Apr 30, 2008

Loyalty 2.0, promotional marketing and interchange

I have just read “Loyalty 2.0”, a white paper by Karen L. Webster, president of consulting firm Market Platform Dynamics. Loyalty programs are so mature today that it seems that every company has one. Yet the white paper points out that eight of the top ten brands in North America don’t offer a rewards program and probably never will.

The list includes two notable retailers, Wal-Mart and McDonald’s. Wal-Mart is notorious for sticking with every-day low pricing instead of a formal loyalty program offering points or cash back rewards. As for McDonald's, you do sometimes see individual franchisees with loyalty programs, but these are mainly outside the US, and they are an exception not the rule. But I'm not sure why she included Bank of America in the list, a company that I thought had a rewards program. And of course, the GE Money division of General Electric manages lots of private label cards on behalf of other companies, most of which have some kind of loyalty program attached to the cards.

But the theme is interesting anyway, and other publications do paint a similar story. For example, according to the Food Marketing Institute, 60% of US food retailers don’t offer loyalty programs. Again, Wal-Mart is the most prominent example.

On the other hand, all retailers offer promotions, including those not involved in loyalty programs. Just walk past a McDonald's restaurant near you and you'll see lots of promotions without even going inside. According to Promo Magazine’s annual trends report, in-store advertising is a $42 billion industry in the US, while spending on loyalty programs has been stable at $2 billion.

There’s also an interchange angle to all this. Karen Webster writes, “Unfortunately for the merchant, 44 percent of the issuer’s interchange fee revenue generated at the store is plowed back into rewards programs for the card. In essence merchants are financing reward programs for which they may see little, if any, direct benefit. Of course, the big question is what happens to loyalty programs when interchange fees are reduced. That might not happen next year or even the year after, but it is a likely scenario.”

1 comment:

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