Tag: competition

Loyalty Program Saturation (or Not)

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With the current downturn in US economy, many companies are adding loyalty programs to their marketing toolbox, both as a customer relationship management tool and to demonstrate better value to existing and potential customers.  In some industries such as travel and financial services, numerous rival loyalty programs are offered, creating intense competition among these programs. This pervasiveness of loyalty programs has led some to conclude that such programs may be a necessary cost of doing business or argue that memberships in multiple loyalty programs may eventually cancel out the effects of each individual program, creating a zero-sum game. With a large number of competing loyalty programs, are firms merely giving away profits in a desperate struggle to win business, much like the airline price war in the early 1990’s?  Or are loyalty programs a viable strategy that can increase revenue potentials, even with competitive offerings in the same market?

These are the questions my co-author and I intended to answer with our forthcoming article in the Journal of Marketing entitled “Competing Loyalty Programs: Impact of Market Saturation, Market Share, and Category Expandability“.  Using 30 years of historical data from the airline industry supplemented by consumer survey data, we found that an airline’s frequent flyer program does not always lead to beneficial outcomes for the offering firm and that only high-share airlines experience sales lifts from their loyalty programs. As high-share firms tend to possess complementary product and customer resources, they are more likely to gain from their loyalty programs than firms with a smaller market share.

Our research also reveals that crowding the marketplace with loyalty programs can diminish the return of an individual program. However, this saturation effect is contingent on the expandability of the product category. When the products from one industry can be extended to meet the demands in related industries, the competitive landscape shifts to include not only competitors within an industry (i.e., other airlines) but also firms in those related industries (i.e., other modes of transportation). Looking from this broader perspective, the imitation of loyalty programs among direct competitors can still derive competitive advantage within the broader market if competitors in alternative categories do not yet possess such resources. Under this situation, saturation becomes less of a threat to the success of each individual program in the focal industry. For the airline industry, due to its relatively high category expandability, the overall effect of market saturation becomes insignificant.

The findings from this research caution against an urge to launch a loyalty program simply because every other competitor is doing so. Rather, a firm who is pondering the launch of such a program in an already saturated market should carefully take into consideration the flexibility of market demand and whether importance resources (e.g., products, customers, data analytic capabilities) exist to complement such a program.

For further readings, you are encouraged to download a preview copy of the loyalty program competition paper from my website, or from the Journal of Marketing website.

Microsoft’s Irrational Obsession with Google (Part II)

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In Part I of this two-part series, I discussed the irrationality in Microsoft’s obsessive pursuit of Google. In this part, I suggest some of the opportunities that Microsoft may want to pursue instead:

  1. The mobile market: The mobile market is still in its infancy. This is an area that Microsoft did make some early headways through its Windows Mobile platform. Google is quickly catching up by developing its own mobile applications. But jury is still out on who is going to win the mobile market. Microsoft needs to think much harder about what it can do in this market.
  2. Instant messaging: Despite the launch of Google Talk and Gmail chat functionality, Microsoft’s Windows Live Messenger (formerly MSN Messenger) still has a much larger share of the instant messaging (IM) market. As IM technology is closely tied in with social networking and the mobile market, Microsoft can leverage its position in the IM market into these other fast-growing areas.
  3. Platform-free internet-based applications. Google’s array of innovative software and online service solutions are moving computing toward a platform-less environment. This can significantly undermine the foundation of Microsoft’s business. In my opinion, this is a much bigger threat than the search market. To adapt to this change, Microsoft should work on moving its products to a common Internet platform. Rather than spending all the energy on preventing illegal use of its software, Microsoft will be better off taking a stronger lead into developing Internet applications that are not tied in to its Windows platform.

    4. No matter how bad of an image Microsoft may have had in the last few years, we have to acknowledge that the company did play a significant role in computing history. It may still be able to continue its legacy if it could un-blind itself from Google.

Microsoft’s Irrational Obsession with Google (Part I)

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If one day Microsoft goes belly up, I suspect it will have a lot to do with the company’s irrational obsession with Google. It’s true that Microsoft had lost plenty of talent to Google. According to the Google Story book (Delacorte Press), Microsoft CEO Steve Ballmer had once said: “I’m going to fucking kill Google”. But in this pursuit of deadly competition and revenge, Microsoft has lost sight of the market and its own strengths. Here is a synopsis of what I think Microsoft is doing wrong.

(1) The pursuit of Google is vastly different from a few years back when Microsoft beat Netscape with its dominance in the operating system market. At that time, the Internet was just starting to happen, and with the small number of users, Netscape had not taken a strong hold of the mass market. Today’s situation is very different. The Internet has become ubiquitous, and Google has much more muscle than Netscape did in the old days.

(2) Yes, the search market is important, and Google’s success has demonstrated the power of search marketing. But search engine is what has already happened. Even though Google has not been around for that long, by Internet age, it is getting old. With the fast pace of innovation in today’s environment, rather than pursuing something that has already reached a mature stage, it makes much more sense to create and invest in what’s to come.

(3) There is no dispute that online advertising has been growing very fast (see “Online Statistics” section in the right panel for recent ad revenue statistics). Microsoft Wanted to get a piece of the pie, hence its offer to buy Yahoo. Yahoo rejected the bid earlier this week. While this may be perceived by some as bad news for Microsoft, it is really good news, because the merger would not have made sense any ways. Microsoft has never been a strong content provider. Its fundamental business is not in the area of “eyeball” business but rather about affecting people’s way of computing. Going after the advertising market is not what Microsoft does best and will be more like a waste of its resources rather than help.So what should Microsoft do instead? Coming up in Part II, I will offer my analysis of the opportunities that lie ahead for Microsoft.