Colloquy Corner: The Customer, Not the Payment Type, Is King

Posted on by Chief Marketer Staff

We talked last month (“Defining Loyalty Marketing”) about the term loyalty marketing, what it means, and how it relates to the broader discipline of customer relationship management. Now that the introductions are out of the way, we can get into the meat of what it takes to be a loyalty marketer—to build your marketing initiatives around customers rather than around products or payment devices.

The first step is to devise a system to identify customers and track their individual purchase behavior. Doing so is simple in theory, but sometimes complex in execution.

Loyalty marketers seek to reward and recognize best customers and keep them coming back for more. To segment best customers from infrequent shoppers, one-offs, or visiting relatives, you must track their transactional behavior. Customers will pay with cash, checks, and credit and debit cards, and you ideally need to track each of these tender types to develop a complete view of their behavior.

Many loyalty marketers, however, track only transactions paid for by a specific tender— usually their cobranded credit card or private-label credit card (PLCC). There are many valid reasons to do so; if you’re a credit-card marketer, then you’re obviously biased in favor of the tender type upon which your own paycheck depends. Likewise, if you’re the vice president of credit responsible for increasing the usage of your brand’s store card, then you need to concentrate on PLCC metrics and design a value proposition that drives card activation and usage.

In fact, the flexibility and universal applicability of loyalty-marketing techniques has led to a golden age of card reward programs. American Express’s Membership Rewards, Saks Fifth Avenue’s Saksfirst program, and Citi’s American Airlines AAdvantage card are just a few examples of long-running and successful single-tender loyalty programs. In today’s marketplace, credit and store cards that don’t feature a loyalty component are the equivalent of eight-track tape players in the age of iPods.

In the retail sector, single-tender tracking systems such as PLCCs and cobranded credit cards prevail because they’re the easiest systems to implement. They eliminate the need for an identity card, and many existing point-of-sale (POS) systems can track only credit-card purchases. By tracking just a single tender type, however, retailers deliver a mixed message to their best customers: “Yes, we want to reward and recognize you each time you visit us, but only if you pay the way we tell you to.”

Does this mean I’m not a preferred customer if I want to pay for my purchases with my Delta SkyMiles card? Again, PLCC and cobranded loyalty programs have a long and storied history, and customers do respond to them if the value proposition is relevant and engaging. But if your reward program is truly about your customers, then you ideally want to allow them to earn benefits every time they transact, regardless of how they choose to pay. Multitender programs allow you to develop a complete view of customer spending, which will in turn enable you to make better decisions about their value.

But multitender programs are traditionally more expensive to implement and operate. Your POS system must be able to accept an identity number and collect transactional information regardless of the tender type used. Customers who use credit cards also need to provide their identity information, which may require a “second swipe” of their membership card. These obstacles have traditionally tilted the scales against multitender loyalty programs for many brands— particularly those in high-volume environments such as quick-service restaurants and convenience store/fuel retailers.

Evidence continues to mount, meanwhile, that contactless payment systems such as American Express’s ExpressPay, Visa’s Wave, and MasterCard’s PayPass are the wave of the future in retail. JPMorgan Chase has also issued at least 7 million contactless Blink credit cards in the United States since last spring with almost 25,000 merchants now accepting the cards, while Visa has announced an upcoming contactless minicard, about half of the size of a traditional card, which cardholders can use as a companion device to their full-size Visa debit or credit card.

While the new wave of contactless payment systems—most of which will soon be integrated with cell phone technology—would seem to portend a continued focus on single-tender loyalty, retailers should also understand the potential of contactless payment as a multitender loyalty platform. In 2002, South Africa’s Beyond Petroleum (BP) launched a contactless solution, called FuelMaster, which increased BP fleet fuel sales from 100 million to 175 million liters. The 75% sales increase makes FuelMaster one of the most successful launches of a payment product in the petroleum industry—and the increase came independent of any loyalty initiative.

BP views the FuelMaster technology as key to the launch of a consumer loyalty program that will allow customers to use the FuelMaster tag in the convenience store to purchase items and earn loyalty points. This tantalizing possibility attracted a potential coalition partner in the form of ABSA, the largest retail bank in South Africa, which joined the FuelMaster network in late 2003. The key to the loyalty implementation, of course, is that consumers can tie any payment product to the platform, meaning BP can track customer behavior regardless of transaction type and even motivate customers through the program to switch to a preferred payment vehicle such as a cobranded credit card.

This example is proof that, in the retail space, customer strategy and payment technology go hand in hand. Customer identification is the key to the kingdom, and technology has arrived that will open up vistas previously unviewed in the industry. It’s an exciting time to be in the business of loyalty.

Rick Ferguson is the editorial director of Colloquy, a provider of loyalty marketing services. Colloquy also teaches an ongoing series of loyalty marketing workshops and seminars with the Direct Marketing Association. For more information, visit


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