Advice from an Expert: Don’t Rely on E-Loyalty to Push Technology

Executives who are counting on loyalty applications to help justify new transaction technologies like smart cards and radio-frequency ID devices may have to reconsider their strategies in light of recent developments, according to an expert in electronic loyalty programs. Speaking at Thomson Media's CardTech SecurTech conference and exhibition this week in Washington, D.C., Bill Hanifin, loyalty program consultant for Milford, Ohio-based Frequency Marketing Inc., said counting on e-loyalty to help sell new technologies to consumers isn't likely to work. Successful loyalty programs, he argued, are founded on propositions consumers find valuable and on transaction methods they are comfortable with. “The consumer doesn't care very much [about technology],” he said. “There's a lot more here than just technology. You need to think about how you should communicate with your customer base. Is it RFID? Mag stripe? Maybe you don't need a card at all.” Hanifin pointed to Target Corp.'s e-loyalty program, based on a Visa smart card, as an example of technology that didn't resonate with customers. Product discounts, he said, were not compelling, and the store-based kiosks customers could use to download e-coupons to their cards were not fast and convenient for the retailer's often harried and distracted clientele. “There were a lot of moms and dads with kids,” he said. “Somebody in the marketing department hadn't fully formed the idea.” Target announced in March it would discontinue the chip-based loyalty program over the coming months, citing lack of use. Hanifin also said initiatives to introduce e-loyalty programs have been complicated by pressures within retail companies to be competitive with Wal-Mart and other chains that are focused on driving down costs. “We've seen American businesses adopt a back-to-business approach,” he said. But loyalty programs based on thorough planning and testing can succeed, though they may not rely on the latest transaction technologies. Hanifin cited as an example the Starbucks Duetto card, co-issued with Bank One. The card combines credit card payment, stored value, and loyalty in one mag-stripe device, offering coffee enthusiasts 1% of all Visa purchases as points toward Starbucks brews. The key is cardholders don't have to accumulate large point balances to gain a benefit. “If I'm a Starbucks fan, that's pretty compelling,” he said.