How to spend $20 million

Treating different customers differently is important.

Customers actually like it if you do it right. People in coach don’t mind the folks in first class getting more service, because they’d like to be there one day. (Or because they like the fact that the people paying too much for a fancy seat are subsidizing their flight). People at nightclubs like watching celebrities being whisked to the front of the line, because it reinforces their belief that they’re at a special place.

The trouble kicks in not when you treat different people differently but if it’s random, or unfair or unpredictable.

When Steve Jobs gave a $200 discount to the late adopters of the iPhone, the early adopters were incensed. They were being treated differently, but in the wrong way. My guess is that his $100 store credit and personal note helped a great deal, but it also cost about $20 million in profit. If Apple had thought it through, he could have offered any of the following (and done it during the presentation he did of the new products):

  • Free exclusive ringtones, commissioned from Bob Dylan and U2, only available to the people who already had a phone. (This is my favorite because it announces to your friends–every time the phone rings–that you got in early).
  • Free pass to get to the head of the line next time a new hot product comes out.
  • Ability to buy a specially colored iPod, or an iPod with limited edition music that no one else can buy.

The key is to not give price protection to early buyers (that’s unsustainable as a business model) but to make them feel more exclusive, not less.

As for being capricious, consider this photo from the US Open. The Open doesn’t allow spectators to bring in backpacks of any size–IF the straps are padded. They don’t announce this rule, and they enforce is somewhat randomly.

If it were really a security issue, they’d have to enforce it completely. If it’s just a silly policy that someone dreamed up one day, it’s sure to annoy people. Because it’s irrational. Because it’s not enforced in a way that makes sense.

So yes, treat different customers differently. The more the better, actually. But do it consistently and in a way that your customers respect and understand.