Perhaps we just don't understand

So, there's this program that creates a venue for upscale brands to offer product to consumers. You buy these brands with points, and you get the opportunity to get the "best of the best"--the leading names in electronics, personal accessories, home goods, and so forth.

For the longest time, everything works great. The brands get to offer their product to an audience that can appreciate them. The point system is somewhat blind, and as a result the brand sells the product at close to MSRP or at least Minimum Advertised Price (MAP).

And the program provider is happy too, because they create a strong tie to their members, promoting loyalty and reinforcing their own brand as something "exclusive" and "unique". Everybody's overjoyed. Things are good.

But then there are Storm Clouds. First, the consumer stops earning points at the levels they once did. But despite that, there are billions of points sitting on the program sponsor's balance sheet. So many billions, in fact, that there becomes an edict from the Ivory Tower--"get rid of these points--they're clogging up our financial return and may cause investors to ditch our stock."

So, the team that put all this together starts looking for options. And there are hundreds of them--from lowering how many points it takes to get item X to seeking partnerships with other merchandise options, like gift cards. But it's not enough-those billions sit there.

Finally, they go to the Big Kahuna--the largest online retailer on earth, and make a deal. Now, all that Brand Equity they so assiduously nurtured is torn asunder by a single decision. Now, all those brands that spent time (and not a little money) cultivating their equity have to watch as every competitor they face in the market gets access to those program participants for FREE.

And it's not just the competition--it's the unauthorized retailers that have found ways to secure inventory outside the brands' distribution network and offer it at sharp discounts. Those entities used to be outside the program looking in--now they have a seat at the table just like everyone else.

Maybe we just don't understand. Maybe those billions of points were so important, so much a drag on the balance sheet that something this drastic HAD to be done. Maybe the notion of Brand Equity is quaint in the Internet Age, where everything is available all the time.

But what was once a venue for upscale brands sharing their message with upscale consumers is now a free-for-all. And it's a shame...


Pete

Beware of falling debris

Lemme get this straight:

I can convert my Membership Rewards points into dollars that I can spend at Amazon.com. But I can also spend my points (as points) at the American Express Membership Rewards site? Really?

Well Garsh! I guess I better compare what that thingy I want costs at Amex versus what it costs at Amazon, right? You mean it's less at Amazon? Well Garsh!

The newly-announced alliance that converts points, the Coin of the Realm for all incentive programs, to money is dynamite to one of the major pillars of our market--perceived value. The entire business is based on it--the notion that the participant THINKS a widget is worth $X so they'll put in the effort required to get it.

Now, program participants know EXACTLY what their employer or credit card holder thinks of them--EXACTLY the worth of your loyalty. Yeah, yeah--the participant always could calculate it, but now they don't have to--it's right there in little pixels lit up like Times Square on New Year's Eve.

And don't give me the "but you can tell what a point is worth from frequent flyer programs" crap because THAT value is variable--a "free" ticket from NY to LA is worth more than a "free" ticket from NY to DC, but they have the same point value.

It's only AFTER you transact the business that you can determine what your points are worth. The Amex/Amazon alliance makes points worth the same regardless of what you buy. We're quantifying the perceived value, eliminating any interpretation on the part of the participant.

If the value at Amex' site and Amazon is the same, then it's no big deal, right? Maybe. That's a big stretch, though, as Amazon prides itself on having the lowest costs, especially for electronics. Now we have the opportunity for something akin to a reverse auction, where empowered Amex cardholders give their business to the low-cost provider.

And while there's nothing wrong with that philosophically (after all, Americans INVENTED shopping, didn't we?), it's another thing to encourage shopping with "funny money" which has no value outside the program in which it is earned.

When everything has a value, then nothing does. I wonder if we're sacrificing the true value of incentive programs--recognition for loyalty and/or achievement--on the altar of a shopping "experience". Or maybe I'm just Goofy...


Pete

Well, THAT was quick

When we last left the Evil Empire, er, Amazon, the Ewoks were dancing as the charred wreckage of the Death Star was burning up in the atmosphere. It was a time for great rejoicing.

Those who read this space may remember that I said something to the effect of "It's WAY too early to speak of Amazon's demise". I cautioned that facts were still to be determined, and that the future was not yet decided.

Well, to quote an '80s catchphrase: "They're baaaack!"

Today we learned that Amazon has partnered with American Express Membership Rewards to allow MR participants to redeem their points for Amazon merchandise.

I guess they're not exactly dead after all. It's like the monsters in all those sci-fi movies--you gotta kill them two or three times.

There were those who said Amazon exited in April because there were sales tax issues for corporate redemptions. Perhaps not.

Others said the "experience" wasn't up to Amazon's standards. I guess they decided if you want something done right, you do it yourself.

Still others believe Amazon wanted to speak directly to program participants--to market to them longer-term. Hello.

So, now every loyalty program in the country is fair game for the new, improved Death Star. And all those entities that were working with Amazon through tech providers? Well, they better hang on tight to their customers.

That sound you hear in the distance is the groan of merchandise suppliers to Amex--they have now seen a major competitor enter the program that will siphon off redemptions--for sure. Anyone who doesn't believe that needs to contact me so I can get some of whatever they're ingesting. Sounds like really Good Stuff.

So, 5 months after the Ewok Dancing, it's cue the Minor Chords. The Empire Strikes Back...


Pete

Everything old is new again

So, in the waning days of our Summer of Discontent we seek answers to our questions. Questions that have, for the moment, escaped us. Like:

• If our current customers are "challenged", then where are the new ones?
• How do we replace entire market categories (pharma, financial services, etc.)? CAN we?
• What is our near-term forecast for business? Is a 4th Quarter Rally in the cards?

The whole "new customer" thing is something of a misnomer. The Good and Bad News about our business is that EVERYBODY is a customer at one point in time. The challenge is figuring out when Customer X is a customer, and when they're just a potential customer.

We found casinos about 3-4 years ago. Since then, they've become the Crack Cocaine that replaced the previous controlled substance, the Meeting/Event business. And THAT replaced the point-based incentive form of heroin.

Let's face it--we're always addicted to something. And kicking the addiction to the business that Big Pharma gave us will be challenging indeed. Some suppliers in the promotional products space will not have a successful rehab. And the financial services segment is on Life Support for the forseesable future.

Brands see the promotional products distributor as the potential Next Big Thing, but to quote Counting Crows--"it's all a lot of oysters, but no pearls". Sifting through 17,000 entities to find the ones that will make our future is no easy task. But they're there, and will remain there. They will survive any cataclysm the market suffers, because they have relationships with people who buy stuff.

About that 4th Quarter Rally--my view is that the jury's out. For every piece of encouraging economic news, there's a counterbalancing piece of bad news. Unemployment remains almost 10%, and there's a lot of talk about Double-Dipping. None of this bodes well for our market.

But quoting activity is up, and there seems to be a sense of optimism, or at least a sense that we might be at the bottom. I'm reminded of Blazing Saddles, where Clevon Little and his friend are in quicksand. The friend panics, but Clevon says "my foot's on the rail"--a sign that they've probably gone as far down as they're going to go.

I think MY foot's on the rail as well. How quickly we get out of the quicksand is the unknown. And to paraphrase Slim Pickens "we don't want to lose a $20 handcar"...


Pete