Feb 27, 2006

Failed card marketing programs that keep getting resurrected

According to the American Banker, several major US payments industry players are beginning to explore ways to migrate banks’ points programs towards real-time redemption at the POS. Instant redemption at the POS is described as “the next logical step” for points and cash back programs that almost every US card issuer already offers and that are almost all identical (click here for a prior post on the commoditization of points, miles and other loyalty currencies).

The companies described in the article are at the beginning of their learning curve. Some have developed the technology for redeeming points at the POS and are now beginning to explore using it with card issuers, customers and merchants. Once they go a little further, they will learn what other banks have learned in other parts of the world: redemption of points at the POS is not really a major selling feature.

Sure it’s nice for cardholders to be able to choose something in a store that they really like, rather than having to choose something from a catalogue. Nice, but not really a major cardholder benefit. The problem can partially be solved by adding merchant gift certificates to the rewards catalogue, or simply offering cash back automatically once a quarter or once a year, directly on the cardholder’s credit card statement. POS redemption eliminates costs for the issuer, like maintaining a catalogue and sending out rewards statements, but it generates additional costs related to POS modifications. If the POS is being modified anyway, for example for EMV chip cards, then it could make sense to bundle POS redemption in as well. Otherwise, it might not be worth the effort.

The article describes other projects which try to avoid costly POS modifications by providing merchant discounts that appear automatically on the cardholder’s credit card statement. This sounds exactly like several heavily financed projects that failed in the US around five or six years ago. I suddenly felt like I had stumbled on an old magazine clipping collecting dust somewhere down in our archives room.

Do you remember Prio? How about Yclip.com? Both offered cardholders the ability to get paperless coupon discounts at participating merchants. A customer would sign on for the coupon online and later would be credited for the value of the discount through his credit card account when he makes purchases either in stores or online. Sign up for the McDonald’s loyalty program and get discounts that automatically appear on your credit card statement, without having to do anything at all. Sounds appealing, doesn’t it? Prio was bought by InfoSpace in 1999 for $352M, and Yclip.com raised $22M in early stage financing and had First Data as a significant shareholder.

Neither service exists anymore. Going to a web site to sign up for a little discount was too much of a hassle for most cardholders. Merchants didn’t really get excited either. Merchants of course give lots of coupon discounts already, but they are almost always for specific products, like a buy one get one free meal, or an added value offer like a free desert with your next full meal purchase. They are almost never for a straight amount or percentage off your next purchase. Statement based services like those provided by Prio and Yclip, and those described in last week’s American Banker article, can only support straight discounts since the payment transaction does not keep track of individual items purchased. So merchants can’t offer the types of promotions that they are most comfortable with. There is also the risk that customers would get the discount but never notice it on their statement. A totally wasted discount, totally financed by the merchant.

So much has been learned over the years with so many different loyalty and promotional marketing initiatives. Some of the failed projects could live again, if they were based on sound business principles. Many will never take off, but we will probably still see them resurrected over and over again as tests and pilots.

Big Players Test Instant Rewards Idea, American Banker, Feb 22
Are instant rewards at POS coming soon?

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