Blueprint For Building A Merchant Funded Rewards Program

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Consumer apathy toward the litany of copycat loyalty rewards offerings in the financial services industry today has given way to a new trend: Merchant Funded Rewards (MFR).

If you are considering a foray into the MFR space, I’d like to share my experience as someone who’s built a major MFR program for a top 10 bank. I’ve lived it and learned it — idea creation, program design, customer research and validation, website creation, internal politics, launch strategies, and program enhancements. Here are four observations and considerations to help you structure a truly successful MFR program — one that turns frustrated consumers into raving fans.

1.) Most, if not all, current offerings are generic in design, and offer little- or no real value. Providing a compelling value proposition that truly differentiates you from competitors and takes market share from them should be your #1 priority. If it isn’t, why bother?

2.) You need to think holistically. Big-picture, big strategies, big goals that can be realistically achieved with the right platform design and marketing. Your MFR should be designed to achieve much more than simply plastic usage and interchange income. Used correctly, your MFR should lead to significant increases in customer acquisition, retention, and household profitability. Again, if not, why bother?

Larger financial institutions that are segmented by product or business lines will have to work cooperatively to achieve a consensus on program design, support and business goals from the very start. This will help you avoid the “Not Invented Here Syndrome,” and help make your program an internal success. If your bank or credit union focuses on teamwork and cohesion while building your MFR, you’re ahead of the game.

3.) Define your target markets and constituents, and ask them what they want in an ideal loyalty rewards program. Everyone needs to win and buy-in! This is the key to creating a successful program, and again, think holistically. If you spend lots of money and time on focus groups for print, radio and TV ads, why wouldn’t you go out and ask your key constituents what they want in an ideal loyalty rewards program?

You have four key constituents to consider when crafting your program: two external (your retail and business customers), and two internal (your retail and business bankers). Doing the research can save you time, money and effort. Ask them what they want, and here’s what many will tell you.

Retail customers:

  • No Fee – Don’t charge me as I already do business with you.
  • Immediate Redemption – I want my deal right now. I don’t want to wait for points or a gift card. Don’t make me jump through hoops to get what you promised me.
  • Exclusive – Give me something special for being your customer and I’ll be happy to use your plastic to pay for it.
  • Local Businesses – Reward me where I live, work, play and spend 80% of my money every day.
  • Wide Variety of Categories – Entertainment, retail & shopping, travel, sports & recreation, dining…
  • Dedicated, Simple, Easy to Use Website – Find offers that benefit me.
  • Choices – Let me decide and opt-in to receive new offer notifications that benefit me via email or text.

Business customers:

  • No Fee – Don’t make me pay a fee for business I already do with you. Certainly not on top of the service fees you’re already charging me.
  • Easy – Keep it simple and easy to use and understand for my employees and customers.
  • Flexibility – Let me easily create, change, add and delete offers based on my business needs. Let me determine the number of offers and the duration of those offers. Make my cash-register ring with incremental, repeat and profitable sales.

Personal bankers:

  • Value – Provide me with something of significant value that’s positive to share with my customers. Help me sell debit and credit cards and our existing points based rewards programs to overcome the “Not interested, they’re all the same, I have cards with a competitor” objections I hear every day. Help my customers succeed financially by saving them money where they care most: their pocketbooks. Imagine the double-whammy of providing immediate and points based rewards to your customers. Your sales team will be energized.

Business bankers:

  • Differentiation – Provide me with a unique solution that allows me reach out to customers and prospects and differentiates me from the competition. Imagine your business bankers offering a program to businesses that makes their cash registers ring at no cost to them other than the reward of their choosing. Your competition will be floored.
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As a result of all our research, your program should be free, simple, easy to use, understand and sell. Here’s what it should look like:

  • Your business customers provide instant and exclusive daily, on-going deals to your retail customers that pay with your plastic. The key is a business relationship is required to make offers and your debit or credit card is required to pay for the offers.
  • Create a dedicated website platform to serve three functions:
  • Consumer – to easily view and select offers of interest to them in their preferred categories. And, to sign up for email/text updates of new offers as well as a social feature so they can share the fantastic values you’ve provided them with their friends and family.
  • Business – to easily create, manage and change offers based on their business needs.
  • Administrative – for the FI to easily review, edit, delete and approve offers as well as create and send special promotions and sweepstakes via email.

4.) Define your goals and objectives.
A. Create a distinctive value proposition for your financial institutions, one that significantly differentiates you from your competitors and takes relationships from them. Don’t create or produce something your competition can easily recreate or already has. Why waste the time, money and resources on another “me too” program?”

B. Realize significant incremental retail and business customer acquisition. With a unique value proposition that saves retail customers money all over town, while generating more sales and profits. You’ll be providing a most compelling reason to make switching easier.

C. Significantly improve consumer and business customer retention. With this program design, do you think they’ll leave for one of your competitors standard $100 for a new checking account offer? Not a chance.

D. Make your debit and/or credit cards top-of-wallet. Customers must pay with your financial institution’s plastic to get the deals and they will eagerly use it more and more.

E. WOW your customers on a daily, on-going basis at touch points all over town. Every time your retail customer whips out your plastic and saves money, they’ll be WOWed. Every time your business customer makes a sale as a result of this program, they’ll be WOWed. Do it right and they will become an extension of your sales force and raving fans.

Summary & Key Takeaways

Loyalty rewards programs will work if they are based on constituents needs and wants.

They must be carefully crafted and strategically sound and simple to use and understand.

They must be more than a me too, off-the-shelf program.

They must offer real benefits, locally based that are immediately redeemable by your customers.

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