Insights

  • Merchant Funded Rewards Programs Still Require Direct Response Fundamentals

    by Josh Kelso | Nov 15, 2011

    The purpose of a loyalty program is to…well, build customer loyalty. In today’s financial services marketplace, however, traditional bank-funded loyalty programs are rapidly losing their perceived benefit among participants.  As the value assigned to the points decreases, participants are looking elsewhere for better deals.  This defeats the purpose of the program.  As a result, more and more Financial Institutions (FIs) are moving away from self (bank) funded loyalty programs and toward merchant funded loyalty programs to offer more to participants. But the initial success of these programs will be difficult to repeat unless marketing managers return to the fundamentals of direct response marketing.

    Merchant funded loyalty programs are a growing loyalty strategy, enabling FIs to share the financial burden of loyalty program costs with merchants.  In essence, the merchant agrees to fund the points, cash back or discounts in exchange for marketing exposure to the loyalty program’s participants.  As a result, the FI is able to provide a highly attractive loyalty-building program, offering greater value to participants, while the merchant gains valuable marketing opportunities.

    These new programs are being adopted rapidly throughout the financial industry, and soon the impact of greater rewards will be lost as consumers are overwhelmed with competing offers from multiple vendors leveraging this new tactic. Merchant funded loyalty programs help cultivate mutually beneficial relationships between FIs and merchants.  However, to preserve their value with consumers, the programs need to be executed with emphasis on the fundamentals.

    Merchant funded rewards programs must be implemented with strong messaging tied to the brands and the consumer’s interests. Precise targeting and relentless A/B testing will ensure that the right message reaches the right audience at the right time. This creates the greatest value for FIs and merchants – as well as consumers who appreciate and are most likely to respond to offers with maximum relevance and personalization.

    Before consumer fatigue sets in, this powerful marketing tactic needs strong execution to see immediate results. At Trellist Marketing and Technology, we have been working with merchant funded rewards programs for years. Our experience has shown that the application of direct response fundamentals, strong creative execution, and relentless testing still have the greatest impact on program success.

  • Is the End of Breakage Near?

    by Josh Kelso | Mar 30, 2011

    Let’s face it – we’re all participating in some sort of loyalty program in our daily lives.  Some of us use our grocery store club card to get discounts or our Starbucks card, or our credit card for points for cash or free airline tickets.  Either way, loyalty programs like these compete for our attention and more importantly our behavior.

    The average US consumer is a member of eleven (11) loyalty programs and is active in about six (6).  With all these loyalty programs competing for our attention, program “hoops” members must jump through like “breakage” become increasing important with behavior decisions.  The following will deconstruct breakage and shed light on some loyalty programs that are siding with consumers and their choices.

    Breakage is the classic crutch of loyalty marketing financial models.  Attitudes towards breakage are shifting, both from perspective of the loyalty supplier community and consumers.

    Some might argue that breakage models are critical to managing the profitability of a loyalty program however breakage models only serve to create a vicious circle of ever decreasing value for both the consumer and business because consumers will not change their behavior if the value of the reward is being undermined.

    The most successful loyalty programs influence customer profitability by flexing the rate at which different consumers earn currency for different activities.  Rather than creating breakage models, enlightened loyalty program operators use knowledge about their customer’s behavior, their products and their margins in order to develop segment strategies that encourage consumers to behave more profitably using points as the incentive.  They know that if the value of their points are in anyway devalued they are unlikely to get the positive changes in consumer behavior they desire.  Successful loyalty program administrators create predictive customer financial models to decide which Customers, for what activities, how much and when points should be awarded.  

    Some brands are shifting their thoughts about breakage.  In fact, recent moves by large airline companies  and Points.com signal additional recognition that the accrued value in loyalty programs is not a ’shiny object” to tease consumers with, rather it is truly an alternate currency that people expect to have liquidity and be able to convert for value almost immediately – hence, almost no breakage.

    Points.com recently announced that it is teaming up with PayPal to allow its Aeroplan® miles, American Airlines AAdvantage Miles® and US Airways® Dividend Miles® to convert into cash in member’s PayPal account.

    Cash is still king and loyalty programs that make cash more accessible and immediate will effectively influence consumer behavior and drive more brand and product loyalty.

    The concept of leveraging PayPal’s technology and customer base to facilitate the fulfillment of a Cash redemption has promise and intrigue.  Another critical driver of success for this partnership will be the exchange rate set between the two currencies and the overall consumer perceived value.  This partnership has the potential to provide additional security and accelerate the overall process, both of which add value to the consumer and almost eliminate breakage.

    Trellist helps clients engage their customers in loyalty programs, to increase the value of these relationships.  We believe it’s good for the industry and for the consumer when brands encourage engagement rather than hoping for breakage.

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