Nov 25, 2005

Key success factor #1: Focus on enhancing the payment experience

Critical mistake #1: Focus on loyalty, rather than a new payment experience.

I have been running a number of marketing seminars around the world for banks using Welcome’s payment software, covering key success factors, common but critical mistakes, a methodology to help recruit merchants faster and more profitably, and delivering a set of simple marketing campaigns adapted for each merchant segment. The key message underlying everything in this seminar is to focus on enhancing the payment experience and not focus on loyalty. This is also a mindset that has been pushed through all of Welcome over the past couple of years.

Why focus on an enhanced payment experience versus instant, real-time loyalty? We have seen that banks are more successful when they use our software to create an enhanced payment experience, and tend to be less successful if they focus primarily on loyalty. Why?

To most people in our industry, the term “loyalty” is understood as the process of collecting points or miles and exchanging them for rewards. Printing a message at the bottom of a credit or debit card receipt that says, “Hello, you’ve never used your card here before, we’d like to give you a welcome gift” is not covered by what most people think of as loyalty. Even less so a message that says, “Well hello again, you’ve been here before, but it was a long time ago. Here’s an invitation for you to try out our VIP services, usually reserved for our best customers.” This type of communication can be very effective at boosting sales, but it has nothing to do with what most people think of as loyalty. A mindset that is focused on loyalty will tend to neglect and ignore these messages, because a loyalty mindset causes one to concentrate primarily on finding ways to reward best customers for their cumulative purchases.

Promotional marketing is a bigger industry than loyalty. Loyalty is a small part of a marketing agency’s set of tools. Promotional marketing’s objective is to boost sales in general, while loyalty marketing’s objective is to boost sales by rewarding best customers. It is a mistake to lump all promotional marketing concepts under the term “loyalty”. This limits creativity by focusing the mind on points, mileage and cash back, and limits the marketing objective to rewarding best customers, with the risk of missing out on lots of creative, out of the box thinking on new ways to boost sales.

Part of the problem comes from Welcome. We were originally categorized as a provider of loyalty software, so now, by extension, everything we do is considered to be loyalty. But it’s not because we do something different at the moment of payment that we should automatically call it loyalty.

Welcome does payment software enriched with lots of promotional marketing techniques, one of the techniques being loyalty points. We provide software integrated into bankcards branded by Visa, MasterCard and American Express. We provide terminal software which requests a card insertion, processes an amount input by the merchant, calls secure EMV PIN verification functions, prints receipts, connects to a host, etc. And we provide a host system which is used to set terminal parameters for receipts, floor limits, event triggers, etc., download them to terminals, and receive event status reports and transaction data from the terminals. This is all payment software. Payment card software within the card, payment terminal software within the POS, and a payment terminal management system at the host. I’m not sure any other term is needed to describe what we do. We do payment software. But we do it in a richer, more marketing enhanced manner than most companies in our industry that provide basic, commoditized payment software.

In comparison, the term loyalty is confusing when applied to our activities. Loyalty usually requires a host based CRM system used for direct marketing. Loyalty providers usually include loyalty marketing experts who offer advice and consulting services. Welcome has no CRM product and no loyalty marketing experts. On the other hand, we know payment systems inside out. We have experts in EMV, ISO 8583 protocols, NAC’s, etc. Our engineers spend their days on exactly the same technical subjects as engineers working at POS terminal companies, smart card manufacturers, payment software vendors and payment authorization companies. The only difference is that our engineers focus on doing payment in a more enriched fashion, with more features than other companies, heavily borrowing ideas from the marketing industry. And we try to do this in an automated fashion which leverages the existing marketing activities performed by banks and merchants, so new marketing expertise is not needed.

1 comment:

WL said...

I came from the smart-card enabled, private-label loyalty solutions space. We had a lot of challenges communicating the idea of "loyalty" to our customers. Many took the term to mean "membership" instead.

In actual fact, "loyalty" was simply one of the many consequences of using the card programme to get privileges and perks at the merchant as a reward for spending there. After launch a few sucessful store programmes, we realised that the card programme's real value lies in customer acquisition and increased spending. I do think these two values represent more important short-term perogatives to a merchant than any others.

Customer loyalty will eventually come about if they are made to spend there, where the experience is something they liked, and eventually came back again and again...