Restaurants use them, as do book stores; grocery stores would be at a loss without them. They’re loyalty programs, and they are changing the way petroleum marketers do business.
You see them—they drive up, swipe their credit card, fill up their tank and drive off as quickly as possible, never setting foot inside your store. In the customer loyalty game, it’s all about getting people to remember your company, your products and your brand as well as getting them to enter your store to make a purchase. It’s the philosophy and core behind all business development.
Developing a rapport with non-buying customers, as well as buying customers, puts the big picture perspective into focus and determines where a company takes and makes its future. More and more retailers are realizing the important role a well-defined loyalty strategy plays in making immediate and lasting impressions with customers.
“Loyalty is about ‘rewarding’ your best customers for their purchasing behavior,” said Peter Guidi, vice president of sales at National Payment Card, based in Coconut Creek, Fla. “Today loyalty is about collecting detailed, SKU level information pertaining to a consumer and their purchasing behavior, then using that information to build a stronger customer relationship.”
As Guidi explained, the theory behind integrating these programs within a retail location is that retailers can build more profitable relationships by funding a loyalty program. “The additional profit comes from the lift gained by increased shopping frequency and larger basket sizes,” he said. For example, National Payment Card uses a price roll back at the pump when the consumer chooses to pay with National Payment Card's alternative ACH based payment method.
Of course, with the growing use of loyalty and ACH payment programs, it pays to do your homework to determine the best approach for your environment and what your clientele would respond to.
“Traditional loyalty program are focused on increasing the recency, frequency, and spend of a consumer,” said Drew Mize, vice president of management and marketing at The Pinnacle Corp. “You want to get them to shop at your store, get them to come more often, and buy more. When those things happen, that consumer is individually rewarded, and as those components increase, the consumer's reward, in turn, continues to increase.”
Mize said the trend with loyalty program adoptions in general seems to have issues related to retailers not really understanding that a loyalty program really can add more dollars to the bottom line. “Most retailers view loyalty programs as a margin give-away,” Mize said. “As our industry becomes more educated on the real value of a loyalty program and sees other retailers proving it by adding significant dollars to the bottom line, adoption has started to increase in the past 12 months.” That, coupled with rising fuel costs are forcing retailers to get smarter about saving costs, and in a way that benefits the consumer.
“The only way to achieve this is through an effective loyalty program,” Mize said. “Reward those consumers that utilize the programs you tailor and offer specifically to them, it's the only way to be successful.”
While rewarding customers based on the frequency of their purchases is top of mind, enticing them to explore alternative payment methods is also paramount within the industry. Creating loyalty programs that provide the best of both worlds—rewards for the customer and low fees for the merchant—is gaining considerable ground.
As Mize explained, retailers paid a staggering $1.2 billion increase in credit card fees in 2006; up nearly 23 percent from 2005 in an industry that only generated a 15 percent uptake in sales. “Retailers continue to give away escalating percentages of profits to the credit card companies,” he said.
To ease the burden of imposed credit fees, many retailers are incorporating ACH payment methods in their processes.
“In basic principal, it allows a consumer to register a non-payment type card with their bank account, assign a PIN and then use that card as a payment card in your retail location,” Mize said. “The payment transaction runs on the ACH payment network rails, funds removed from the consumer’s account. There are several ACH solution providers in the market that offer this type of solution, and the fees are far below what you pay for a typical credit or debit transaction.”
The merchants Guidi is speaking with have concerns because the program is relatively new to the industry and unknown to their organizations. “They worry about cost of implementation and are unsure of their ability to enroll consumers,” he said. “These concerns pale when they consider the disaster represented by card acceptance costs and their profit margin. With the high cost of gas, retailers are watching as card acceptance grows exponentially and their profit continues to disappear.”
As Guidi explained, when a consumer chooses to pay using the National Payment Card ACH program, for example, the retailer saves money. “But today the key question also is about customer ownership,” Guidi said. “Today it is arguable that the credit card company owns the customer. Their B2C marketing is highly effective. Societal payment trends support their business model and the fees they charge to capture the majority of profit on gas sales. Fighting these fees will require all the tools available to the merchant. If retailers support alternative payment programs and capture enough consumers to impact the market share of credit card companies and forcing lower interchange rates, then the battle will have been turned. Retailers need to join National Payment Card and others as a matter of survival.”
