Aug 4, 2007

How focusing on acquisition features (rather than loyalty) can lead to better protection of interchange fees

Ron Shevlin attacks the fundamental concept underlying customer loyalty, the common belief that “it costs X times more to acquire a customer than to retain one”. After you read his blog post you come back to me and say, “OK, Aneace, so loyalty might be a bit overrated. What in the world does that have to do with interchange?”

The tendency to stress loyalty tactics over acquisition could cause the industry to sell itself short when designing payment information value added features which help to justify interchange fees. Acquisition tactics are often much more valuable to merchants, and, as a major side benefit, it turns out that they function best on general purpose credit or debit cards, rather than store cards, so merchants need banks more.

Here are a few simple examples using payment data hidden in the card to trigger receipt promotions. They are all based on attracting and exciting occasional customers, rather than rewarding loyal customers.

Recognizing a customer who has not been to a store in a long time and being able to print a special offer on the credit or debit card receipt is simple, cheap and irresistible for almost any merchant. All that’s needed is a simple bank payment terminal. No need for a CRM system, database tools or technical expertise. The feature is simply built into the standard payment transaction. It is a valuable feature that is uniquely available through general purpose credit or debit cards, not store loyalty cards or private label payment cards (remember, this customer is not a frequent customer, so he is not going to pull out his loyalty card).



You can’t call the special offer a reward because the merchant is not rewarding any type of desired behaviour. You can only refer to it as a promotional offer. Calling it a reward is bizarre.

Another example is sampling, a promotional marketing tactic which is almost as big as loyalty. Promo Magazine says that “product sampling is the most influential in-store marketing method when it comes to influencing consumer purchase decisions.” General purpose cards can help make sampling even more effective. Behaviour data stored in new generation credit or debit cards can help merchants avoid giving the same samples to everyone over and over again. Instead, merchants can give customers a different surprise sample at each visit, encouraging them to try many different products.


The receipt acts primarily as a trigger to alert the clerk to hand out a specific sample pack. The trigger could be on the receipt, as in this example, or it could be a flashing display that the clerk sees. The idea is to use the payment transaction to help enhance and improve the marketing activities already happening at the point of sale.

Let's throw in a twist. This payment feature could allow merchants to offer higher value samples, for example only at a customer’s 4th visit in a given period, which is much more effective than giving the sample to anyone that walks in the store. Yes I know, this little twist looks kind of like loyalty, but it’s not, because the merchant is not saying “shop 4 times and you get this big sample”. Calling it loyalty is confusing and diminishes the value of simply making product sampling more effective.

Games are another promotional marketing tactic almost as big as loyalty. Data in the payment card can be used to create simple game promotions that appear at the bottom of credit or debit card receipts, perhaps as part of an advertised promotion, or maybe just a surprise that pops up on the receipt.


Building these types of features into a single bank’s cards and POS terminals, in a closed loop system, helps to protect the bank’s merchant fees and brand value. This has been Welcome’s core capability for many years. Now, building the same features into a scheme payment product makes the product more attractive to merchants and therefore helps to justify the interchange rates attached to that product. This is Welcome’s new strategic direction.

2 comments:

soar said...

it's great to be able to capture customer data and provide customerized offer without a loyalty program;

however, do you think the merchants still needs a backend datbase to track the transaction history or the technology is mature enough that the card chip is sufficient to store all history and provide real time custermized offer without the need of a backend database support?

Aneace Haddad said...

The chip is capable of storing all the necessary data for the most common promotional marketing tactics that merchants commonly use. So in most cases, they can do without a backend system. If they want to also do other, more traditional loyalty features attached to their own private label loyalty cards, then they will probably need additional things. Thanks for your comment!