When It Comes to Customer Loyality, It’s All About Relevance

Much analysis has gone into the debate about which type of loyaltyinstrument is most effective in helping businesses dynamically interactwith customers in order to build and maintain more profitablerelationships. The debate, focused on smart cards versus magneticstripe cards, is irrelevant. The type of card consumers carry in theirwallet will not help an organization’s loyalty program succeed; thereward relevance and the program delivery method will.

Smart card adoption has been high in Europe and Asia, driven bychallenging credit card verification capabilities in a telecominfrastructure that is not as robust as that of North America. The smartcard, which stores data directly on the card, has helped to reduce fraudat considerable cost savings for card issuers. In North America, therobust telecom infrastructure allows real-time verification of magneticstripe cards for banking and loyalty reward programs without the needfor additional infrastructure.

Loyalty programs based on smart card technology attempt to offsethigher card costs with reduced telecommunication costs by storingloyalty data on the card and enabling program rules at the point-of-sale(rather than at a centralized host). These speed and efficiency gainsare offset by two factors: (a) the desire of many loyalty operators toanalyze data in a central location, necessitating its periodiccollection; and (b) the challenges in updating program rules at eachpoint-of-sale when changes are required.

Loyalty Programs Popular

Most retailers in North America currently have the magnetic stripetechnology and telecom infrastructure in place to cost-effectivelyenable host-based, real-time loyalty programs. This structure allowsbusinesses to update program rules once, in a central location, withoutthe extra effort of “touching” all their individual points-of-sale.Since more information can be stored in these types of real-timedatabases, organizations have the ability to take advantage of the addeddepth and richness of customer information.

The popularity of customer loyalty programs is at an all-time high.According to an analyst report by industry research firm Gartner,more than 60 million Americans belong to at least one of more than 200US based loyalty programs, making these programs so widespread thatcustomers have increasingly come to expect them.

For organizations that are looking to loyalty programs as a way torecognize and retain their best customers, the benefits of real-time areclear. By pushing the rewards redemption processes to the front line inreal-time, an organization can reduce or eliminate resources spent oncall centers and fulfillment warehouses, while customers can avoid thelong delivery times often associated with reward fulfillment. Real-timeloyalty makes sense, especially since instant gratification strikes atthe core of making a program relevant to a consumer, not to mentionsuccessful to the bottom-line.

Who Provides the Profits?

But the benefits don’t stop there. It is widely accepted that 20 percent ofcustomers produce 80 percent of profits, and some industry analysts will evenclaim that more than 100 percent of profits are driven by the top customersegments. Think this isn’t important to your business? Think again, asthe bottom segments of a business’ customers can actually contributenegatively to profits. Real-time loyalty programs can help anorganization identify its best customers, reward them for theirpatronage and weed out the rest.

While many industry pundits closely followed the progress of retailgiant Target and its foray into the smart-card loyalty market, mostfailed to realize that it was not the smart-card technology thatfailed. With a reported investment of US$50 million in infrastructure,Target was able to attract a purported 9 million customers to itsloyalty-enabled card, proving that the interest and opportunity inloyalty benefits existed.

The problem was that consumers ignored thehigh-tech smart-card loyalty features because the perks and benefitswere not delivered in a relevant manner. Target’s program requiredconsumers to go to a special kiosk in order to access the loyaltycoupons for redemption at the point-of-sale.

The Irrelevant Debate

In the end, the debate that focuses on smart cards versus magneticstripe cards is irrelevant. Magnetic stripe cards, smart cards, fingerprint devices or retinal scans are simply the identifier for a host-based loyalty solution. There is good reason to believe that smart-card technology may yet emerge as the technology of choice to reduce credit card fraud in North America.

However, an effective customer loyalty program is not about the type of customer interface, but rather the benefits associated with it. Businesses wanting to adopt their own rewards program should consider a solution that is real-time in nature, which allows customers to be rewarded and/or recognized right at the point-of-sale. Most importantly, businesses should specifically focus on the relevance of their rewards. Ultimately, acknowledging consumer preferences and delivering rewards in real time for their patronage is what will make your loyalty program successful, not to mention smart.

Malcolm Fowler is vice president and general manager at Ernex, a division of Moneris Solutions, and has been closely involved with the vision and growth of the company’s technologies.

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