Retail loyalty you can bank on

In the past several months, many banks have launched merchant-network loyalty programs for their customers.

This new breed of loyalty program gives credit card holders the ability to earn accelerated rewards points. In return, they are loyal to retailers that participate in the bank’s network as a partner to bank.

For retail marketers, these merchant-network programs provide a new way to target their most attractive prospects.

But what do retail marketers need to know about these unique networks before participating in them?

For retail marketers the benefits of belonging to a merchant-loyalty network are three-fold: incremental sales, brand loyalty and pay-for-performance marketing.

Initially, retailers benefit by gaining incremental sales from customers who are seeking the additional rewards being offered through the card-loyalty program.

Over time, the retailer’s product breadth and customer service expertise can deepen their relationship beyond bonus rewards to create additional brand loyalty of their own.

Finally, merchant network programs are a pay-for-performance arrangement. Therefore the retailer doesn’t pay the issuer until the credit card is used for a designated purchase. That’s a return on investment that very few, if any, marketing investments can stack up to.

What is the best approach for retail marketers participating in a merchant network loyalty program? To sustain a merchant loyalty network long term, there has to be a good match between the cardholders and the merchants.

For example, retailers such as The Sharper Image or Neiman Marcus should look to participate in programs with a card issuer that has a portfolio of high-wealth individuals in order to maintain their upscale brand identities.

The key to success lies in leveraging the card issuer’s customer profile database to create relevant offers and discounts. It is only when the bank identity and the retailer identity are appropriately matched that the program is a win-win. It’s also a matter of consistent awareness building and marketing to the program participants.

One way to achieve this is by driving pre-qualified consumers to the retailer by promoting the offer in e-mails, statement stuffers and on the card issuer’s program Web site.

Also, these programs are not limited to traditional bricks-and-mortar retailers, online merchants and catalogs. An effective program has to achieve an appropriate mix of shopping channels. Consumers are increasingly used to choosing how they bank and how they shop, so if a rewards program is inconvenient then it is irrelevant.

What makes this approach to loyalty programs so exciting is that every party benefits from the partnership. Card issuers win because it means consumers choose their card to pay for transactions. Retailers win because these programs drive more customer transactions. Cardholders win because they have an opportunity to earn additional rewards for little or no additional effort.

It’s an idea that’s catching on fast. Citibank, AMSouth, USBank and Chase have programs on the market today.

Retail marketers should look for more programs to launch next year and for this trend to continue both with credit and debit card programs in the years to come.

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