Colloquy Corner: Avoiding the Zero-Sum Game

Last month we talked about some of the reasons to consider a multitender loyalty program ( “The Customer, Not the Payment Type, Is King”), as opposed to building your customer strategy solely around a private-label credit card (PLCC) or cobranded credit card. We also talked about the promise of RFID payment devices to facilitate the next generation of true multitender loyalty programs.

But is the multitender vs. single-tender argument really a zero-sum game? Or is it possible to enact multitender loyalty in the store while still driving activation and usage in your preferred credit portfolio?

Beside the general argument that single-tender loyalty programs capture only a percentage of your overall customer transactions, there’s another reason that many loyalty marketers value multitender over single-tender programs. Single-tender loyalty benefits such as those found on many cobranded and private-label card programs are, after all, extended to every cardholder—active or not, valuable or not, long-time customer or brand-new recruit. Finite program budgets are stretched across the spectrum from best to worst customers. Opportunities to provide differentiated rewards and recognition based on customer value—the hallmark of good loyalty programs—are lost.

With a multitender program, you can derive a true picture of your customer base. Your goal then becomes to funnel those customers who represent the greatest current or potential value to your enterprise—your best customers—into your preferred credit portfolio. By rewarding them for taking up your preferred tender, your portfolio becomes a pristine database of high-value, affluent, creditworthy customers who derive maximum benefit through their loyalty to your brand.

On the surface, a multitender loyalty program seems like a threat to building cobranded or private-label credit transactions. But there is a real opportunity to build a loyalty structure that meets the objectives of both you and your issuer. Imagine a retail loyalty program that could build business with all your customers—and create a significant opportunity to heighten the awareness of your preferred tender. With these benefits in mind, here’s how to drive customers to your cobranded or private-label card using a multitender loyalty program as the engine:

Step one: Enroll
Use enrollment bonuses to drive membership in the multitender loyalty program in order to actively identify “invisible” customers (those paying by cash, check, and third-party credit cards). Use the right mix of rewards and recognition to give customers a reason to identify themselves. For example, you can fund 1% back on purchases for all program members and reward them in the store with a few low-cost soft benefits.

Step two: Filter
Once you have captured enrollment data, you can begin transactional analysis to separate the wheat from the chaff. Set “pending membership” thresholds so that the very occasional shopper doesn’t drain communications and rewards funds from the customers you really want to develop. You can then use the loyalty program to filter the best customers to the most compelling value proposition: your cobranded or store credit card.

Step three: Tier benefits
By structuring the loyalty program to naturally drive best customers to the richest value proposition, you create a key opportunity to drive best customers to the credit card. Fashion the credit card into a “gold tier” membership level with substantially stronger benefits—say, 3% back on every purchase, as opposed to the 1% for regular members—to attract good customers who previously had ignored your credit-card enrollment invitations.

Step four: Recognize
Once you have created a program tier for heavy credit-card users, you should add an additional layer of “soft” benefits—special lifestyle and life-stage recognition elements that make members feel like insiders. For example, top-spending cardholders might have access to a personal shopping assistant, or maybe they receive an additional 10% discount on any items purchased during a specified promotional period. You’re limited here only by your imagination.

By running this playbook, the seemingly impossible can happen: Previously invisible customers will reveal themselves. You capture valuable consumer data on all members, regardless of tender type, and customers deliver this information willingly. By placing your preferred credit card at the apex of the loyalty program structure, you filter out low-value customers and fill your portfolio with attractive, high-spend cardholders.

Multitender loyalty therefore represents not a threat to issuers but rather an opportunity. With easy-to-copy credit rebate solutions the current default loyalty play among retailers, you’ll soon find yourself behind the curve unless you refashion your credit card as an attractive alternative for customers and a competitive differentiator for your brand. The key steps toward that goal are:

• Create a value proposition for consumers regardless of tender type, and previously invisible customers will suddenly reveal themselves, clamoring for attention.

• Use the right mix of rewards and recognition to entice customers to identify themselves.

• Position your credit card at the apex of the loyalty structure as the “gold standard” to which best customers can aspire.

• Reward best customers with bonuses for continued, increasing use of your credit card, particularly for purchase of high-margin products and services.

• Appeal to best customers’ emotional involvement with your brand by creating special recognition elements for those carrying your credit card.

Working together, you and your card issuer will have created a cobranded product that serves as a true differentiator and competes effectively with general-purpose reward credit cards. What’s not to like? Issuers who partner with retailers on such a venture will herald the dawning of a bright future for cobranded and private-label credit.

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 http://www.colloquy.com/cont_conferences.asp.