Peter Guidi's Blog

Posts Tagged ‘colloquy’

Customer Engagement; network effects and building long term customer value using a loyalty platform.

In Coalition Loyalty, Convenience Store, loyalty, Platforms on November 10, 2010 at 12:47 am

The need for customer engagement in retail business is critical to effective marketing programs. Societal changes in the way information and communication is received have diminished the ability of traditional “Top Down” marketing strategies to reach the consumer. Media fragmentation and smaller audiences have reduced the effectiveness of mass; “interrupt and repeat”, newspaper and other print media advertising models. Easier access to information about retailers, products and brands has increased consumers’ choice. The internet and emerging social media along with decreasing brand loyalty and lower entry barriers have increased competition. New products and services reach consumers rapidly bypassing traditional sales and distribution channels. Mass-market discounter’s makes customer loyalty hard to achieve as retailers fight to capture a share of the consumer’s wallet by selling at lowest possible profit margin.

Retailers can avoid the “rush to the bottom” by focusing on “Customer Engagement”. Customer Engagement is about strengthening the emotional and psychological affinity a customer has with a retailer. Consumer loyalty is the best measure of current and future customer purchasing behavior. The most effective way to increase a consumer’s engagement with a retailer is by stimulating the consumer’s loyalty. Retailers can change the consumer engagement paradigm by utilizing a loyalty platform to create and leverage “network effects” to drive affinity.

Customer Engagement typically refers to the engagement of customers with a retailer rather than a brand; a loyalty platform can change that paradigm. When retailers add vendor supported incentives to a loyalty program, the program develops network effects. Network Effects are in play when consumer’s access brand (and retailer) supported benefits through the platform. The retailer, who owns the platform, experiences the value of the network effects when consumers shop in their store. Proprietary loyalty programs are closed loop platforms that leverage network effects to drive customer engagement. Coalition point based programs like “Air Miles” is an example of an open-loop loyalty program that exhibit network effects. Like all platforms, loyalty programs require two different parties to adopt the network to be viable; in this case it is either the vendor or retailer offering incentive on one side of the loyalty platform with the consumer and their desire to enjoy the incentive on the other side.

Loyalty platforms are the tool retailers can use to create the customer engagement needed to compete and win in this new social, technological consumer market. Creating an engaging dialogue with consumers and motivating their loyalty with the retailer is the key to driving both sales and margin. (http://www.linkedin.com/in/peterguidi)

Incentives or Discounts; increased profit or eroded margin? Are you using buckshot, or firing a rifle?

In Coalition Loyalty, Convenience Store, loyalty, merchants, Petroleum retailing, retailers on September 23, 2010 at 10:11 pm

When it comes to loyalty programs and promotional strategy there are two schools of thought in retail. On one hand, there are those who believe that everyday low pricing is the surest way to gain consumers trust and their business. These businesses believe that loyalty programs are just about giving bigger discounts to your best customers. Certainly one very large retailer with “every day low pricing” has reached the pinnacle and it is hard to argue with their success. But, with the giant sitting on top of the low price heap, what can the rest of the retailer community do to gain market share? Certainly you can not compete on price and stay in business very long. Nevertheless, many retailers cling to the monthly coupon flyer or web site promotion offering today’s new deal; the Buckshot approach.

The second school of thought has a different perspective on pricing and strategy. These retailers believe that consumer’s make purchasing decisions for a complex set of reasons and that their behavior can be motivated by incentive. In this model the customer’s loyalty is critical to business success. The concept is to track, measure, and then provide specific incentives to individuals based on their demonstrated purchasing behavior. This science is the most effective use of marketing budgets and is focused on increasing business with each current customer. This is the rifle shot, one bullet for each customer.

At the end of the day it’s all about profit. Profit is the difference between success and failure.  When it comes time to pay the bills, or dividends, the only number that matters is the “bottom line”, you either earn a profit or you go out of business, “no margin, no mission”. Regardless of strategy, every program, and every effort must have an ROI. The objective is to make money; buy low, and sell high. It’s hard to make up a loss on volume!  Successful retailers negotiate for the best price, terms & conditions and then set prices and launch promotions that will motivate more profitable customer purchasing thus, maximizing profit. Earning a profit is the battle you fight with yourself as you pick the right price point to execute your sales strategy.  It takes cunning and courage to set solid price points, avoiding the traps of promotional discounts that erode margin simply to increase “top line” performance. Does your sales strategy drive more profitable sales, or is your strategy to be the low priced retailer turning over inventory for increased sales?

In every contest there is a moment when the game is decided. A touch-down or goal is scored, a home run hit, or a competitor’s doors shuttered. Retail is a lot like sports. Taking the lead and then winning the contest is about momentum and emotion. Employees and customers must be engaged, excited and motivated to participate. Success is defined as both top-line and bottom-line growth. Company strategy needs to set realistic goals designed to achieve long term success. Retailers use incentives to motivate employees and engage customers.  Incentives without loyalty programs are simply discounts.  Discounts erode margin. Loyalty programs increases both top line growth and increased profits. 

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73rd NPECA Annual Conference – What is alternative payment

In alternative payment, Bank Tax, credit card, debit card, interchange, loyalty, merchants, payment, Payment card, retailers, Uncategorized on April 28, 2010 at 11:21 pm

There are at least two possible ways to answer the question; “What is alternative payment?” one practical, one academic.

