Tuesday, January 5, 2016

Letter in TVOL on voice reward program

Dear voice,


A new phenomenon recently started in Lakewood. A new loyalty program took root, known as Voice Rewards, named after the initiator, the Voice of Lakewood. The business model is basically this. The Voice issues loyalty cards to the public, who present the cards in the local participating stores. The customer gets a percentage back on every purchase, and the participating stores get higher traffic because the customers will gravitate to the stores that offer it. Sounds smart, no? No! It is one of the worst things that ever happened in Lakewood. Allow me to explain. Let's take a closer look at the business model. Every time a purchase is made, a percentage is going back to the customer. This percentage is furnished by the store owner. Another percentage, also furnished by the store owner, is going to the Voice, as a fee for participation in their program. The stores are told that it is worthwhile for them to pay these percentages, because it will drive sales, and they'll make more money overall.

The problem is as follows. Although there are many stores that haven't yet joined the program, if the program proves successful and the participating stores gain new customers, then the rest of the stores will follow suit. If a store and their competition both accept Voice Rewards. then the program will stop generating them any new customers. The only change that will happen is that the store will be stuck giving back a percentage of every purchase made, twofold: once to the customer, and once to the Voice. What will eventually happen is that the stores will have to raise their prices to reflect the loss of revenue caused by those percentages. So at the end of the day, the customer will be paying more because of the rewards. But the price increase will be more than the rewards they're receiving, because the price increase will also include the amount that the store is losing because of the percentage that the Voice is getting
On the other hand, if the program does not prove worthwhile, and fails to bring the participating stores more customers, then the participating stores will end up raising prices anyway, to cover for the percentages. A third possibility is a scenario in which the program will prove itself worthwhile, and when the non-participating stores want to join, they will be barred from participation. This is hard to imagine, because what is stopping the Voice from accepting them and thereby making money on their transactions as well?
If the voice does indeed vouch to deny them entry, there would be two possible results. One: these stores would lower their prices to stay competitive, thereby keeping their customers, and deeming the program ineffective The participating stores would therefore be pressed to raise their prices to compensate for the percentages or the other possible result (of barring stores from joining) would be that the non-participating stores would raise their prices to compensate for their lost customers. This would result in non-participating stores becoming more expensive.
In short, the Voice is skimming a percentage off every purchase that takes place in Lakewood, and although the stores are now swallowing that cost, eventually that cost will get stuck onto the consumer. Money that now balances our local economy is being tactfully siphoned out by the Voice of Lakewood. (The reason why this is different from any standard loyalty program, is that most loyalty programs are run by the store, so there's third party skimming
off money) So my fellow Lakewooders, before you get all excited and go out to pick up your voice Rewards cards, think that maybe the best thing for you would be perhaps if we all boycott this movement.
We might miss out on some slight savings now, but it save us much more in perpetuity.

Yona Bellar

Ari Berkowitz Responds:

Thank you for your insightful points. That's exactly what the Coffee Room is for: to invite healthy debate.

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