There are four emerging best practices that need to be considered and followed when developing a merchant-funded rewards programme of any kind. Here Tom O'Rourke, director of loyalty marketing for Dave Bocks & Associates Marketing (DBAAM), explains where to begin. This article is copyright 2012 The Best Customer Guide.

We're all aware of the current state of consumer dissatisfaction with and apathy toward a vast array of copy-cat loyalty offerings in the financial services industry today. But the trend is headed in the direction of Merchant Funded Rewards (MFR) as the next best area for innovation and differentiation, according to O'Rourke.

For those marketers considering a foray into the MFR space, O'Rourke suggests the following four best practices:

  1. Most, if not all, current offerings are fairly generic in design, and provide relatively little in the way of a compelling value proposition. Providing a compelling value proposition that truly differentiates you from competitors and takes market share from them should be your top priority.
  2. Think holistically: think about the big picture, the big strategies, and the big goals that can be realistically achieved with the right platform design and marketing. Your MFR should be designed to achieve much more than just plastic usage and interchange income. Significant increases in retail and business customer acquisition, retention, household profitability, and card usage should be the basis of your programme.
  3. Define your target markets and constituents and ask them what they want in an ideal loyalty rewards programme. Everyone needs to win and buy-in. This is the key to creating a successful programme and, again, think holistically. You'll be spending lots of money and time on focus groups for print, radio and TV ads. Why wouldn't you go out and ask your key constituents what they want in an ideal loyalty rewards programme? For example, a financial services institution would have four key constituents to consider when crafting a programme: two external (retail and business customers) and two internal (personal and business bankers). DBAAM has done this research, and found out what those four groups will say:
    • Retail customers
      No fees - don't charge me because I already do business with you. Immediate redemptions - I want my deal right now. I don't want to wait for points or a gift card. Don't make me jump through hoops to get what you promised me. Make it exclusive - give me something special for being your customer and I'll be happy to use your plastic to pay for it. Include local businesses - reward me where I live, work, play and spend 80% of my money every day. I want a wide variety of categories - entertainment, retail & shopping, travel, sports & recreation, dining, and so on. Give me a dedicated, easy to use web platform to find offers that benefit me. I want choices - let me decide and opt-in to receive new offer notifications that benefit me via email or text.
    • Business customers
      No fee - like consumers, they don't want to pay a fee as they already do business with you. Plus, you're probably charging them service fees already. Make it easy - keep it simple and easy to use and understand for my employees and customers. Make it flexible - let me easily create, change, add and delete offers based on my business needs. Let me determine the number of offers and the duration of those offers. Make my cash-register ring with incremental, repeat and profitable sales.
    • Personal bankers
      Give me value - provide me with something of significant value that's positive to share with my customers. Help me sell debit and credit cards and our existing points based rewards programmes to overcome the "not interested, they're all the same, I have cards with a competitor" objections I hear every day. Help my customers succeed financially by saving them money where they care most - their pocketbooks. Imagine the double-whammy of providing immediate and points based rewards to your customers. Your sales team will be energised.
    • Business bankers
      Differentiation - provide me with a unique solution that allows me reach out to customers and prospects and differentiates me from the competition. Imagine your business bankers offering a programme to businesses that makes their cash registers ring at no cost to them other than the reward of their choosing. Your competition will be floored.
  4. Define your goals and objectives. First, create a distinctive value proposition for your FI, that significantly differentiates you from your competitors and takes retail and business banking relationships from them. Don't create or produce something your competition can easily recreate. Second, realise significant incremental retail and business customer acquisition. With a unique value proposition that saves retail customers money all over town and generates sales and profits for business customers, you'll be providing a most compelling reason to make switching easier. Third, significantly improve consumer and business customer retention. Fourth, WOW your customers on a daily, on-going basis at touch points all over town. Do it right and your customers will become an extension of your sales force.

Merchant funded loyalty rewards programmes work if they are based on constituents' needs and wants, but they must also be carefully crafted, strategically sound, and simple to use and understand. They must be more than a "me too" programme, offering real benefits that are locally relevant, and that are immediately redeemable by your customers.