Practically, any payment solution that is not MasterCard or Visa is alterative payment. This is true because up to 90% of all card acceptance fees occur at the pump and these two associations, along with AMEX and Discover control a monopolistic percentage of the payment market. Practically, any payment other than the major card associations is an alternative payment. An Academic approach to the question is more elusive.

Suppose that “alternative payment” is a payment where the payment relationship is between the retailer and the consumer. If so, then cash is the ultimate alternative payment?  But what about all the emerging payment systems like NPCA or PayPal, Bling or BillmeLater? Are they alternative payment? What if we changed the meaning to say that: “alternative payment is any system that creates disintermediation between consumers, retailers and their financial institutions”. Does eliminating the network roles and captured costs of the current payment processing network define alternative payment or is there more?

For the convenience petroleum retailer alternative payment is a system that disintermediates the transaction while enhancing the customer relationship. Alternative payments systems allow the retailer to focus on the “Demand-Side” of payment using incentives and tracking data to influence the consumers “Method of Payment” and enhance customer loyalty. The result should be lower card acceptance costs and increased sales. Retailers using this definition will find the final answer to the question, alternative payment is one that delivers additional profit, rather than additional cost to the retailer.

What decision factors should retailers use when choosing between an open-loop vs. closed-loop alternative payment solutions?

In alternative payment, Bank Tax, credit card, debit card, interchange, loyalty, merchants, payment, Payment card, retailers on April 22, 2010 at 3:31 pm

Prevailing wisdom is often wrong.  Mark Twain said: “Every generalization is dangerous, especially this one”.

The prevailing wisdom on payment is that open-loop systems are superior to closed-loop systems. Open-loop payment systems have four stakeholders; consumer, merchant, issuer, and network. It is generally accepted that successful payment systems offer the consumer at least three attributes; simplicity, safety and desirability. This has lead to the mantra that only ubiquitous payment products can achieve “top of wallet” status. The reason being that the consumer wants one method of payment rather than multiple options as a matter of convenience; consequently, it’s simple and desirable.

Yesterday, Target announced they are dropping its Visa cobranded program. The Target program was one of Visa’s largest cobranded programs. This decision is the strongest sign yet that merchants are reevaluating the benefits of offering general-purpose credit cards. Target said they tested a Target credit card and that research indicated that the Target credit card drove more sales. The test made a clear case for its private-label cards over general-purpose cards. So much for “prevailing wisdom”.

Closed-loop payments systems have two stakeholders, the consumer and the merchant. When a payment system creates disintermediation between issuer and the network (acquirer) the result is increased engagement between the retailer and the consumer. Engagement is good for business. If consumers are interested in single purpose cards, as Target’s test indicated, why share the relationship with two other parties?

Prudent retailers will consider the results of Target’s decisions and other trends in payment before making a final payment system decision. Recent research indicates that 38% of consumers will reduce the use of their credit cards. Visa has reports that debit usage has surpassed the use of credit. Last week VISA announced an increase in Debit rates. Retailers looking to leverage these emerging payment preference trends should consider closed-loop ACH decoupled debit. (http://www.linkedin.com/in/peterguidi)

The convergence of payment and loyalty programming and the trends influencing consumer payment behavior.

In alternative payment, Bank Tax, credit card, debit card, interchange, loyalty, payment, Payment card on March 30, 2010 at 11:52 am

Confluence is the act of flowing together; the junction of two or more bodies of water; the place of meeting. Like two rivers, convenience store operators navigate both payment and loyalty relationships. The confluence of these two programs is the card and the consumer. Data suggests that retailers can recapitalize “Swipe Fees” as “Rewards” by leveraging consumer’s willingness to participate in loyalty programs and their increased preference to use debit payment.

According to “The Big Sort, 2009 COLLOQUY Loyalty Marketing Census, in 2008, 51 million consumers participated in Fuel/Convenience loyalty programs.  2009 saw the further expansion of loyalty with a number of retailers launching new programs. That same year, 422 million consumers participated in Financial Services loyalty programs (credit/debit rewards). While the convenience store industry was hammered by low margins under onerous interchange fees, financial institutions used up to 45% of the “Swipe fees” to drive their business forward, achieving nearly ten times the number of participants. 

The January 2010 version of “The 2008 Survey of Consumer Payment Choice” published by the Federal Reserve Bank of Boston reveals data demonstrating consumer’s increased participation in debit rewards programs.

\The two studies point to specific trends that support the confluence of loyalty and payments. Consumers now belong to an average of 14.1 loyalty programs, but only 3.5 credit cards. The average consumer has adopted 5 “Payment Instruments”. More consumers have and use debit cards than credit cards (88.2% vs. 78.3% w/ 208% increased usage). Consumers have more “loyalty” to their debit card than credit card with 27.5% of consumers discarding a credit card, while only 5.9% reported discarding a debit card. The analysis indicates that consumers are more willing to join a loyalty program than a payment program. Further when customers use a card for debit, they are less likely to discard the program making for a double win; more enrollment with less attrition.     

The conclusion is that growth in Fuel/Convenience loyalty programs and increased debit card usage considered in juxtaposition with the high rate of attrition of credit card users suggests that retailers offering debit rewards as a feature in the loyalty program could recapitalize a significant percentage of “Swipe Fees” as consumer rewards resulting in greater consumer loyalty and increased ROI.

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