Peter Guidi's Blog

Understanding the ROI of Merchant Funded Rewards: Is a price roll-back a margin killer or profit generator?

In alternative payment, credit card, debit card, interchange, loyalty, payment, Payment card, Uncategorized on December 16, 2009 at 8:40 pm

Merchant funded rewards drive significant increases in key metrics across the full customer lifecycle.  Merchant driven programs can drive a substantial return by delivering significant increases in key metrics from consumer acquisition to engagement and retention driving higher customer lifetime value.

Convenience/Petroleum retailers are well positioned to leverage merchant funded reward programs based on price roll back and funded through the allotment of interchange fees to consumer rewards through the introduction of alternative payment. ROI from these programs comes almost exclusively from the value members see in the program. Numerous studies demonstrate that consumers will make decisions on where to shop for gas with just a few cents of difference. Funding price discounts on gas with no offsetting savings represents a significant percentage of margins, making these types of programs expensive and difficult to maintain. The introduction of alternative ACH payment to this schema allows the retailer to influence both the consumer’s purchasing and payment decisions when choosing price roll back that is based on payment type. The ROI is generated because the program drives up all key metrics. The result is that the retailer sells more gallons to the group of consumers in the program. Results indicate that 20% of the consumers engaged in this type of program will double the number of gallons purchased from the retailer. With effective implementation and ongoing execution of the program, Merchants can expect to see meaningful increases both in gross sales and margin as a result of merchant funded rewards based on price roll back at the pump. (http://www.linkedin.com/in/peterguidi)

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