Without a reliable funding source designed directly into the model, organizations risk delivering service that customers happily consume but never pay for. In our experience, four funding mechanisms can be used to sustain your premium offering — and only one of them requires that you charge premium prices. Said another way, there are four ways to pay for excellence:

1. Charge customers extra for it — in a palatable way.

1. Make cost reductions that also improve service.

1. Make service improvements that also reduce costs.

1. Get customers to do the work for you.

When companies pay customers through discounts to remain customers, it's a customer retention program. When companies pay customers to try out their products and services, it's a customer acquisition program. When companies invest in activities that increase customers' willingness to pay a premium price, then they have a loyalty program. A successful loyalty program increases the chance that your customers will choose you over a lower-priced competitor. The confusion of terms wouldn't be a big deal, except that a mislabeled loyalty program can get in the way of creating a real one.

UNCOMMON TAKEAWAYS

• Service excellence must be funded in some way. If not, you risk delivering gratuitous service, service features that are donated to customers but never paid for in any way.

• There are four ways to fund a premium service experience: (1) get customers to pay you extra for it, (2) reduce costs in ways that also improve service, (3) improve service in ways that also reduce costs, or (4) get customers to enjoy doing some of the work for you.

• Method 1 is the simplest, at least from a design perspective. Methods 2 and 3 are the most reliable. Method 4 gets the most attention.

• Extra service fees aren't inherently good or bad. Their success depends on the specific contract you have with customers.

• A loyalty program is one way to get paid for a premium service experience. True loyalty programs —programs that increase customers' willingness to pay a premium price — are rare, largely because most loyalty programs are mislabeled retention programs.

• For self-service to be part of an uncommon service experience, customers must prefer self-service to a full-service alternative.

Without a reliable funding source designed directly into the model, organizations risk delivering service that customers happily consume but never pay for. In our experience, four funding mechanisms can be used to sustain your premium offering — and only one of them requires that you charge premium prices. Said another way, there are four ways to pay for excellence:

1. Charge customers extra for it — in a palatable way.

1. Make cost reductions that also improve service.

1. Make service improvements that also reduce costs.

1. Get customers to do the work for you.

UNCOMMON TAKEAWAYS

• Service excellence must be funded in some way. If not, you risk delivering gratuitous service, service features that are donated to customers but never paid for in any way.

• There are four ways to fund a premium service experience: (1) get customers to pay you extra for it, (2) reduce costs in ways that also improve service, (3) improve service in ways that also reduce costs, or (4) get customers to enjoy doing some of the work for you.

• Method 1 is the simplest, at least from a design perspective. Methods 2 and 3 are the most reliable. Method 4 gets the most attention.

• Extra service fees aren't inherently good or bad. Their success depends on the specific contract you have with customers.

• A loyalty program is one way to get paid for a premium service experience. True loyalty programs —programs that increase customers' willingness to pay a premium price — are rare, largely because most loyalty programs are mislabeled retention programs.

• For self-service to be part of an uncommon service experience, customers must prefer self-service to a full-service alternative.