Jul 23, 2006

Loyalty, a $2b subcategory of the $342b promotional marketing industry

Loyalty marketing is a $2b subcategory of the $342b promotional marketing industry (source: PROMO Magazine). That’s around 0.5%.

Welcome’s XLS of course supports loyalty but it also supports other promotional tactics which together represent a much larger market than loyalty. For example, couponing, a $7.2b market, is over 3 times as big as loyalty, while two other markets, games and sampling, are each of equal size to loyalty. Then there's a huge category that PROMO Magazine calls "Retail", a $19b market, almost 10 times as big as loyalty.

Unfortunately, payment industry professionals sometimes have a way of referring to all promotional marketing techniques as “loyalty”. They bundle points, miles, cash back, coupons, samples, incentives, games, etc. all into the word "loyalty". Sloppy use of terminology is dangerous and greatly limits the potential value of payment. When we talk to a merchant using the word “loyalty”, the merchant naturally thinks that we’re talking about programs designed to reward consumers for repeat purchases, based on some form of accumulation of points. A $2b industry. The merchant doesn’t think we’re talking about coupons, games and sampling, or any other tactic which together make loyalty look ridiculously tiny in comparison.

If you want to talk loyalty, then it is normal to use words like loyalty, rewards, points, cash back or mileage. But if you want to talk promotional marketing, then you need to learn and use the appropriate words, and avoid using “loyalty” and other loyalty related words like rewards (yes, rewards) and points.

Historical payment transaction data at the moment of purchase is extremely useful and valuable to merchants. It can help merchants dramatically improve their promotional marketing activities by giving them a tool to target their promotions based on each cardholder’s prior behaviour, instantly at the moment of purchase. It gives banks an excellent opportunity to tap into huge promotional marketing budgets and make payment cards much more useful and valuable for merchants.

To me, using the payment infrastructure to solve major problems for merchants is simply the most powerful way for banks to justify their interchange fees. It could be the only way. To get there, the payments industry has to gain a much better understanding of retail promotional marketing techniques. Given the growing pressure from merchants to cut interchange, and the growing dependence of banks on their interchange revenue, it is only a matter of time before the payments industry makes this jump in a really big way.

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