Sunday, December 18, 2011

Story Explaining The 4 E Framework to Designing Benefits For a Consumer Loyalty Programme

This Story is part of a paper submitted by the authors to the Apeejay School of Management and presented on 24 Sep 2011.

Given that the audience is students, authors used a story about a shoe shop owner, Maalik and an interesting customer who walked into his shop one day, called Mr. Kharidar. Through this simple story, the authors draw upon powerful principles that help in the design and deployment of consumer loyalty initiatives.

Chapter One of Four


Hello Malik. I need to buy a pair of shoes. What discount will you give me?


We don’t give discounts


But I need a lot of shoes! I wear a new pair every month. It’s the 1st of March today. What if I buy 10 pairs of shoes for every month of this year?


Well if you buy 10 pairs of shoes at one go, I’ll give you 10% discount


I can’t carry and store all ten pairs. Why don’t you give me one pair every month at 10% discount?


Tell you what. If you buy 9 pairs from me at full price, I’ll give you the tenth pair for free! That will make a good Christmas gift too! Here, I’ll make out a card with your name on it and 9 boxes alongside. We’ll sign one box for every pair you buy. On the back, I’ll sign an agreement saying that upon signing of 9 boxes, the tenth pair is free

Chapter Two of Four

Maalik’s competitor, Hareef, who also ran a shoe store next to Maalik’s saw Kharidar coming in every month to Maalik’s shop. He wanted to have Kharidar as his own customer. So when Kharidar was visiting the market for Divali shopping in October, Hareef jumped out of his store to speak to Kharidar


Hello Kharidar. Why don’t you buy shoes from me? You always go only to Maalik


Well, Maalik gives me a good deal. I get a 10% discount


Oh, don’t worry. I will also give you a 10% discount. Will you buy from me?


(Thinking hard). Well, If I don’t buy shoes from Malik in October and November, I will lose my free pair of shoes in December. That’s more valuable to me than your 10% discount. But tell you what, I will come to you in January and buy shoes from you at 10% discount


Sure! I’ll be waiting. Just get you free pair in December and you can buy from me in January.

Unknown to Hareef and Kharidar, Maalik was secretly listening to this conversation. He was filled with fear! His best customer would defect to the competition. What should he do?

Chapter Three of Four

When Kharidar walked into Maalik’s store that day of October, he was pleasantly surprised! Maalik and his team were waiting for him with a garland and a plate of puja thali.


Hello Maalik. What is this?


Oh this is Diwali. And you’re one of my best customers. You bring me prosperity! So my team and I wish to personally acknowledge your choice of using our business. We are so grateful. Your patronage puts food on the table for our families. Thank you!

Kharidar was a little embarrassed to hear all this. He felt a lump in his throat as he thought about the conversation he had just had with Hareef. Perhaps he would continue to come to Maalik after all, and not defect to Hareef in January.

After he had purchased his pair of shoes, Kharidar went back home. And he narrated all that had happened to his wife. His wife was very firm. She ordered him to start buying shoes from Hareef in January. After all, it was a better deal – a straight ten percent discount. Why bother with card and the signatures?!

Unknown to both Kharidar and his wife, Maalik was hiding outside Kharidar’s window and was listening to all this. He knew he had to do something, or he would lose the patronage of his best customer.

Chapter Four of Four

The November air was cool and crisp when Kharidar walked into Maalik’s store to purchase his 9th pair. Maalik was very warm to Kharidar. He congratulated Kharidar for his completing the 9 purchases and welcomed him to his free pair of shoes in December.


Thank you Maalik. When can I visit you in December for the free pair of shoes?


Dear Kharidaar, why take the trouble of coming in this busy market all the way from your home for your free shoes? I know your size and I even know your colour choice. You buy pretty much the same design every month. I will have the shoes delivered to your home. In fact, from January onwards, I will deliver the shoes to your home every month so you will not only enjoy the savings on the shoes with a free pair every 10th pair, but you will also save money on petrol by not having to drive to my shop every month


That sounds wonderful! Thank you.


Oh and by the way, on my Christmas cards to all my customers, I plan to put your picture on the front – you’re my most loyal customer after all. I hope you don’t mind


(blushing a little) Sure, thanks!


And oh! I forgot to mention. I know your wife never joins you when you shop with us. So I took the pictures of our best ladies shoes and sandals for her. And behind each picture, I wrote down the price. Just call me and let me know what she likes and I’ll have her choice delivered to your home too!

