Linearity of loyalty rewards

So I’ve taken to working a lot in cafes nowadays. This is driven by both demand and supply. On the one hand I’ve gotten so used to working for my current primary client from home that I’m unable to think about other work when I’m at home – so stepping away helps.

Also on the demand side is the fact that this summer has been incredibly hot in London – houses here are built to trap in the heat, and any temperature greater than 25 degrees can become intolerable indoors. And given that cafes are largely air-conditioned, that’s an additional reason to step away from home to work.

On the supply side, there are three excellent hipster cafes within 200 meters of my house. Yes, I live in a suburb, though my house is very close to the suburb’s “town centre”. And all all these cafes make brilliant coffee, and provide a really nice ambience to work.

So far I’ve discovered that two of these cafes offer loyalty cards, and given my usage, neither makes a compelling reason to be loyal enough. The “problem” (in terms of retaining my loyalty) is that the loyalty card at both these places offer “linear rewards”.

Harris+Hoole has an app, which offers me a free drink for every six drinks purchased. Electric Coffee has a physical card, which offers me a free drink for every ten drinks I purchase. Now, the rate of reward here (I’m writing this sitting in Electric) is lower, which suggests that I’m better off patronising Harris+Hoole, but some variety doesn’t hurt – also I’m queasy about ending up and parking in the same cafe more than once in a day.

Even when I was writing my book in Barcelona two years ago, I would never go to the same cafe more than once a day, alternating between Sandwichez, Desitjos and this bar whose name I could never figure out.

Ordinarily, if I were a low intensity user, one drink for every N drinks ($math 6 \le N \le 10 $) would have been a sufficient reason to be loyal. Given my rate of consumption, though, and the fact that I go to both these cafes rather often, the incremental benefit in staying loyal to one of these cafes is fairly low. I can peacefully alternate knowing that sooner or later the accumulated ticks on my card or app are going to provide their reward.

It wasn’t like this last year, when I was briefly working for a company in London. Being extremely strapped for time then, I hardly patronised the cafes near home, and so the fact that I had an Electric card meant that I stayed loyal to it for an extended period of time. At my higher level of usage, though, the card simply is not enough!

In other words, rewards to a loyalty program need to be super-linear in order to retain a customer beyond a point. The current linear design can help drive loyalty among irregular customers, but regulars get indifferent. Making the regulars really loyal will require a higher degree (no pun intended ) of rewards.

PS: Given the amount of real estate hours I occupy for every coffee I buy, I’m not sure these cafes have that much of an incentive in keeping me loyal. That said, I occasionally reward them by buying lunch/snacks or even a second coffee on some visits.

PS2: As a consumer, loyalty card versus app doesn’t make that much of a difference – one clutters the wallet while the other clutters the phone (I don’t like to have that many apps). A business, though, should prefer the app, since that will allow them to know customers better. But there’s a higher fixed cost involved in that!


Outliers – Notes

Last evening I borrowed Malcolm Gladwell’s Outliers from the library. Finished off reading it in one sitting this morning. I had been disappointed with his earlier book (The Tipping Point) and have been describing it as a blog post that has been written in 200 pages.

Outliers, on the other hand, is significantly better. For starters, there is a really nice narrative style which goes the book going. Having read the book, I still haven’t understood the central idea of it, but there are enough interesting sub-plots and side-fundaes that it’s worth reading. Some notes.

  • The second chapter of the book hints that you need to spend a considerable amount of time fighting it out at something before you become a stud in that. Gladwell claims there are no “natural studs” at anything, and people become studs at something only after reasonable effort. I think the key is on taking that step up to studness after you have put enough fight, and some people (pure fighters) don’t seeem to do that
  • There is tremendous non-linearity in the world, and this is a point that Nassim Taleb had also made in Fooled by Randomness. Basically, there are some discrete steps. For example, if I had applied the brakes even one second earlier, I could’ve prevented the car crash I was involved in this April. One extra mark here or there can change a candidate’s JEE rank by 500 places, and totally change his life. Etc.
  • Gladwell talks about “honor cultures” – where people tend to take offence easily. He claims that this kind of culture is more prevalent in pastoral communities where people need to be more aggressive and possessive. When I read about “honor cultures”, I was reminded of Rajasthan, and the Rajputs there going to war on one another on trivial “honour issues”, and Prithviraj Chauhan using “honour” as the excuse for supposedly pardoning Mohd Ghori in the first battle of Tarain in 1190. Was Rajasthan a traditionally pastoral society in those days?
  • The Power Distance Index that he talks about makes sense, but unfortunately India is not mentioned in the studies that he quotes. I would expect India to have a fairly high power distance index, but I’d also be interested in seeing if India’s PDI varies regionally – I would expect it to be higher in the north than in the south
  • A while back, I had written one reason as to why there doesn’t exist a strong breakfast culture in North India. Gladwell’s chapter on rice cultivation inspires an alternate reasoning. He claims that rice farming is much harder than wheat farming, and the former tends to take longer hours, and occupies a larger proportion of the year. Maybe due to the longer hours, south indians felt the need for three meals a day, while two were sufficient in the north. Also, rice digests quicker than wheat, so eating at more frequent intervals is warranted.
  • The epilogue, in which Gladwell talks about his mother’s family, gives an indcation about the “race system” in Jamaica. Compared to our caste system, which is discrete, Jamaican discrimination is on a continuous scale which has several shades of brown between black and white. Also, this continuous scale means that a child lies somewhere on the colour line between his father and his mother, and his standing in society is determined by his own colour. On the other hand, in the Indian caste system, rules dictate that the child belongs to either the father’s or the mother’s caste. Interesting to see how much of a difference this has made in general economic development.

I know a lot of this might not make sense to you if you haven’t read the book. I have just noted some headline points here. If you need more fundaes, leave a comment with your question and I’ll write about it.

And I would definitely recommend you to read the book. Nice quick read it is.