Discover more from Course Notes: Continuous Business Learning
Alex Danco, 2019-09-07
Can’t get enough of Alex’s posts archive.
“Pay to get a better spot” is not a new concept and is widely used in offline merchandising (arranging goods on shelves) as well as in online product display (with a virtually infinite catalog of goods). In conditions of abundance, relative position matters a great deal.
This is positional scarcity – what should be put in front of a customer? It creates roadblocks and opportunities.
Curation – hand-picked selection of (say) books, songs, etc. Solves the problem of not having enough time to see / experience all available options as these options emerge much faster than humans can analyse them. It’s also about ranking items in terms of, say, quality or other features consumers need. Hence the endless “Best cars under $30000 you can buy in 2020” lists, they always have their consumers.
Prestige [or Status] – when there’s abundance of spare money, buying the most expensive/stylish car to stand out is one of the examples. The 21st century is the ultimate wealth creation time, and while most of it has accumulated in the coffers of the 1%, some sizeable chunks of money have actually trickled down to some of those that made this wealth creation possible. So we have Facebook (pick a successful name) millionaires, some of whom need status symbols to stand out from each other.
Access – who gets to the front of the line to talk to a superstar? Or do you want to get the best flight ticket for your budget? (In which case Aviasales is the answer.) Or do you want to reach the population of a remote town (local newspaper to the rescue)?
Putting it all together
Curation + Prestige = Legitimacy. It’s a powerful mix: being able to signal one’s curation abilities (say, be an angel investor in AirBnB) is an infinitely more powerful message than just making money off the AirBnB IPO (is anyone going to make money off it anyway?). Taste is another example (hence fashion). Prestige can be borrowed (say, by hiring McKinsey) and be used to legitimize a firm’s chosen (i.e. curated) strategy.
Prestige + Access = Proximity. Abundance creates congestion (I dare you to buy a steel-on-steel Rolex Daytona in a boutique, you’ll know exactly what I mean), and paying some more allows skipping the line (or joining a line for those who paid more to skip the line, think Disneyland). The more valuable the mix of goods/services, the more valuable the access to them is. The examples of proximity are real estate (everyone pays a premium to get access to the prime area because of schools, low crime, etc., but effectively – to be around like people) and elite gatherings (filtering out people without status). I’d also add private schools to the mix, too. Being able to pay $30k p/a is not sufficient to place your child into one. Trust me, I know :)
Curation + Access = Extortion. Online food delivery services can go wild and rank higher those who can pay more – a typical “pay to play” (or, more specifically, “pay to stay in business, maybe”) type of arrangement. Any service / person / firm standing in the way between you and a customer can engage in extortion; the degree is dependent on the brand, the reach of this person, and your pricing power. The best example is Google forcing companies to pay for their own brand queries, unnecessarily increasing the cost of running a busines even for an established brand. Controlling the access to the target audience (i.e. being able to scale it up and down) is in itself a powerful extortion tool.
Curation + Access + Prestige = Loyalty. I am a Qantas Platinum One frequent flyer (their highest tier, in the top 0.8% of the flying Australian public in the good old days), of which I’m still very proud. Same with my Amex Platinum card – it also ticks all the ego boxes. And guess which airline I’ll fly (in the pointy end, of course), or what card I’ll use to pay for the ticket? Needless to say, building loyalty by throwing money at customers will never work sustainably, so it’s a very iterative process, but there are examples out there that this is achievable.
Also check my review of the “For Love or Money” report on loyalty.