Feb 10, 2006

Key success factor #4: Show merchants how your payment brand can help solve major problems

(This is the fifth post in a series on key success factors and common mistakes.)

Imagine you are about to offer your acquiring services to a major petrol retailer. You know exactly how the discussion will go. You know that retailers don’t see nearly enough value in payment cards to justify their cost and are suing the card associations and the major banks to drive fees down. You know that the petrol retailer will focus heavily on your payment fees. How do you avoid simply discussing fees and focus instead on the value of your payment services? The best way is to re-invent your payment services into something which offers far more benefits to retailers, helps solve major problems that keep the retailer awake at night, and which retailers would be happy to pay for.

What are the main problems that keep a retailer awake at night? The retailer’s pain is described in the company’s annual report, industry studies and annual reports from other petrol companies. Here is a study I found in a few minutes with Google. It describes how petrol retailers are suffering from heightening competition, declining margins, and a heavy reliance on low-margin product categories.

Prepare a few simple questions to ask the retailer, using words like “what” or “how” to get the retailer to give you detailed answers: “What is your strategy to get customers to buy more high margin products and avoid relying primarily on low margin petrol? What is your organization doing to increase same store sales? How are you responding to the growing sale of petrol at supermarkets? What are you doing to get customers to go out of their way to fill up at your petrol stations and avoid seeing your customers simply stop at the next available one?”

Discussing these issues will encourage the retailer to admit his pain and will give you ways to link your payment services directly into solutions to avoid that pain. More than likely, the retailer is struggling to get customers to buy other things in the convenience store, higher margin products, not just petrol. More than likely, the retailer is suffering from having made the petrol buying experience so fast and simple that customers are actually encouraged to fill up, pay and leave. You want to hear in detail how the merchant is dealing with margin erosion, so that you can hopefully catch an idea or concern which your payment services can help address. This type of discussion will almost always reveal valuable opportunities for you to turn your payment services into a strategic marketing tool.

Near the end of the meeting, when you ask what the retailer is doing to avoid the growing share of low-margin products in his business, imagine that he suddenly launches into an animated explanation of how they are about to offer an upscale coffee program with a major brand – still hush hush wink wink – which everyone in the organization is very excited about. This was unexpected. Even after speaking to this person on a regular basis for the past six months, trying to win his business away from your competition, you had never heard about this project.

You jump on the opportunity and suggest that they can switch to your acquiring services before the launch, and offer a welcome coffee the next time a cardholder fills up on petrol, to get customers to sample the coffee station at least once. The customer fills up on petrol, pays with a credit or debit card, gets the card receipt, and simply finds a short coupon offer at the bottom of the receipt for a free coffee, valid today only. The customer parks, goes into the store and hands over the coupon. That’s it. And since the coffee station is only a few feet away, it’s all so simple. There are no coupons to stuff into envelopes, no expensive mailings, no analyzing large data bases filled with huge numbers of transactions. You tell the retailer that only people that buy a full tank of petrol will get the coupon and that they won’t get another coupon the next time they fill up. Maybe the retailer will want to offer some other coupon the next time, for example for a free car wash on the customer’s third full tank in the same month. The retailer knows what types of promotions work. You don’t need to become a retail promotional marketing expert. Just show how your payment services can be used to target the retailer’s existing promotions in a much smarter way that costs much less than existing methods.

This is a very different discussion than the one based on your payment fees. You are now helping the retailer change the purchase behavior of his customers. You are helping the retailer get more value out of his advertising and marketing budgets, which are much larger than his card fee budget. And the feature is built into your payment services, which the retailer needs anyway.

Wait. You can go further. Ask the retailer how he would like to be able to recognize a customer that hasn’t been to one of the retailer’s petrol stations in over a month. The customer has been here before, but not within the last 30 days. That customer is quite likely filling up elsewhere in between sporadic visits to this retailer. Since the customer is here now, how would the retailer like to print a special offer at the bottom of the customer’s credit or debit card receipt, encouraging the customer to come back quickly, within the next couple of weeks, to fill up again and enjoy the special offer? Since the feature is built into your payments infrastructure and requires no additional effort, of course the retailer would like to do this. He can’t say no. Of course he will immediately want to enjoy this new payment feature which helps avoid losing customers to the competition. And imagine how difficult and expensive it would be to get the same result through all other methods available today.

Coming out of a meeting with a major retailer in which you successfully moved the discussion away from your fees and instead focused on the retailer’s pain, I can guarantee that you will be feeling fantastic. Even if after the meeting the retailer has not yet decided how to use your payment infrastructure to target promotions and improve the company’s advertising and marketing activities, more than likely the retailer has decided to choose you as a strategic, long term payments partner.

Related material:
Heightened Convenience Competition Hinders Projected C-Store Sales Growth
Protecting interchange fees: what alternatives to litigation?
Payment services that are irresistible, not just nice-to-have
Returns fraud

Prior posts in this series:
5 key factors for success (and 7 common but critical mistakes)
Key success factor #1: Focus on enhancing the payment experience
Key success factor #2: Achieve cardholder critical mass very quickly, merchants will follow
Key success factor #3: Deploy faster by leveraging the experience of other banks around the world

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