Strengths of merchant-funded rewards explained

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By: Wise Marketer Staff |

Posted on July 27, 2009

Strengths of merchant-funded rewards explained

The next few months and years are likely to be characterised in marketing history as being innovative times. This is a time in which new marketing strategies are urgently needed to engage and retain customers, according to a white paper by Colloquy and Mall Networks.

Since the recession of the early 1980s, customer loyalty has evolved into a critical tool for marketers to maintain profitable relationships with their best customers. Among the many models developed for enhancing the loyalty/value proposition, the 'merchant-funded rewards' option has proven very effective in providing new value for consumers, programme operators, and merchant partners alike.

The white paper, entitled 'The Mother of Invention: The Power of Merchant-Funded Rewards in a Recession', explains the challenges, roles and benefits of adding merchant-funded rewards to the loyalty marketing mix. For example:

  • Marketing budgets are being scrutinised as a result of recent corporate cutbacks and economic pressure. Consumers are even more value-driven, placing the importance of price far above that of brand or company loyalty. At the same time, the ballooning number of loyalty programmes across all industries means fierce competition for consumer memberships and engagement.  
  • Merchant-funded rewards programmes provide answers to many of the problems facing today's marketers. In theory, these programmes offer wide selection and greater value potential to consumers, while the shared reward funding structure spreads both cost and liability among multiple stakeholders.  
  • Merchant-funded programmes are on the increase, but the boom in the sector has not come without growing pains. Establishing an effective merchant-funded solution is a complex task that requires commitment and resources. Half-hearted attempts tend to result in a limited consumer experience that fails to deliver a truly modern - or satisfying - shopping experience.  
  • Successful merchant-funded programmes satisfy the needs of members, merchants and programme sponsors, creating value for each party in turn. Merchants gain access to high-value consumers, while consumers benefit from valuable offers and higher rewards-earning speed, and sponsors reduce their marketing costs while fostering greater customer engagement.

According to Colloquy, loyalty marketing is "the tactical execution of an enterprise loyalty strategy that seeks to use customer data to transform a product/channel-focused organisation into a customer-centric one in order to deliver organic, sustainable growth to stakeholders". To build sustainable customer relationships, loyalty marketers must therefore follow a three-step process:

  1. Identify Loyalty marketing seeks to recognise and reward customers based on tracking their individual purchase behaviour and projected potential. As customers spend more with you, the benefit you derive from tracking their patronage increases. This tactic allows you to retain your most valuable customers and maximize their spending. But in order to affect profitable customer behaviour, you must first identify who those customers are. Armed with this knowledge, you can then introduce initiatives to retain your best customers and increase your share of their overall spend.  
  2. Understand Loyalty marketers seek to exchange value for information. The customer loyalty programme is a tactical marketing tool that provides both motivation for customers to engage in this value exchange and a forum for productive dialogue between them and the sponsoring brand. This value exchange allows you to learn more about your customers' behaviour and preferences, and then act on that insight to produce a measurable return on your loyalty-marketing investment.

    Loyalty marketers typically assess customers according to their value, and then act to retain currently profitable customers and increase the lift from those who show the most potential for future profit. It's a zero-sum game-you deploy these tactics in order to increase your share of a customer's spend at the expense of your competition.  

  3. Influence Once members perceive meaningful benefit from the value exchange, they repeat the desired behaviour - they shop more frequently, spend more per visit and tell more people about their experiences with your brand. Relevant dialogue also delivers a sense of relationship and community to customers-especially when you listen and react to what they tell you. By tracking personal attributes and transactional history, you can apply value-added mechanisms that further increase their level of spend.

    This approach forms the essence of all customer relationships, which Colloquy defines as "the voluntary exchange of value for information, with the mutual expectation of gain". Loyalty marketing is symbiotic, rather than parasitic; there must be benefit for both sides, or it won't work. When it functions properly, both the brand and its customers perceive value in cultivating deeper relationships.

The results speak for themselves. Companies as varied as Best Buy, Delta Air Lines, Harrah's Entertainment and Tesco have all deployed an enterprise loyalty strategy to become category leaders. Properly cultivated, loyalty programme members can become the company's most powerful advocates. Loyalty marketing remains the marketer's most reliable and measurable way to find brand champions, dialogue with valuable consumers and develop profitable relationships with them.

The full white paper has been made available for free download from Mall Networks' web site - click here (free registration required).

For additional information: ·  Visit Mall Networks at ·  Visit Colloquy at