Poor economics made simple?

A friend sent me a note about a teacher's experiment in the class, and the comments at the end of the news item. Unfortunately, I can't find the link to the news item - if anybody would care to let me know, I will update this post accordingly.



The end comments are:
"1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. You cannot multiply wealth by dividing it!
5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation."

I find this quite interesting for a number of reasons. It appears that the point under discussion in the class was redistribution of income, and taxation and 'welfare' spending as strategies to reduce the wealth gap between the rich and the poor. This is, of course, my hypothesis - I can't find the original news item, and can't vouchsafe that I am correct.

The first observation is quite correct. Legislation by itself cannot solve anything; this needs to be backed up by the will to implement and full implementation. We, in India, are more than familiar with both the lack of will and lack of implementation to argue with this. Even High Court judgements and directives don't get acted upon for years. We know this.

The second observation is interesting. There are people who 'receive' without working for - if I have enough investments, I will receive without working. That's a consummation devoutly to be wished by a lot of people - either I have worked for this in the past, or my forefathers did and I inherited enough wealth not to work any more. Does it mean that the means to acquisition of such wealth deprived someone else? If all businesses were built by robber barons, this would be a correct conclusion. But most are built by pretty normal ordinary people from ordinary backgrounds who build up wealth for the future - without depriving someone else either in the past, or the present or the future. So, how does this second conclusion make sense?

The third observation is pretty obvious, isn't it? The Government owns nothing - it gives out only what it takes.

The fourth observation is curious - is this a statement written by one of the Presidential candidates of the Republican Party in the US? Is this a justification of the 1% in the 99% vs 1% debate in the West?

The fifth observation is quite convincing to me - the statements are indeed written by said Presidential candidate or candidates. In reality, do these other halves really exist? If so, where?

If any reader would care to throw light on my dilemma, I shall be really grateful. 

Do consumers really really need loyalty programmes?

A few days ago, my wife and I counted the number of loyalty cards we have acquired over the years. Don't ask why we decided to spend our time doing this - male readers who are married will understand that there are certain things we men do because it's ours not to reason why. 

We came up with 42 cards - I repeat, 42 cards - all of them valid and current. We did a quick count of the cards that had been offered to us which we did not accept, and we came to the conclusion that we would have had a full deck of 52 cards - we could have played bridge with these cards, though only 'no trumps' contracts. 

This set me thinking about how these cards do, or do not, influence our purchase behaviour of the brands represented. The conclusion I have reached varies from 'not much' to 'not at all.' 

Consider the following example. We fly about 12 to 15 round trips a year, almost of them domestic. We have four airline cards. At one time, before the days of low-cost airlines, we used to regularly check points, redeem them for free tickets, upgrades, etc. Now, our airline ticket purchase behaviour seems to fall into three groups: 

• trips undertaken as somebody's guest
• trips undertaken on behalf of my employer
• trips for which we pay for our tickets 

In the first case, my experience is that the hosts ask me for my preferences in terms of time slot/s, and sometimes, and increasingly rarely, the preferred airlines brand. The brand purchase decisions are taken in most cases by the hosts. My airline cards do not influence such decisions. 

In the second case, my employer, like most businesses in India, allows the employee to choose the preferred time slot/s, and the employer chooses the lowest cost option. Once again, my airline cards lie unused. 

In the third case, our brand decisions are influenced by factors such as price and time slot (when traveling on holidays, our time is more flexible, and we normally prefer to fly during offpeak hours) - these lead to a short list of brands; previous experience with these brands determine the brand choice. 

The cards remain in the wallet, sulking since they are useless. So much so that we don't how many points have been accumulated in these cards, and frankly we don't care either. 

Consider another example. We have six cards from four of the largest departmental store chain brands. Why my wife has two cards each for two brands, she has no idea; perhaps momentary forgetfulness is a possible explanation. Thinking about our usage behaviour of these brands and in this sector overall, we came up with the following: 

• do we shop exclusively in these four brands only? The answer is no - we shop elsewhere and pretty frequently too.
• most of our shopping seem to take place (going back over the years) during sales, which are pretty frequent. Like Mumbai local trains, if you miss one, the next one will arrive in three minutes.
• do we use any brand among these four based on the number of points that we have accumulated in the respective card? The answer is again no. We don't carry the cards; if asked, we identify ourselves with our phone number (the customer ID); if not asked, we normally think of this after the purchase. We think of points redemption only during the sales - this reduces the cash outflow even further.
• the reasons for choosing which brand to use depends on four factors - the quality of the merchandise, the width and depth of merchandise, prices, and customer service experiences. 

The loyalty cards of these brands also sulk in the wallet, cheek by jowl with their brothers and sisters from the airlines. 

These are just the experiences of my wife and I, hence purely anecdotal. I checked out with a few of my friends and their wives - their anecdotes are virtually the same. If such behaviour is representative of a significant part of the consumer universe, the following questions arise: 

• there could be three reasons for running a loyalty programme - the programme is a motivator; the programme is a hygiene factor; the programme does not influence brand choice, hence it is an expensive irrelevance. Which loyalty programmes fall into which category?
• since all consumers love the words 'free' or 'sale', there is the possibility that a large proportion of the turnover of a departmental store brand is during those sale periods. How important is its loyalty programme during these times, in switching members of its loyalty programme over from competition, and conversely, in ensuring that the members spend most of their budget in its stores before they go to competitions' stores?
• Do consumers prefer immediate gratification in terms of price discounts and other things, or postponed (perhaps higher) gratification?
• If a brand stopped its loyalty programme, what would it lose? In case the loss is significant, can it be argued that the brand building was inadequate since the brand in itself did not have strong 'pull' in the marketplace? Was the loyalty programme a crutch being used to 'build' the brand? 

I look forward to comments and healthy argument from readers.