The local JW Marriott in Pune has fed me thousands of calories over the years. I’ve been going there to
eat hog for the last twelve years, and I’ve always left the premises with a full tummy and a truly contented mind. The ingreditents have always been top-notch, the preparations have always been tasty, the service has always been very good, and the staff have always been a perfect combination of friendliness and professionalism.
All good. But you knew there was a “but” on the way, didn’t you?
They have this loyalty scheme at the Marriott, called Club Marriott. Pay a certain amount of money upfront, in order to get discounts at restaurants, discounts on their spa services, the ability to use their swmming pool and some other freebies thrown in. It costs a little more than ten thousand rupees for the year, and if you are a reasonably regular patron at their restaurants, it certainly makes sense. And as my friends and family will queue up to tell you, the phrase “reasonably regular” is an understatement in my case.
The good thing about this membership scheme, at first glance, is that the price has stayed constant over the years. For as long as I can recall, it has been about the same price – a little more than ten thousand rupees per year. It used to be a coupon booklet and a membership card earlier, and it is now an app on your phone.
But inflation has certainly not been low over these years, let alone the same. Nor has the popularity of the hotel and its restaurants been the same. It has only gone up, as it should – for the service is truly top-notch.
Something’s gotta give, right?
And what has given way over time has been the return on the ten thousand rupees that one spends at the start of the one year period.
In the earliest version of the loyalty scheme, it was the case that two people could eat at half price. Three people could eat at a third off, while four or more (until a cap of twenty guests) could eat at one fourth off. You could book most rooms in the hotel at half off. You could make use of the jacuzzi, steam and sauna if you used the voucher that allowed you access to the pool.
And then, over time, it became the case that regardless of the number of people at the table (until twenty), you would always get only a thirty-three percent discount. Only the base rooms were made available for booking at a discount. You could use the pool, sure, but nothing else.
And this year, they have reduce the discount further still, to twenty-five percent.
All this might sound like me moaning and grumbling about what is very much a first world problem, and you wouldn’t be wrong. But the larger point I want to make is in relation to a post I wrote about two years ago:
Getting the most out of life can be thought of in two ways. It could mean living life to the fullest (however you might define this for your own sake). It could also mean getting the most out of life by minimizing time, effort and cost spent on any activity.https://econforeverybody.com/2021/03/08/maximizing_soul/
To me, that Marriott membership is about living life to the fullest. I am happy to pay more to get more, and that indeed is what the scheme is about from a microeconomic perspective. It is very much a form of price discrimination. It also involves the sunk cost fallacy, but that is a story for another day. But I have always thought of the membership as being about maximizing soul.
But by keeping the price of the membership the same and reducing over time the benefits associated with said membership, Marriott has turned it into a penny-pinching scheme. Purchasing the membership for the same price every year to get slightly lesser benefits is one way to evolve its pricing. Purchasing the memership for a slightly higher price every year to get slightly more benefits is another way to evolve its pricing.
It absolutely makes sense for the bean counters at the Marriott to maximize efficiency when it comes to inventory, labor, raw material purchases, electricity usage and the like. But should schemes about customer delight be about maximizing efficiency, or should they be about maximizing delight?
What is Marriott optimizing for, in other words? And when a luxury hotel optimies for penny-pinching, I’d argue it doesn’t make much sense.
My belly-aching about the pricing strategy at the Marriott aside, the larger point I want to get across is this: as a seller, you should be clear about the kind of business you are in, and the kind of experience you want you customer to have. Do you want to sell to the pay more to get more segment, or do you want to sell to the pay lesser to get lesser segment? Do you want to position yourself as a luxury good/service provider, or do you want to position yourself as a cheap and efficient good/service provider?
Either approach is fine, to be clear. But when you choose the second option in the case of the first question, and the first option in the case of the second question, you are likely going to face trouble down the road.
In the case of the Marriott, there are plenty of other factors at play. The propensity of Punekars (or Indians, for this is a pan-India scheme) to pay, what the competition is doing, how many other luxury hotels are there in the area are other obvious questions you must analyze.
I’ll still renew my membership, in all probability. But it no longer is a scheme that delights me. It has become, instead, a scheme that can save me some moeny every time I go to the Marriott. In the language of the microeconomist, it is more about the budget line than it is about the indifference curve.
The membership no long maximizes soul.
And more’s the pity.