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Bad Business (Rules)?

(Posted by Guest Blogger, Gib Bassett)

Thanks to my colleague and fellow guest blogger Ian Turvill, who recently passed me an article from Clickz.com titled “Reward Programs: Continuous Rewards and Business Rules” by Jack Aaronson.  Mr. Aaronson raises some interesting points about a marketing tactic called continuous rewards, one of several reward schedule techniques marketers may use in their pursuit of improving customer loyalty.  Marketing is often considered a soft science or a science with no science to it at all, but Mr. Aaronson uses famed psychologist B.F. Skinner’s reward schedule categories as the basis for his commentary.  In case Skinner doesn’t ring a bell, you could say he’s a latter day Pavlov (surely you remember the salivating dog experiments from that required psych class you took in college?).

The point raised by Mr. Aaronson is that a continuous rewards schedule, as in offering free shipping on all orders, is among the least effective ways of garnering customer loyalty.  That may be intuitive, but in the late 1990s, as Mr. Aaronson points out, Amazon.com and other online book sellers attempted to use this approach to increase sales.  While it worked initially, it quickly lost its effectiveness due to the fact that, as a continuous reward, customers had no incentive to increase their frequency of purchase.  Thus, most online book sellers stopped offering blanket free shipping.  Once taken away and only offered on selective purchases, the reward was no longer seen as an incentive for the customer.

Mr. Aaronson says continuous rewards become business rules overtime, because an effective reward “occurs occasionally, is basically unexpected by the user, and is a competitive advantage” whereas a business rule “an ongoing part of how your business operates.”  OK.  But then he goes on to say:

“The problem with a continuous reinforcement schedule is over time it becomes a business rule. It always happens. It's always there, so it isn't special. It's simply how you do business. And when you remove the reward, you effectively change your business rules, which alienates customers in a much more extreme way than simply removing a promotion does.”

We could debate whether or not business rules are “special”, but what is not debatable is that there is nothing simple about business rules or their potential impact on company performance.  In fact, Business Rules Management System (BRMS) vendors adopting an Enterprise Decision Management (EDM) approach have gone to great lengths to eliminate the rigidity described by Mr. Aaronson.  By managing rules separately from operational systems and empowering business users to access and change them, this class of BRMS offers marketers the ability to avoid the continuous reinforcement schedule trap.  Sort of like a savvy dog that doesn’t salivate when it hears the bell after the food is taken away.

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