Card Linked Offers Update

Without POS integration AND Retail data sharing this will not work.. the customer experience is terrible, as is the campaign’s restriction on basket level discounts. The ubiquity of cards is attractive.. as is bank data on “Store preferences”…. But both work to the detriment of retailers.

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27 March 2012

We see in the press that Google/MA have gone beta with Card Linked Offers, and Bank of America is  about to go live with “BankAmeriDeals”. I last gave an overview of this space back in November in my Card Linked Offers post. For those that haven’t seen it, there is also a must read blog by Reed Hoffman in Forbes on the subject: The Card is the new App Platform.

Here is my blog from 3+ yrs ago – Googlization of Financial Services – outlining data flow. My purpose is mentioning this blog is not to show how smart I am (as an alternate view is already firmly established), but rather to highlight how much my view on the opportunity has changed over the last 3.5 years. As I tell all of the 12 start ups in the CLO space.. if Visa couldn’t get this to work what makes you think that it will be easy for anyone else.

There is a CORE business problem I didn’t realize back then.. merchants don’t like cards and are VERY reluctant to create ANY unique content (offers) where card redemption is REQUIRED.  Further constraining the “capabilities” of CLO is lack of item detail information within the purchase transaction. IBM is the POS for 80% of the worlds to 30 retailers. Take a look at the 4690 overview here, notice what incentive solution is integrated? This was a 5 yr project for Zavers…

A story to illustrate my point on retailer reluctance. As most of you know POS manufactures like IBM, Micros, NCR, Aloha are implementing POS integration solutions similar to what Zavers has done. Most of the CLO companies above are paying the POS manufactures to write an “adapter” that will work within their POS and communicate basket detail information. (ISIS is rumored to have a 200 page Spec for this POS integration as well).  There is a very big difference between having integration capability, and a RETAILERS agreeing to use it (ie share data).  There must be a business value proposition for retailers to move… and I can tell you with a great deal of certainty.. Retailers don’t like the BANK card platform.

I emphasize BANK for a reason.. I was with the CMOs of 3 large retailers a few months ago. When asked what their payment preferences where, they answered without hesitation: Store Card. This is their most profitable product used by their most loyal customers (think private label). Do you think for a moment that a Retailer would deliver “incentives” to customers that are not in this group..  Remember, these PVL loyal customers also hold a number of other bank cards, and there is not much in the way of customer matching between data sets. I think you get my point.

As I stated previously, all offers businesses are highly dependent on targeting. Targeting is dependent on customer data, relevant content, effective distribution (SMS, e-mail, an App), campaign management (A/B testing, offer type, target audience, …). Campaign management is very dependent on feedback.  There are very few companies that can effectively TARGET and DISTRIBUTE.  The current group of CLOs is partnering with the banks to solve the targeting problem (example Catera/Citi, Cardlytics/BAC, …). This is further EXASERBATING the poor Retail adoption. Why? Here is what a CMO told me:

“Tom, lets say a consumer just shops at Nordstrom.. the card network and bank see that I just completed the transaction and now market to them … the advert is “go to Macy’s and save 20% on your next purchase”… Given that they can only offer basket level incentives this is how it must work… Tom do you know what will happen? The customer will return what they just bought and go to Macy’s and get it. How is this good for Retail?”

From an Ad Targeting/Distribution perspective, Mobile Operators certainly have an eye on this ball (mobile phone). But only a few companies like Placecast can actually deliver it for them. MNOs are truly messed up in this marketing space (within the US). If you had the CEOs of Verizon, ATT and ISIS in a room and asked “who owns mobile advertising”?.. ISIS would say nothing if both of the other CEOs were in the room.. They want it.. but no one will give it to them as they can’t execute with what they have in this space.  Verizon would say “many partners”… Their preference would be to sell the platform akin to their $550M search sale to Microsoft in 2009. So VZ wants a $1B+ Ad platform sale… who would compete for that business? I digress.. but what is in place today looks much more like a rev share… Internationally there are carriers with their act together: Telefonica and SingTel (just bought Admobi).

Let me end this CLO diatribe with a customer experience view. Let’s assume I have 12 CLO players.. each partnered with a different bank/network. Also assume that all are heavily dependent on e-mail distribution. I have 6 different cards.. and will be getting at least 6 e-mails per week with basket level discounts. Now assuming that I can keep track of which offer was tied to which card.. and use the card. I’m still left at the POS with a receipt that shows none of these basket level discounts (as they are “credited” to my account after purchase).

Without POS integration AND Retail data sharing this will not work.. the customer experience is terrible, as is the campaign’s restriction on basket level discounts. The ubiquity of cards is attractive.. as is bank data on Consumer “Store preferences”…. But both work to the detriment of retailers. What consumers will see in CLO for some time is the generic 10-20% off your next purchase that will also be available in direct mail campaigns… Let’s just hope that someone can work the double redemption problem…

My read on this for Google is a little different. Google is positioning itself as a neutral platform.. it can do Retailer Friendly.. Bank Friendly… MNO Friendly.. Manufacturer Friendly…  Each will have different adoption dynamics. Google’s objectives are likely: gain insight, be the central platform for marketing spend, be the most effective distributor of content, … . This offer beta would certainly seem to be a “bone” thrown to banks.. hey… here it is … good luck trying to make it work.

