Premium Perception Disconnect— Cheer Up, Sparky, There’s a Pill for That

In this first of a two-article series, we introduce the concept of “right-sizing” marketing premiums to match a stipulated show rate. Heads-up, premium vendors—your new best friend is about to ask some of your customers to raise the ante.

For some in resort membership marketing, flu season is a year-round affliction. No, we aren’t talking about H1N1 or any of the influenza variants that haunt the corporeal realm: we refer, rather, to a set of interrelated symptoms metrically characterizing a no less pathological malaise, where the lead-gen sign-up rate is stink-o; the call center setting rate is shabby; the show rate is shot; the sales rate lacks, well, sales; premium spend is woefully out of synch with the conversion rate, and the erstwhile credit-worthy prospect pool is fast-becoming a credit-worthless sludge pit. If any of these kaput KPIs are symptomatic of your marketing program, you may be suffering from a case of Premium Perception Disconnect or, PPD.

Well—cheer up, Sparky: there’s a pill for that…

Maybe not a pill, exactly, but an analytical method that attempts to reconnect premium spending with ROI by focusing on one of the root causes of the affliction: the disconnect, or gap, between the value placed on a premium used by the marketer to encourage a prospect’s tour of the resort…and the worth of that premium from the prospect’s point of view.

What, some may ask—is there a difference between value and worth? We ask back: is there a difference between the sizzle and the steak? If your show rate routinely limps along at 15-20 percent or so, that may well be a clue your program is struggling with PPD.

The analytical method that helps put the = or at least a ~ between the marketer’s statement of a premium’s value and the prospect’s perception of that premium’s worth—is adapted from a familiar model developed in earlier research of sweepstakes and lottery participation, repeated here:

p(S-C) + (1-p)($0-C) > $0

In this seminal, elegantly simple equation, p=probability of winning, S=value of the prize in dollars, and C=cost of participation in dollars, which together suggest that the thoughtful, i.e. “risk-neutral” consumer will participate when the value of the prize exceeds the cost of participation.

That might work in lotteries and sweepstakes but…

We agree: getting someone to take a tour of your resort is much, much harder than getting them to buy a lottery ticket—but by adding a new wrinkle to an old statistic, we press into service an innovative uberstat with which to repurpose and transform the earlier model into a new equation that targets the membership resort marketing campaign and right-sizes the premium to match a stipulated show rate. We call this metric the “credibility index,” or “ci,” and it looks something like this:

(ci)(S-C) + 1-(ci) > $0

In this equation, the credibility index is derived as the product of the average show rate and the marketer’s estimate of prospect confidence in receiving the most probable and/or least valuable premium: ci = (sr)(p). By folding this modifier into the equation, the definition becomes: When the achievement probability and net reward are sufficiently greater than the associated cost of participation, the risk-neutral consumer will act.

A tipping point is visualized somewhere between “If it’s too good to be true…” and “Gee, wouldn’t it be nice if…,” and at the transformative moment when the latter exceeds the former when the prospect’s uncertainty in the marketer’s value proposition is exceeded by his or her desire for that premium, the decision is made to participate.

But how big must the premium be…?

We’re getting to that. By way of illustration, permit a simple gedanken, or thought experiment. Imagine if you will a lead-gen campaign in which the marketer, zealously intent on thriftiness with The Boss’s Money, dashes off to a nearby pond and collects a large bucket of frogs with which to replace the more conventional, relatively costly premiums, and gleefully develops a marketing campaign around the leaping leptodactylids as an enticement for the prospect to tour the resort.

What might we expect for the show rate to be (let alone sign-up and setting rate!) with such a lively premium—2 or 3 percent? It frightens to think even that level of attendance would obtain, but dark humor born of 20 years of experience in the industry suggests that, yep, some folks would, indeed, show up for a frog.

Continuing with the experiment, we now imagine a subsequent campaign in which The Boss, despairing of ever-measlier metrics, grudgingly opens the company purse and underwrites the marketer’s offer of a brand new automobile for every touring party! With such an incredible premium, what might now be a reasonable expectation for the show rate—90 percent or more?

