The Relevance of Loyalty

"Do not leave home without it" used to be enough to parlay the value and benefits of carrying a specific credit card. But, today, it's becoming more and more difficult for merchants or credit card issuers to convince a consumer to enroll for a loyalty card when the consumer's wallet is already bulging with receipts, credit cards, driver's license and frequent flyer cards.

Does this mean that loyalty cards do not work? Hardly. It's ultimately tied to the concept of relevance.

What doesn't work is a program that promises obscure rewards, at some distant date, based on a complicated set of purchases - that provide little motivation for a consumer to make the effort to enroll for the program.

Says one new parent, "If I could be rewarded, at my local drug store, for all the diapers and formula I'll be buying over the next couple of years, that's relevant. I'd carry the card. But if the offer was for a free DVD rental for renting 20 movies in three months, that's not relevant for me given my sparse rental history."

So while grocery store cards and airline mileage cards will find their way onto key chains and into wallets -- because they provide instant savings at check-out or help the cardholder earn free flights -- cards for stores where the consumer rarely shops at or those with difficult-to-attain goals may not. The concepts of value and relevancy will ultimately determine the success of the program.

But what if the consumer were offered one regular credit card - like a Visa or MasterCard -- that he or she could use at many stores, building up points that could be spent like cash - in real-time - at participating merchants?

The concept of earning points across a network of merchants is not new. But, redeeming points for rewards instantly is.

Pushing the redemption processes to the front line, i.e. the store, would reduce or eliminate the resources spent on staffing reward call centers, stocking a warehouse of reward items, and the long delivery times for consumers to receive rewards. Instant gratification strikes at the core of making a program relevant to a consumer, not to mention the millions of dollars of savings for credit card companies.

This technology is actually available today. RBC Financial Group (formerly Royal Bank of Canada) has issued just such a card. Using technology provided by Ernex , RBC has been able to introduce the concept of real-time redemption for a select number of its Visa rewards cards. Customers who make purchases using the card at participating merchant locations earn points automatically. During the pilot test of this new concept in Ontario, Canada, select cardholders can use their RBC Visa card across a variety of participating merchants such as Radio Shack and Home Hardware. Rewards points earned can be redeemed, instantly, at any participating location.

Imagine going to a local bank, signing up for a Visa card, and then being able to earn loyalty points for a variety of retail and hospitality outlets locally every time you use the card. Spend a few nights dining out with your family and a few bucks shopping at the hardware store and then plunk down the card at the local cinema to purchase your tickets to the latest Disney film with loyalty points instead of credit.

Retailers, grocers, restaurateurs and lodging providers - working with a card issuer -- are all likely participants in a federated real-time redemption program. To help ensure customer participation, merchants and card providers can create direct marketing campaigns, offer point-of-purchase materials that explain the program, provide lists of participating merchants, and conduct other educational activities. Because the loyalty points are hosted in a central database, all merchants in this type of federated program receive ongoing business analytical reports to assess the over-all, ongoing success of the program.

Will consumers go for this type of federated program with real-time rewards? It all boils down to relevance. The greater the number of merchants that join the federation, the more likely the card will be relevant to a wider base of consumers. If relevance is the true indicator of likely success, solid card programs with a good cross section of participating merchants will be successful. Make a card relevant and people will make room for it in their wallets.