fireflyreaction

hello all!

the air canada tango ad on the boards of the montreal-calgary hockey game got me thinking about FF promos.

when a business (like valuemags) runs a lucrative promo, they often break even. sometimes they may run it as a loss leader in an attempt to gain customers and occasionally they may still make a profit. however, with my limited knowledge of business practices, i figured i'd throw this question out to the group: what kind of profit margin would i have to be normally making on my products for me to offer the type of promo valuemags ran?

certainly, if i were a struggling businessman and i had read FT, i would try to sign up with goldpoints and run a 600 points/dollar promo. that would probably generate a huge volume of business. so, howcome this isn't happening more often?

Plato90s

Because the Goldpoints 112 miles/$$ promo had to be a money loser. We FT'ers wouldn't be jumping all over it otherwise.

For a reminder about the futility of generating revenue at the cost of profitability, I refer you to all the failed e-tailer dot-coms of the last couple of years.

fireflyreaction

i don't think it was a money loser - not for valuemags.

they repeatedly said how well they were doing during the promo - whether or not they actually did is another story, but i'm inclined to believe them

Dorian

The thing is there must be some reason. Someone in the chain of points didn't like it for some reason.

If you look @ all the other point earning opportunities on Goldpoints nothing even comes close to the promotion they were running or for that matter...the 150 they are giving now.


Dorian

KathyWdrf

Isn't it possible that the MAGAZINE PUBLISHERS themselves are subsidizing these promos in some way? Indirectly, at least.

If most of their revenue comes from advertising (exception: Consumer Reports), they want to pump up the subscription numbers to attract more advertisers and charge them higher ad rates. Perhaps they are almost giving away the mag subs, and therefore, valuemags can actually make some kind of profit?

I think this idea has been mentioned on other threads.

It could also be that ALL THREE levels, i.e., the mag publishers, the Goldpoints program, and Valuemags are trying to get publicity and new customers this way. I know it worked for me. I now pay attention to Goldpoints where I didn't before -- even though I was already a member via Radisson for 3 years or so! And I'll probably do my future mag renewals through Valuemags to get the points (provided I get good service from them this time and they continue to offer points.)

Kathy

hauteboy

While 112pts/$ is good, I think PuddingGuy still holds the record with the Healthy Choice pudding cups, didn't he make something like 400 miles per $!?

Plato90s

Well, somebody has to be losing money. Goldpoints, or Radissons, or ValuMag. On a promotion like that, when the value being offered exceeds the cost, somebody is footing the bill.

It only works if a loss leader actually leads to additional, more profitable sales. The experience of companies like ClickRewards show that's not the case.

So while occasional promos might exist, I doubt merchants would be lining up for the opportunity to lose money.

fireflyreaction

Plato90s: you seem to be convinced someone is losing money. presumably valuemags entered into an agreement with goldpoints. goldpoints likely sold valuemags goldpoints in some form or another. it's unlikely that they would lose money. valuemags claims they didn't lose money.

the only people who may have lost money were the airlines themselves. but let's remember that goldpoints aren't FF miles, they're goldpoints that can be redeemed for FF miles and not everyone went to the same FF program. in any case, isn't it likely radisson bought points from all the airlines - so how did the airlines lose money? it's likely they just got pissed off that everyone was topping up their accounts for a lot less than it would cost to buy miles from the FF programs themselves. i'm not sure anyone lost money here.

cactuspete

Let me put it in real simple terms. You pay $1.00. In return you get 112 miles (and a product, to boot), which is worth $2.24 (give or take $.50). You have a net gain. Somebody else has a net loss.

fireflyreaction

who's to say they paid 2cents a mile?

VolleyballFerd

Another part of the equation is that in a sense, Goldpoints is not giving 112 FF miles per dollar - but only 45. That is the normal exchange rate, (10 to 1), which at 2 cents a mile is only 90 cents per $.

Somehow Radisson is subsidizing the 4-1 exchange rate, although I believe I read on some thread that Radisson is owned by the company that owns Goldpoints.

It is clear that consumers who took advantage of this were receiving something of more value than what they paid. That doesn't seem to me to be a good business model - but it could be that all parties perceive that the promotion was good for them. Does make you wonder.

Tango

In business it may not matter if there is a net gain or loss becuase it is treated as a cost of doing business.

What is the cost to Gold Points? A very difficult question. If the gold points are used for a free hotel stay then the cost is close to nothing since the room given away would have most likely gone empty anyway. If the points are being converted into something else then it gets more complicated but the true cost is going to be far less than what everyone thinks.

fireflyreaction

according to doc in the "What are FF miles worth" thread, he states that companies can buy FF miles for as low as $0.005. that would radically change the math. i'm sure radisson is getting that rate with the number of miles they buy. so, for the $1.00 you are spending, it costs them $0.65.

Plato90s

I've never heard of that, because the mean figure for sale of miles has been quoted to be ~1.5 cents per mile.

Giant buyers like Citibank, who partner directly with AAdvantage, can probably get lower rates. There's no reason for AAdvantage to offer lower-than-normal rates to Radisson Hotels since AA's primary hotel partner is Hilton. GoldPoints is even smaller than ClickRewards, and ClickRewards was eminently unprofitable.

So it takes a lot of mental gymnastics to figure out a scenario where GoldPoints/ValueMag doesn't lose money.

The simple explanation - they expected to lose $$, but it turned out to be more than expected because people jumped on the promo in huge numbers.

winsome

Consider that Valuemag normally pays a 30% commission. It is possible they made some arrangement with Goldpoints where they pay more based on volume. Plus it is likely Valuemags get a higher % from the mag publishers as this must have generated higher volume for all.
Also consider that the average purchaser on Goldpoints is probably not FTers. All in all I think it probably balances out.