Of course, the only way to achieve that is to provide the consumer an incentive to use the ACH program. “If a retailer doesn't provide a reason for the consumer to use an ACH mechanism instead of their airline miles credit card as an example, the consumer will always use that airline miles card so they get their miles,” Mize said. But if the retailer offers the consumer a “cents off” per gallon incentive to use their ACH card for payment, that's cash in the pocket to the consumer, and they won't even consider that airline miles credit card. The retailer wins by nearly eliminating the credit card fee, the consumer wins by getting their fuel for a lower per gallon cost; a win-win.”
Flash Foods, with 180 stores, was Pinnacle Corp.’s first client to adopt its LoyalDebit ACH program. “They leveraged the program on top of their existing Rewards in a Flash loyalty program that is also facilitated by our technology,” Mize said. “At first there was indeed an ROI associated with offering an ACH alternative to their loyalty customers, but I can tell you the focus on the program today, with today's fuel prices, is intense.”
National Payment Card has seen similar results with its clients. One such retailer exceeded all 2007 transactions in the first quarter of 2008. “In stations where we have been able to gain access to all information, we are currently performing +/- 7.5 percent of total transactions,” Guidi said. “One retailer tells us that we are now the 3rd most used payment systems. With another retailer the average gas purchase was 1⁄2 gallon greater using the systems than all other payment methods. One point that is clear, with increased gas prices consumers are doing everything they can to save money. We’ve seen a spike is average number of uses per card holder over these last few months.”
Mize points out that there are several considerations that must be evaluated before entering into an ACH payments program for your consumers, more so when combining ACH with your loyalty program:
- Your point-of-sale will need to have integration support with the specific ACH payments provider that you choose.
- The process for enrolling in your ACH payments program needs to be quick and easy, or they won’t use it. Enrollment programs that require any type of mail-in forms create a barrier to consumer acceptance.
- Successful ACH payment programs utilize an existing card that the consumer already carries and is motivated to use. Adding a new card to the consumer’s wallet will be a challenge.
In addition to their traditional loyalty offering called Loyalink, Pinnacle Corp. also offers a pump authorization solution called LoyalPass, an ACH payment alternative solution called LoyalDebit, and a pre-paid card solution called LoyalPay, which allows a retailer to self host their own prepaid card program.
“All of our loyalty programs are designed to run in tandem with one another,” Mize said. “A client can pick and choose any combination of the various programs we offer and leverage all of those programs from a single card via a patented MyCard technology that we utilize. All of our programs are fully integrated with the POS and realtime so the consumer receives instant gratification.”
Specific to an ACH centric loyalty offering, Mize said that most c-store operators really don't have a choice if they want to survive in today's retail fuel market. “Margins are all but gone, when you tag credit card fees on top of that issue, many retailers are barely breaking even and some are even losing money on fuel,” Mize said. “When you consider that an average 12 gallon fill up at today's horrendous ppg fuel price of $4.00 can cost a retailer in the neighborhood of $1.30 (over 11 cents per gallon), that's more than they've made on fuel for quite some time and sometimes diminishes the entire profit. Compare that to a flat ACH rate in the neighborhood of .15, the retailer just put $1.15 profit to the bottom line for that transaction, nearly 1 dime per gallon.”
Other loyalty programs are just as important. “As retailers are being squeezed on fuel profits they have to be more creative at getting more consumers into the store and purchasing higher GM items,” Mize said. Pump authorization programs allow a cash customer to continue paying with cash instead of forcing them to a credit/debit transaction, which does nothing but give retailer profits to the credit card company (or turn the consumer away to another retailer that doesn't require prepay). “And a self hosted prepaid card program not only bolster's brand awareness and ensures those dollars will be spent in their stores, but allows the retailer to control the float of those consumer dollars instead of a third party controlling the funds,” he added.
Making It Happen
Retailers interested in incorporating an ACH payment program in their facility may want to consider running a loyalty program and an ACH program in tandem because it can yield an even more powerful result. “As an example, a consumer may be rewarded two to three cents off per gallon by using their traditional loyalty card,” Mize said. “On top of that, offer the consumer another five cents off per gallon for using their ACH card as a form of payment. That’s real value driven by the two programs together.”
In fact, adding ACH options to an existing loyalty program is more of a technology issue. Your loyalty program provider must be able to support multiple features on the same card.
