Loyalty cards: converting instant issuance into instant advantage
With the recession adding fuel to the flames of an already competitive marketplace, organisations are looking to loyalty cards to attract new customers and retain those they already have, says Christophe Malgorn of HID Global.
For the retailer, the benefits of loyalty cards go far beyond brand awareness: they lie in the detailed transactional data generated by loyalty cards, which allow retailers to track, record and analyse the purchasing behaviour and spending patterns of shoppers. This insight into their customers’ motivations is a direct route to higher profitability for retailers, giving them all the information they need to target a very specific group of people. If they understand how these customers behave when they shop, they can sell to them far more effectively. This intelligence – or ‘behaviour analytics’ – has a high commercial value to organisations that want to sell us their products and services.
Most loyalty cards currently in issuance in Europe are ‘non-technology’ cards, which use a chip, magnetic stripe or bar code to link to a database, rather than storing data on the card itself. However, loyalty cards using smart card technology, which contains a read-write memory chip or RFID-based contactless technology with the ability to store data on the card, are growing in prominence. With retailers demanding greater flexibility to run their own loyalty card programmes, many are gravitating towards these closed-loop contactless smart card loyalty schemes, which offer a faster route to return on investment than their open-loop ‘non-technology’ counterparts, as well as greater speed, security and convenience. In addition, the infrastructure used in closed-loop payments allows several technologies and applications to work off the same reader platform.
For customers, the loyalty card in their wallet can be a quick and convenient way to collect points and rewards and see them stacking up against their future purchases. It can also give them access to special advantages like upgrades, discounts and promotions. Paying for goods and services becomes a far more streamlined process, with no need for customers to worry about having to carry change or even remove the card from their wallet, replacing not only cash, but numerous other cards at the same time. Furthermore, contactless loyalty cards can significantly speed up transaction times, with Amex estimating that contactless payments can be up to 28% faster than cash and 42% faster than payment cards.
One example where this technology has been particularly successful is in gift cards. A close relation to the loyalty card, the gift card represents another key part of retailers’ marketing strategies. Worth US$19 billion in the US alone, the gift card market is a vast – and still relatively untapped – source of revenue for retailers. Typically issued by large supermarkets, retail chains and specialised retail outlets, gift cards are particularly appealing to customers because they represent ‘upfront’ cash and can be easily personalised. And for these organisations, an extra element their business value is rooted in the fact that the recipients often fail to claim the points, gifts or bonuses. In fact, figures suggest 19% of gift cards issued in the US will never be claimed.
One of the main drivers behind the adoption of gift cards is their ability to eliminate fraud associated with traditional paper vouchers, which can be easily counterfeited. Furthermore, their built-in value makes them an obvious target for theft. Gift cards work differently to vouchers: typically, they are held in stock by a retailer, and have no inherent value attached to them. Only at the point of sale are they loaded with a value and expiry date. In the event of a thief attempting to use a stolen card online, the online verification would detect this instantly, rendering the gift card null and void.
Unused loyalty points
Yet despite some clear advantages, statistics suggest that many of us are failing to get the most out of the loyalty cards in our wallet. Recent research commissioned by the Subway chain shows that the UK is currently sitting on £5.2bn of unused loyalty cards points. The average adult in the UK has at least three loyalty cards, but little idea about how scheme works or how to redeem their points. Furthermore, the average person owns at least one loyalty card that has never seen the light of the day and 18% have old cards that they no longer use.
Instant in-store card issuance has emerged as a compelling way for retailers to boost loyalty card usage among their customers. Wal-Mart, for instance, already has some 5,000 printers installed across its US store network, which can print gift cards that are personalised for a particular recipient with a photo and a message on the spot. A win-win opportunity for both retailers and customers, instant issuance hinges on providing issuers with a convincing return on investment, ultimately boosting revenue, profitability, and cardholder loyalty.
At the most practical level, instant issuance cuts out postage costs and delays, dramatically reducing the time between the customer applying for, and receiving, the card. In comparison, cards received in the mail days later require additional activation steps and are often never activated. Customers can also select their own PIN at the time of issuance, making them more likely to remember it better, and more likely to use it.
Crucially, the immediacy of instant issuance gives retailers an early chance to incentivise their customers to start collecting points, spending money with them there and then. It’s also a very tangible way for stores to demonstrate their commitment to customer satisfaction by providing a swift, convenient and personalised service. Statistics show that cards received immediately are used sooner and often achieve the hallowed top-of-wallet status, which increases interchange revenue. Above all, instant issuance gives retailers a priceless opportunity to get in front of their customers and engage with them on a one-to-one level, increasing card activation and usage rates.
The future for loyalty cards
So what does the future hold for loyalty cards and the technologies behind them? One of the most pressing concerns among retailers is to ensure that their customers never experience ‘loyalty card fatigue’, where they lose the motivation or incentive to carry on using their card or earning their points. As organisations around the world wake up to the benefits of social networking, retailers are beginning to look at integrating their loyalty card schemes with their social media strategy.
In a recent example, a US-based frozen snack firm has adapted its loyalty card programme to reward customers with extra points for every automated Foursquare check-in, Facebook update, or Twitter tweet. This has the hallmarks of a strong trend for the future: it gives the retailer instant, real-time exposure to their target audience through multiple online channels, as well as handing loyalty cardholders a further compelling opportunity to gain points, and turn those points into rewards.
As consumers are faced with an ever-expanding range of ways to spend their money, and to earn rewards, retailers need to ensure their loyalty card schemes stay one step ahead of the game. Keeping their customers keen to spend and earn with them rather than their competitors depend on their ability to ensure their schemes are relevant, up-to-date and convenient. When it comes to loyalty cards, increasingly tech-savvy customers are rightly demanding higher levels of security and convenience. Smart card-based schemes are well placed to help retailers keep their existing customers satisfied and engaged, as well as optimising their marketing strategies to attract the next wave.
Cristophe Malgorn is regional sales manager at secure identity solutions provider HID Global.