Needless to say, she will also enjoy the same benefit as you – I’ll include her purchases in the 9 pairs you purchase. So if she buys a pair like you every month, you can now get free shoes every 5 months as opposed to every ten months!

Then Maalik again took a garland and puja thali, and acknowledged Kharidar’s presence in his store. This time, when Kharidar stepped out of the store, he took a detour to avoid passing Hareef’s store. He had made up his mind. He would not shop at Hareef’s store in January. Why bother! Maalik was willing to deliver shoes to his home!

What Kharidar did not know is that the cobbler who made the shoes for Maalik lived right next to Kharidar. And actually, it was cheaper for Maalik to have the shoes delivered from the cobbler straight to Kharidar’s house, than to bring it to the store and insure it and pack it and pay a sales commission to his salesman on it.

Hareef wondered hard why Kharidar remained so loyal to Maalik and never came in January!

Summary of Key Takeaways from Story

1) A business cannot discount its products indiscriminately for all customers. Both Maalik and Hareef needed Kharidar to demonstrate a certain value before extending benefits.

2) Economic Benefit is the basic hygiene of a customer loyalty program. This is first E and without any historical context, this is the most crucial for a program to survive.

3) Emotional benefit builds a bond beyond the Economic Benefit. It is far more powerful, but can be meaningless without the underlying proposition being present. If Maalik had extended the garland and puja without history, he would have risked coming across as opportunistic to Kharidar. A sense of timing is also important. The garland and puja was relevant during Divali. Festivals, Birthdays and Anniversaries are good occasions to create Emotional bonding. This is the second E

4) Ego is the third E. When both, Economic and Emotional benefits are in place, Ego benefits can help build the catalyst for advocacy. Ego benefits ‘ring-fence’ a customer by placing higher costs (or emotional turmoil) of defection. When Maalik agreed to put Kharidar’s picture on all his Christmas Cards, Kharidar’s ego was boosted. And this was further enhanced by the offer to receive deliveries of his shoes at home and also pictures of shoes for his wife

5) A good programme offers Win:Win. And the fourth E of Enabling Product Personalization should not happen necessarily at increased costs. In this example, Maalik actually lowered his costs by offering home delivery. Not only did he avoid having to transport and stock the shoe, but he also avoided paying sales commissions. Moreover, he opened up capacity at his store to serve other customers. Personalization went beyond the home delivery. It also extended to giving customized recommendations of footwear for his wife. While this personalized the buying experience for Kharidar, it opened up also, an opportunity to cross-sell shoes to Kharidar’s wife. This would be new revenue. And would actually make Kharidar happy too. Since he would be able to earn his free shoes faster. Typically, a loyalty program is built on the principles of declining marginal costs with scale. Without this cost anchor in place, a loyalty program could spiral into a very expensive cost-center as opposed to delivering higher value from existing customers

6) Hareef’s offer was Economically sound. But it only had an Economic benefit. It did not build any meaningful relationship nor have the building blocks to eventually customize the offering for Kharidar. So it failed to steal away from Maalik, Kharidar, who was ring-fenced by Maalik

7) Most importantly, Maalik had his ears open all times. Without his eavesdropping, he would never have known what was going on in Kharidar’s mind! The lesson here is that the 4E’s have to be built, and be continuously evolving based of customer’s needs – and not assumed customer’s needs.

About the authors:

1. Praphul Misra has been in the business of designing and deploying loyalty programs for two decades. His views have been built being engaged with over a hundred unique marketing initiatives across dozens of industries in India. Praphul began his career in market research giving him the mind-set of responding to the voice of the customer and is among the few leading professionals in India, who are frequently quoted in International journals. Praphul is currently the CEO of NetCarrots Loyalty Services

2. Ashish Merchant has career spanning product management, CRM and public relations across North America, the Middle East and India. He applies his training in Six Sigma to marketing initiatives to create soft and appealing programs that are ruthlessly set in mathematics and analytics. Ashish is currently Vice President at NetCarrots Loyalty Services.


  1. Very lucidly written. Getting customers to be loyal does not stop at financial incentives but much more.

  2. Very well written. There isn't a better way to explain customer loyalty!

  3. Absolutely match with Today's Consumer Mindset. Not only discounts but your emotions also play significant role to increase your volumes.....