For more than a decade, U.S. banks have experimented with rewards programs through resources like online malls in an attempt to increase customer loyalty. Typically, offers provided were in support of joint retailer promotions and none of these strategies generated material results for the banks or relevant impact for advertisers. More recently, through industry adoption of marketing and analytics platforms based on bank transaction data, banks have begun to realize the revenue-generating possibilities of providing their customers with highly relevant, targeted offers. Retailers, in turn, have recognized the potential of historical consumer purchase information to have meaningful impact on in-store sales with highly measurable results. Financial institutions are now actively developing strategies to introduce retailer advertising into the bank ecosystem. As bankers begin to investigate how to secure and sustain meaningful marketing budgets from retailers, they are learning that the size of the market opportunity – not revenue share – will ultimately determine the long-term economic opportunity of working with advertisers through marketing and analytics platforms. Bankers’ success begins with a better understanding of retail marketing.
The Historical Challenge of Rewards Programs
Inferior targeting relative to other direct marking media
Why is targeting so important to retailers? Mainstream retailers know that their existing customers are far more responsive to direct marketing than new customers. Retailers cannot profitability market significant promotions to attract new or infrequent customers unless they are confident those promotions will not end up in the hands of their most loyal customers. Ineffective targeting cannibalizes revenues and sends confusing messaging to loyal customers. Without targeting, most retailers can only offer 2-3 percent discounts for fear of cannibalization. These offers will not motivate customers or build loyalty. In fact, they may do just the opposite.
Inability to isolate and measure advertising economics
Retailers are as economically rational as banks. They will not invest millions of dollars into a channel unless they can prove the return on their marketing investment. This is further complicated by the fact that most major retailers are running many types of marketing programs in parallel (e.g., TV, radio, print, in-store). It is virtually impossible to justify the ROI on a direct marketing program unless you can identify exactly which sales were generated by the marketing program and what revenues they produced over a multi-month period.
Infrequently visited and often-difficult to use customer channels
Before marketing and analytics platforms that leverage bank transaction data, U.S. banks brought offers to customers in a separate section of the bank website – often referred to as an online mall. Only a few percent of their customers went there; therefore, not a true loyalty solution. Low engagement or difficult to use approaches will not strengthen a retailer’s relationship with customers or move the needle on sales. Banks’ business cases for early generation merchant funded rewards programs promised significant earning to the banks driven by large revenue shares. For the reasons stated above, retailers did not see these solutions as adding value to their current marketing mix, so budgets did not shift.
Marketing and Analytics Platforms Based on Bank Transaction Data a Win-Win for Banks and Retailers
As market adoption of the Groupon/Daily Deal model drastically flattens, marketing and analytics platforms that use bank transaction data are dramatically growing in scale. Groundbreaking in the world of marketing, all of a household’s purchases can be leveraged to target and measure marketing in a way that fully protects consumer privacy and financial institution data. This solution provides uniquely powerful, direct marketing capabilities for advertisers, creating a substantial new revenue stream for banks. With such platforms, the industry challenges addressed earlier have been solved with:
Unmatched targeting – The most effective marketing and analytics platform leverages all of the banks electronic transaction data to isolate customers into finely defined segments. Retailers have confidence their message and investment is right based on how a customer is active in their vertical and with them. No other channel provides this degree of targeting for brick-and-mortar advertising.
Strong measurability – Because such platforms “see” every transaction a customer makes before and after responding to an offer, retailers are able to measure campaign effectiveness more rigorously than other channels. Routine, comprehensive tests are run to isolate the impact relative to others. Additionally, long-term value analyses are completed to not only measure the immediate impact of a campaign but also to assess the long-term profitability of marketing programs. This data provides marketing executives the ammunition they need to secure large marketing budgets.
Trusted and engaging channel – A bank’s electronic channels combined with an easy customer experience are very attractive to advertisers. Customers trust these channels and access them many times a month. Most importantly to retailers, customers interact with offers generated through marketing and analytics platforms that leverage bank transaction data more than a 100 times more than with other digital channels.
Rich and relevant offers – Strong targeting and measurement capabilities enable retailers to invest aggressively into growing their business. Customers typically receive 15-20 percent when they shop at new retailers, and still receive healthy rewards for increasing the spend with retailers they already shop. Also, proprietary targeting and placement algorithms bring offers to customers they are interested in and presented in a way that makes sense.
Marketing and analytics platforms using transaction data dramatically impact the performance of major national and global retailers. Through continuous tests and outstanding results, these retailers have been convinced of such platforms’ strong capabilities, and banks have a solid opportunity to secure and sustain significant marketing budgets from retailers as a result.
By Lynne Laube, founder and COO of Cardlytics, an analytics-based marketing solutions provider.