Got PLCC? What it Is and 3 Reasons You Also Need a Loyalty Program

The private label credit card, or PLCC, has become a tool of choice for retailers looking to boost the loyalty and lifetime value of their customers. However, most retailers who deploy a PLCC without a comprehensive loyalty program eventually realize they’re missing a big opportunity. That’s because PLCCs typically see adoption by a relatively small, if high value, segment of customers. On the other hand, the combination of a loyalty program and a PLCC not only makes the card more attractive to a broader group of mid-tier customers, but also engenders customer retention and higher spend in more customer segments.

Why a PLCC alone isn’t the answer

Retailers love PLCCs because they can be a lifeline to higher profits. Handsome signup bounties hide losses, and revenue sharing supplements cash flow. During the recession, growth in card signups was sapped by regulation (the CARD Act of 2009) and weaker consumer appetite for credit, but this trend is reversing. According to market research firm Packaged Facts, the PLCC market is now growing at 6% annually, with 30 million active accounts and $100 billion in outstanding balances. Nearly 40% of Nordstrom sales came from cardholders in 2012.

Still, a PLCC in isolation isn’t usually a good way to impact customers beyond your top decile (your top 10% in annual spend). For one thing, there’s the credit application, which can be a barrier to entry for some. In addition, even many creditworthy consumers feel they don’t have enough room—in their wallets, their credit capacity, or both—for another card. Consumers also see the PLCC as a strong, emotional statement about brand affiliation, so adoption is often limited to people fervent about your brand—the same people who are already your top spenders and have little capacity for higher or more frequent purchases.

3 ways a loyalty program complements a PLCC

A loyalty program—whether employing a point currency or not—can increase the effectiveness of a PLCC program by broadening the appeal of the card and also driving up customer retention and lifetime value. Here’s how:

1. Loyalty programs make PLCCs look more attractive

When a retailer ties its loyalty program’s array of rewards to its PLCC, customers see more benefit in signing up for the credit card, thereby increasing adoption. This is especially relevant for your mid-tier customers—those in the middle deciles of annual spending—who, without a loyalty program, are less willing to complete an application form.

2. Loyalty programs positively impact churn and lifetime value of mid-tier customers

Mid-tier customers are the ones who are most ripe for spending more, yet they are typically not PLCC holders. A loyalty program increases the likelihood this group will become PLCC holders. As those customers now have the retailer’s brand top-of-mind whenever they use their credit card or interact with rewards, the likelihood of churn decreases and lifetime value increases.

3. Loyalty programs allow for direct, flexible communication with program members

Issuing banks sometimes limit how retailers communicate with their PLCC holders. With a loyalty program, retailers can freely structure engagement and promotions as they see fit.

The message here is clear: If you’re a retailer with a PLCC and not a loyalty program, you are leaving money on the table. The wider appeal of loyalty programs and their potential for driving increased spend from mid-tier (middle decile) customers make them an ideal complement to your PLCC.

Arif Damji is director of strategy and development at 500friends.

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