“The key to success with an ACH program only comes with leveraging that program on top of the traditional loyalty program,” Mize said. “Sure, you will get takers on an ACH-only card that they grab instead of that airline miles card, but no one forgets to use their loyalty card. If they already have that loyalty card in hand, the utilization of that card for payment (ACH) as well increases significantly.”
Guidi said that implementing the program requires the commitment of the organization. “Let’s face it, this is about the retailer competing with the credit card company for the consumer’s payment,” he said. “That’s a big job. and the organization needs to be on board. The technical challenges associated with the program vary depending on the IT/IS system at the store. National Payment Card offers a range of support services including marketing support.”
Retaining Customers, Retaining Profits
One of the first steps retailers can take when working with a potential customer loyalty program is qualifying each customer before they walk out the door. You need to gain answers to the following questions:
• Does the potential customer have a real need, and do they know it?
• Can my products meet that need?
• Are they going to have that need met by somebody, and if so, when? Has the customer mentioned the name of one of my competitors? Has a relationship been formed with that competitor?
In fact, loyalty experts agree that it is much more cost effective to retain existing customers than to acquire new customers. It’s also important to remember that any interaction a consumer has with your store is a brand-building opportunity. In fact, the more touch points a retailer uses to communicate with consumers, the more a brand name solidifies in their mind—especially for those customers who choose to walk out the door (or never walk through it in the first place, in the case of “pay at the pump.”)
Outsite Networks in Norfolk, Va. has developed an innovative way to connect with the customer and entice them to join a c-store’s loyalty program. Using an audio connection system at the pump, retailers can talk to every fuel consumer and invite them to join the loyalty program.
“There are so many people who just pay with their credit card and just move on, they don’t make it to the store,” said Anton Baker, chief executive officer at Onsite Networks. “When they pick up the handle, it talks to them about the loyalty program.”
Once a customer goes inside and reacts on the invitation to join the program, they will be issued a key tag ID tag. For every purchase they make at the pump or at the store they present the ID tag and the device at the pump will thank them and let them know how many points they have earned.
“It will also actually look you up in the database to see what you’ve purchased before, how often you come and make a relevant promotion to you,” Baker said. “We have found that a c-store is much more of an impulse purchase environment. So, if you remind a coffee drinker or fountain drinker about products, they will respond to these targeted promotions. It can increase the individual’s consumption by about 40 to 50 percent.”
One of Onsite Networks clients, a Wisconsin-based retailer, has had great success with their program. They have seen their sales increase by about 7 percent that they attribute to the loyalty program.
“We can literally talk the customer into it,” Baker said. In these tough economic times, if you can give them a fuel incentive, they will do anything.”
Also, Baker advised to remember that usually consumers shop at three times: on the way to work, on the way home and on the weekend. But he said they will consolidate those separate times into one if a loyalty system is involved; thus, impacting a retailer’s bottom line.
On the Horizon
Industry experts agree that the future for loyalty programs, specifically ACH-centric programs, is bright.
“We are standing on the horizon of a new payment environment,” Guidi said. Recently he spoke with two c-store chains that have made dramatic changes at their stations. In one location they are no longer accepting credit cards at the pump. Another retailer is now refusing any card payment. “Both of these retailers see the National Payment Card program as a way to cross between offering consumers the convenience of card-based payment and the necessity of making a profit when you sell gas,” Guidi said.
As more retailers embrace alternative payment and loyalty programs, they will see a change in consumer purchasing power. “The future for loyalty programs is widespread adoption amongst the majority of c-store retailers,” Mize said. “I think of loyalty adoption rates as we saw with scanning a decade ago— it was slow to pickup until the myths that scanning couldn't save you money were dispelled. As such, the retail industry will pick-up on loyalty as a means to make more money. Until that happens the small group that's already done it are cleaning house against their competitors.”
As for the fate of ACH programs, Mize said the primary success factor lies within what the credit card companies do. “If things stay the way they are today with credit card fees, ACH will eventually outpace credit/debit card sales in the c-store industry even when oil prices get back to a more realistic market level,” Mize said. “As much as I hope credit card companies will wake up and again allow c-store retailers to be profitable, I think it's not going to happen any time soon. So, retailers better get on the bus and start thinking about it now, before it's too late.”