In Retail, Are Rewards Their Own Reward?

Retail is a dog-eat-dog world, operating at times on the thinnest of margins. The fact remains that price is a competitive advantage or threat, depending on which side of the pricing war you’re on.

Rewards can help lure customers to a brand and keep them there. In a recent survey by Vantiv and Socratic Technologies, across 500 consumers, findings indicated that these buyers held, on average, 2.1 credit cards, 1.3 debit cards and 1.3 store affinity cards. And of those 500 users, 38 percent said card usage is driven by how much cash they have on hand; another 25 percent said their choice to use plastic is driven by the rewards that come with those chosen payment methods. The question put by PYMNTS’ Karen Webster to Vantiv’s Andy Wind, mobile product manager, and Tony Rose, director of mobile product management, remains: Just what makes a rewards program, well, rewarding?

A reward is only as valuable as a consumer thinks it is, and Wind noted that the type of reward valued most is one that becomes, as he termed it, “a sticky product.”

“I think merchants and issuers alike see the value of rewards in creating a storyline for customers, enhancing the relationship with the brand and driving stronger loyalty,” he added. “It’s the psychological effect of working toward a goal. So, rewards programs that I view as most effective are those where there is a natural frequency to the transaction.”

Wind called out Starbucks and its rewards program as a notable instance tied to use frequency — one where consumers are “filling their cups and watching their stars accumulate with the goal of a free drink at the end.”

Other types of rewards exist, such as a Target card, with its 5 percent off, where the value lies in the simplicity of the rewards program.

“There are so many levers to engage consumers” in rewards, said Wind, and whether it is tied specifically to a card or merchant, additional leverage can come through email marketing campaigns or percentage-off programs at retailers.

Relatively speaking, in terms of simplicity, it may be easier for the consumer to do the calculation of getting cash back versus calculating the value of points, noted Webster. Wind agreed, citing transparency as key, though some merchants must be mindful of slim margins where they may not be able to offer much for cash back.

As for types of rewards across payments types, debit rewards remain scarce, and Wind stated that, “from an issuer perspective, there is not enough interchange to go around to offer valuable products … There is a lot more room to play on the credit side.”

Pivoting to the mobile wallet aspect of rewards, Rose said that consumers can become habituated to loyalty and rewards at the point of sale because of the convenience offered by new technology. With NFC technology from Apple (VAS protocol) and Google (Smart Tap), the merchant’s private-label card and/or rewards program are automatically presented at the time of payment. This is a powerful technique to stay top-of-wallet, while offering more convenience to your customer, and this magic combination leads to habituation and loyalty. Additionally, the feedback loop of a wallet transaction allows for the merchant to educate the consumer in real time as to what they are getting from the merchant and issuer in return for their transaction.

“Those feedback loops are critical … The mobile phone is a thousand times better UX [user experience] than the card is,” added Wind, especially for millennials who expect transparency in the digital age. Segmentation shows that different rewards expectations exist across generations, said Wind, with “each generation segment engaging in a unique way. This calls out the importance of knowing how to engage customers and the potential need for multiple facets in a reward campaign.”

Rewards programs become essential, he added, in verticals such as grocery and general merchandise, where competitive differentiation can be a challenge. Against that backdrop, it is the rewards-engaged customer who is among the best of customers at a merchant, as Wind stated, with “more trips and bigger baskets” at a Target, for example.

The challenge for retailers in a price-conscious world, said Wind, is: “How do you enhance the brand [via rewards or other programs] to a level which gives the confidence to consumers to start their search?”

Once that search is started and the consumer finds the rewards enticing enough (assuming the targeting works), whether they’re cash back or points-based, loyalty becomes, well … its own best reward.