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Supplier beware

Since the pandemic began I have started having groceries delivered. It seems to me a great bargain if someone will walk the aisles and be troubled to collect my shopping predilections – and deliver them – for what seems a very small price. The other day I was seduced into paying £70 ($95) to the supermarket so that I could have "free deliveries" as often as I wanted and at any time throughout the year. I had become a subscription customer. I should also confess that I subscribe to Amazon Prime, The Economist and a few other wily retailers. Subscription marketing has become a big deal. It is a framework that works for many companies.

Pret A Manger recently offered up to 5 drinks a day for £20 a month. This lure to subscription has bitten them in the bum. The demand proved to be much higher than was anticipated which resulted in a deluge of complaints from overworked staff and frustrated customers. In the US the ticketing service, MoviePass, offered movie going customers "all you can eat" for $10 a month. Two million canny customers couldn't resist this deal and it cost the company $21.7 million a month bringing it virtually to its knees.

Members of loyalty schemes can be quite picky about the service they receive. They are regular customers and will not stomach failures from the company in which they have (in their minds) made a commitment and invested money. Wharton Business School carried out research which showed that members of loyalty programs get more upset with their suppliers than customers who are not members. This is because they use the brand more frequently than non-members and so experience problems more often. The researchers call this “the boomerang effect” because the very loyalty a brand engenders comes back to hurt it.

Perhaps the most notorious such disaster is when Hoover, the manufacturer of the ubiquitous vacuum cleaner, offered free transatlantic airline tickets in 1992. People quickly recognised that by spending £100 on a Hoover vacuum cleaner delivered an airline ticket worth six times that amount. This resulted in a frenzied take-up which cost the company $72 million on flights for 220,000 people.

Loyalty and subscription offers are a great framework as long as the dangers are understood. There are some, maybe many, hard-nosed consumers out there who are willing and eager to exploit the weaknesses in any promotional scheme.


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