imagine a frequent flyer programme where everyone was a winner.  It didn't matter how many times you flew, you were top tier.  I'd feel great with my Platinum frequent flyer card, with its exclusive benefits.  Priority queuing - with everyone else.  Lounge access - with everyone else.  Priority Boarding - with everyone else.  Somehow that's not going to feel special very long if everyone is included.

This peaked my interest recently when I read about a new card that has been launched for what the Evening Standard termed as the "digerati".  Called the FoundersCard, they state

"[It] is a first-of-its-kind membership community for entrepreneurs and innovators" providing members with "access to frequent networking events held throughout the year [..] exclusive benefits, upgrades, and amenities from the hottest travel, lifestyle, and business brands, carefully selected to meet the needs of the entrepreneur"

Only 5,000 people worldwide have been accepted for one so far and it costs $495 to have it.

So I have to pay for it, I want it, I don't know what "it" is but I can't have it.

Still, it's cheaper than another card that I'm excluded from, the Centurion Card.  Another "invitation only" card with annual fees of $2,500, the FoundersCard looks cheap in comparison, especially given the Centurion card also has an joining fee of $5,000.

What do you get for that kind of money?  Well basically, in the words of Tolkien, it's "one ring to rule them all" or more accurately "one card to rule them all".  Providing elite membership in frequent flyer/guest programmes including Virgin Atlantic, US Airways, Delta and American Airways, elite status in Hertz and Avis and personal shopper access within many top retailers.  It's one card that can open doors to almost any other loyalty programme.

The only reason these cards work though is by controlling access and membership - including some and excluding others.  If Amex opened the floodgates to the Centurion Card, not only would it devalue the card to other members, but also to their partners.

This is something Groupon partners keep experiencing.  There was another report in the press this week of a partner being overwhelmed by the response to a Groupon deal.  A baker in the UK was inundated with orders for a 75% discount on 12 cupcakes.  Expecting only a "few hundred" orders, they received over 8,500 and had to make over 100,000 cup cakes - at a loss.

The original purpose of Groupon was to provide exclusive deals.  As they say on their website "Just imagine the joys of an exclusive spa day or a four course meal for half price".  The problem is, if it's not really exclusive then it won't be valued, either by the consumer or the partner.  This will mean it'll be harder for Groupon to source genuinely "exclusive" deals and consumers won't be getting a deal, they'll simply be getting what they paid for.

These exclusive offerings work on the scarcity principle, with people valuing (and overvaluing) something when it is in limited supply.  The real value of exclusive access within an airport is about £2.50 for fast-track security and £15 for lounge access - assuming of course you could buy it.  Limiting supply however allows airlines and operators to provide these low cost benefits as part of high cost business class seats and loyalty programmes.

Google used this principle when launching Google+ as an invitation only service.  For something many of us didn't know if we wanted (and probably still don't), there was a clamour for invitations on twitter with a clear divide between the haves and the have nots with Inc.com reporting on this saying:-

When Google shut down inviting [for] a few hours [..] hype only intensified. Lesson: going slow with a launch is not only good for your servers and your sanity, but can extend a feeling of exclusivity to users.

By excluding potential customers initially, Google simply increased the desire of potential customers to gain access and at the same time increased the value of the service to those who already had.  Creating winners and losers created a win-win and in the process created the fastest growing social network in history.

This also applies where there is no real value.

Achievements or digital rewards may be cheap to manage and fulfil, but they'll also be cheap in the mind of the recipient if they don't have exclusivity tied to them.  Foursquare works because they make getting badges a challenge and also make it hard to find out exactly how you get them.  This means when you are awarded one there is genuine surprise (and delight if you're a little sad like me) or a genuine feeling of achievement.

This is something that the MacArthur Foundation is counting on along with the Mozilla Foundation.  They are looking to tap into it with a proposal to use achievement badges as a form of virtual CV.  Recognising that increasingly, formal qualifications don't express the richness of someones skills or those skills they learn ongoing, the badges would form a visual recognition of acheivement.  However these only work if they genuinely recognise achievement as a Mozilla spokesperson said

"The badge itself is more than a static image or button. Its value comes from the information or metadata attached to it [, including an] implicit validation system"

In reporting this the New York Times said "If valued, they might also inspire students to accomplish new tasks."

This in the end is the key to all of these solutions - the consumer has to value them and that value can be created and intensified by limiting their supply through achievement.

It doesn't really matter what the rules are, whether it's demonstrated by the size of your brain, your klout or your wallet.  There has to be winners, those who are included, and losers who are excluded for things to have enough value that it encourages motivation and engagement.

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