Our fanciful exercise underscores the truth of a hoary old parable: if a carrot is dangled ahead of the donkey, the donkey will pull the cart—and while we certainly are not suggesting that prospects are donkeys, we are suggesting that if the prize is sufficiently grand, it will produce the desired results. The trick, of course, lies in the size of the prize, and while that may seem more of a rhymic “duh” than an epiphany, with today’s overly commercialized, socially networked, hyperbole-jaded prospect, if we are to craft a marketing message that penetrates the noise, we must acknowledge two realities: (1) size does matter; and (2) what we’re using now is just too small.

Doing what we do = Getting what we get…

We illustrate how an “average” campaign that has been synthesized from a number of popular Car-In-A-Mall permission marketing programs in which the marketer’s Call Center reaches out to prospects who have signed up for the giveaway, and invites them to tour the resort in exchange for an opportunity to receive gifts.

In addition to the promotion’s Grand Prize—typically an automobile or likable sum of money toward its purchase, to be awarded in the future drawing with indeterminate probability—there usually are 4 premiums with explicitly stated odds. Three of the premiums are provided by the marketer at considerable expense but a very low likelihood of receipt. In this blended example, these 3 gifts might include a name brand, 65” HD Plasma TV, with odds of 1 in 25,000; $2500 in cash, with odds of 2 in 25,000; and a pair of matching Bose Accoustic Wave® entertainment systems, with odds of 3 in 25,000.

The remaining prize generally will be travel/vacation-related, often in the form of “Las Vegas Getaway for Two” which, because of breakage, has been purchased very economically by the marketer. Nonetheless it carries an ostensible value of $700 or so, and with odds of 24,994 out of 25,000, this premium is virtually guaranteed to be awarded.’

Believing s/he has put together a good premium package, the marketer launches the campaign: the Call Center diligently sets about its task, tour appointments are arranged, promises are exchanged…and a week or two later, yet despite the marketer’s best huffery and puffery, the average show rate checks in at a miserable 18%, clearly more frog than car.

What to do, what to do…? Pinned like a bug by The Boss’s Flinty Stare, the hapless marketer blames the economy, the Call Center, the weather, an ugly cousin…anything and everything except the main thing: Premium Perception Disconnect, or PPD. Changing gold to lead in a kind of pernicious, backward alchemy, PPD unfolds as a function of the prospect’s decision-making process, discussed next.

How deciders decide…

The construct behind the original equation depicts the risk-neutral consumer as a “rational agent” who engages in a thorough and logical consideration of alternatives, ultimately choosing the one most likely to contribute to his or her “financial utility.”

Although we agree that the non-trivial consumer decision is compelled by self-interest, we recast its depiction to one more in line with that of noted social scientist Herbert Simon, by whose view of “bounded rationality” we perceive the consumer’s contemplative exercise as a simple heuristic essentially reduced to a single, inward-directed question: “If I miss half-a-day’s work to tour this resort,” the prospect is imagined to ask the mirror, “what is the least I can expect to get in return?”

Viewed from this perspective, the decisional process obviously turns not on the most valuable and least likely premiums, but rather, on the one premium that is least valuable and/or most likely. Consumers—and certainly the risk-neutrals among them—are not stupid people, and woe unto the marketer arrogant enough to think otherwise—they know or intuit just how unlikely it is that they’ll take home the TV, the cash, or something by Bose just for going on a tour; and somewhere between the Call Center’s breathlessly narrated, purple-prosed pitch and the date scheduled for the prospect’s tour of the resort, Premium Perception Disconnect will set in—and the hapless marketer will bear horrified witness as The Boss’s Gold, along with the marketer’s professional career, turns to lead in an 18% show rate.

Part Two of the series concludes in the next issue with a detailed illustration of Premium Perception Disconnect—and a step-by-step look at the analytical “pill” that just might cure it. – Premium Perception Disconnect Part 2: Wrestling with Squirrels

You may reach the author, Ken Will, Director of Consumer Research for D & A Solutions, Ltd. Retired from timeshare. Originally printed in the January/February Resort Trades Management & Operations Magazine