LIL 2013: Changing the Loyalty Paradigm: Merchant-First, Consumer Second

Last week at BIA/Kelsey’s Leading in Local Conference, a panel of players in the local deals and loyalty space walked through the biggest opportunities and pain points they’re facing.

Tom Beecher: President and CEO, Cartera Commerce

Angus Davis: Founder and CEO, Swipely

Dom Morea: SVP, First Data

Dom Morea

First Data’s Dom Morea kicked things off by characterizing the last few years’ disruption in information exchange  at the retail point of sale. That will only accelerate, especially with merchant tools to accept payments and collect customer behavioral data.

“We see that world transforming towards tablets,” he said. “SMBs will have better access to marketing and advertising products. Being there at the point of sale can take advantage of the interaction of connected consumers.”

He stressed that this isn’t just about the transaction, but a broader set of data points that paint a better picture: “We’re looking more holistically before, during and after the transaction, for richer levels of engagement.”

Tom Beecher

Tom Beecher agreed and added that any hope of merchant adoption hinges on a considerable amount of tangible value. Otherwise, the characteristically fickle and habitual SMB won’t adopt  (read: change their behavior).

This goes against the paradigm of the group buying wave  that was more consumer-centric in its delivered value. The new breed of loyalty players  that will succeed in fact will be the inverse of daily-deals type players, he asserts.

Whereas that model involved a deep discount and rapid consumer adoption, it was unsustainable in terms of merchant value. Loyalty models going forward need to be more merchant friendly, even if it sacrifices some consumer appeal.

He sums up some of these differentiation in 3 marks of success.

1. There should be large consumer audiences who value loyalty as currency. This can involve a form of currency that consumers value in an almost irrational way — the points they achieve are perceived as more than the equivalent amount of cash.

2. Loyalty “currency” should be easy and attractive to earn, and also to burn. It should be portable and user friendly.

3. There should be lots of marketing muscle to galvanize the program as top of wallet and top of mind.

Beecher’s example of a company that hits all three marks is United’s Mileage Plus frequent flyer program, with 17 million enrolled users to show for it. And this can all be accelerated by integrating programs to the credit cards that are already “top of wallet”.

This has lots of benefits in its singularity and reducing wallet clutter. This is especially true in the more fragmented local space, given myriad loyalty programs a given user might belong to. Beecher names BarclayCard, USAA and BankAmericard as exemplars.

Angus Davis

Swipely’s Angus Davis reminded us about SMBs low attention span and growing numbers of local ad sales reps that are calling on them.  This exacerbates an already challenged system of getting SMBs attention, much less ad budget.

“The customer acquisition cost is too high relative to revenue being too low,” says Davis. “You need to be paid $200 per month or more to support a local sales force. It’s not just cracking the code on product, but how do you sustainably sell to local merchants.”

Davis’s creative solution is to take the easier path of entering the SMB relationship as a payment vendor. This is something they desperately need, judging by Davis’ examples of antiquated payment processing and revenue attribution standards that are common today.

But the beauty of this situation is that the penetration barrier is much lower for these payment relationships. Besides their dire need, their scarcity (relative to local marketing services) opens an opportunity to actually get SMBs’ time and budget allocation.

“The difference between payments and marketing [services] is that payments is a single vendor, whereas marketing is several,” says Davis, citing all of the different local marketing services SMBs are compelled to work with (Yelp, Google, YPs, 100’s of deal sites, etc.).

Then the door is open to incorporate marketing services as a “one-stop-shop” offer.  Though this could sound like a sneaky Trojan Horse, the synergies between payments and marketing are not contrived … they absolutely should be linked.

“Help SMBs not only accept payment but but understand them with analytics,” asserted Davis. “Turn it into action and grow sales with online marketing campaigns that integrate offline sales. Bring them together on the same page.”