Loyalty card saturation – the elephant in the room

According to a recent report by Colloquy, each U.S. household has an average of 14.1 loyalty program memberships, up from about a dozen in 2006. However, just 43.8% of those programs are active, translating into 6.2 average active memberships per household. Less than half of loyalty cards are active!

“With the current economic climate, marketers must shift focus from growing their loyalty programs’ size to growing their value,” said the report.

The loyalty industry has been complaining about market saturation for several years already, but has still not come up with a viable solution. The focus always seems to fall back on the same action plan that the report also suggests, “prove program ROI, integrate loyalty data at the enterprise level, and design value propositions that will engage customers of high current and high potential value.”

In other words, engage customers through increased mailings and, especially, juicier rewards. But there are other ways to solve the problem, you just have to look at things from a different angle.

The fundamental problem has a number, provided by Colloquy: 14.1. How can you possibly carry 14 cards in your wallet? That’s just nuts! The most you really want to carry at any one time is also a number given by Colloquy: 6.2, carried by one or two people in the household. And even that number is scary to lots of people.

Loyalty practitioners are fighting an increasingly uphill battle trying to get their card to become part of that privileged few in your wallet. And most are using the same tools - increased mailings and bigger rewards.

Instead, Taggo looks at the problem from a completely different angle: put the cards on your mobile phone so you always have them with you. I am betting my money right now that activation will instantly go up with no need for juicier rewards or more mailings.

A counter-intuitive way to make mobile payments irresistible

Put loyalty and prepaid cards on mobile phones first, which will create the desire to have credit and debit cards as well, integrated into a single transaction. Going the other way, credit cards first, will be extremely challenging. The difference is the value proposition to customers and retailers.

The main promise of putting credit and debit cards onto an NFC mobile phone seems to be, "you can leave home without your wallet". That promise is impossible to deliver until the vast majority of retailers accept NFC payments. Customers still have to carry around their wallet, and, from the merchant’s angle, if customers have other payment methods on them anyway, the value of accepting NFC payments is limited. The promise is empty.

Some other promise is needed. How about, “tap your phone, instead of pulling out your wallet”? That promise can be delivered now, but is it really valuable? The difference between tapping your phone and pulling out a card is questionable in the vast majority of retail environments, except transit. The contactless promise was, “no more lines”, but removing the need for a signature on all transactions under $15 suddenly made traditional magnetic stripe transactions just as fast as contactless. Many people are working at linking the tap and go transaction to interactive information on the handset, to enhance the customer’s experience. Something may in time produce an exciting promise there, but there is a very high likelihood that it turns out that the value is in the application on the handset, and that the promise will be deliverable with traditional payment methods as well.

On the other hand, with loyalty and prepaid cards, Taggo’s promise is, "no more fat wallets". This is a much easier promise to deliver. As soon as one retailer is equipped, that retailer's card can disappear from your wallet. Poof. Gone. Whereas credit and debit cards will stay in your wallet for many years to come.

I see loyalty and prepaid cards going onto phones first, then pulling credit and debit cards on in a second phase. The promise for doing this would be, "no need to pull out a payment card when you use your mobile phone for loyalty".

Loyalty and prepaid programs as mobile content, like ringtones and games

I now look at loyalty programs, discount cards, prepaid cards, and other membership programs as mobile content, very similar to ringtones and games.

The same way that people today send a text message with a key word or code to get a ringtone or game sent to their mobile phone, customers can also add loyalty and prepaid card programs to their phones.

This is a paradigm shift that focuses on getting more people to join more programs. It is a very different outlook to the one that currently dominates the NFC industry where players are struggling with putting credit and debit cards onto mobile phones.

The process requires tremendous simplicity, and produces much greater value to retailers that are struggling to sign up new loyalty or prepaid card customers.

Imagine browsing through the Taggo website looking for new programs to join, and choosing between various retailers that you shop at. Imagine even being able to purchase prepaid promotions, like "Load $25 to your Starbucks Taggo account now, for the promotional price of $20". And the fee gets charged to your mobile account, just like when you buy a new ringtone or game.

This is a vision that is especially relevant to the large number of younger users that are already familiar with purchasing content for their mobile phones.

Hahaha! This innovation stuff is lots of fun!