Card Linked Offers

Retailers will respond to banks loyalty spend initiatives, but “redemption” will largely be online (restricted merchandise lists) because retailers do share data at the point of sale. Banks and the Networks are attempting to expand Card Linked offers into the advertising space, but this means someone will have to sell retailers and construct campaigns. Neither Banks nor the Networks are adept at selling retailers anything, there will be need for 3rd party ad exchange (ex freemonee) where advertisers can bid to place across multiple issuers (ie each issuer control cards). These Ad Exchanges will be slow to mature because there is no proven CPA for card linked offers and merchant profitability

28 November 2011

pdf version here (sorry for previous Typos.. I need an editor.. so pardon the mess)

I’m fat and happy from all the Turkey.. and was thinking of what to blog about.  I’ve decided to link a funny story… with a complex market. Earlier this month I was called by a recruiter to lead a new company. Here is the abbreviated dialog

  • What is it? “a bank Groupon”..
  • How is it structured? A separate company? A Bank Division? “Both, it is a separate company 100% owned by bank”
  • Are they looking to spin it out? Will there be other investors? “no”
  • So CEO (with no equity upside) building a business from Scratch within a complex bank? “yes”
  • Where will it be based? “right here in NYC next to the Bank”
  • Did you know the COO of Groupon was given about $xxM in options… how are you going to compete with that? “we are not looking to compete on compensation.. but we do want to compete with Groupon”
  • Good luck with that!  (See my previous blog for lessons learned on bank spin offs)

Message here is that top banks and payment networks are getting into the “offers” space. I haven’t seen an industry analysis of CARD LINKED OFFERS…. So I thought I would create one. Today I was reading 2 month old post in All Things Digital: Will the next Groupon Killer be your Bank.. ? One of my first Blog posts (2.5 yrs ago) covered this subject as I saw in back in 2008/09 “Googlization of Financial Services”.  Here are a list of current leaders in Card Linked offers

Not all of the companies above are the same. Here are a few basic strategies behind these start ups

Strategy #1 – Improve Existing Loyalty Effectiveness. Colloquy.com is the industry leader in research on loyalty programs. Two recently published white papers by Colloquy.com display a macroeconomic view of the size and value of loyalty programs for U.S. consumers. Colloquy estimates the total value of loyalty currency issued to U.S. consumers in 2010 is a $48 billion dollar industry across financial, travel and hospitality, and retail sectors of U.S.

economy in 2 billion U.S. household loyalty program memberships. Edgar Dunn provide a great graphical view on the purpose of loyalty programs

Why do banks want to improve Loyalty?

A) Credit cards carry a much improved interchange (250-350bps vs $0.21 flat of Debit)

B) Loyalty Programs are highly effective card use AND retention tool. From Edgar Dunn

Strategy #2 – Redemption Network. Improve the way redemption works. Enable redemption of specific items. Catera and Cardlytics are leaders here. Great Article on Clovr (now Linkable Networks).

Banks used to see card offers as part of a large revenue stream.  Now banks need to find unique technologies in order to capture the customers’ attention again.  Some of that technology comes from mergers such as Cartera and Vesidia to form a new more innovative merchant network platform.  Other pieces of the card-linked offer space is coming from companies that are focused on card-linked offers, such as Boston-based Clovr Media.

… The card-linked offer company wants to make sure that promotions they are powering are meaningful.  They do that by getting down to the SKU level (the long number on products that identifies a unique product within a store. Tom said, “we can go right down into a particular product within a store, get right down into the SKU level.  Instead of 10 dollars off at Staples, it’s 10 dollars off a cannon printer at Staples.  We see that as a very powerful concept.

CONCEPT is the key word here as “networks” are minimal beyond eCommerce store fronts capable of redeeming offers for specific products. In the physical world, none of the participants above have cracked the code on the scenario above. POS integration is too hard AND retailers will not give up their data.  Entities like Catera are using other parties (ex SavingStar in Grocery) to give item level credit hours, days or weeks  after the sale.

Strategy #3 –  Advertising.  The first 2 strategies above are about leveraging the $48B in loyalty “value” to incent merchant participation. A third strategy is geared to attract retailer participation in an advertising network. The primary value proposition: target card customers with specific offers.  This strategy usually driven by card NETWORKS and Issuers looking to expand “value delivery” on existing networks (the  googlization article above provides an example). Although Banks certainly have the data to make this work, this is NOT a merchant friendly platform. Can you imagine using your Amex card at Macy’s then getting an incentive at Neimen Marcus? This is one reason why retailers are loathe to share any item detail information.. it would only help banks/networks more accurately target their customers.

Apparel, QSR, Furniture and a few other niches could be served in this model (few other retail categories have significant ad budget), but the price is credit card interchange.

Summary

Retailers will respond to Banks’ loyalty spend initiatives ($48B), but “redemption” will largely be online (restricted merchandise lists) because retailers do not share data at the point of sale.  Banks and the Networks are attempting to expand Card Linked Offers into the advertising space, but this means someone will have to sell retailers and construct campaigns.  Given that neither Banks nor Networks are adept at selling retailers anything, there will be a need for 3rd party ad exchange (ex freemonee) where advertisers can bid to place across multiple issuers (ie each issuer controls their respective cards).  These Ad Exchanges will be slow to mature because there is no proven CPA for card linked offers (and associated merchant sales lift/profitability). In other words the Merchant cost of accepting a credit card, paying for an offer, and tracking profitability is not a home run today. We need only to look at Visa Offers to see the confusing and bleak future. Consumers are overloaded with e-mail and messages.. behavior will not change until there is compelling value. Value cannot be delivered until there is a critical mass of ads which can be targeted. Targeting can not be done effectively because issuers only have merchant level preferences (not item level/brand). … Only certain categories of retailers have substantial marketing budgets… the majority of marketing is spent by manufactures.  Manufactures don’t know their customers.. (hence is why Shopper Marketing is red hot). … and so on

A logical extension of card linked offers is card linked pre-paid offers. This goes back to “Bank Groupon” listed above. Banks want to run a pre-paid program for retailers.. a “pay before” you eat… at a discount. Keeping it on the card so consumers don’t loose the offer and redemption is a seamless process within the existing card settlement flow. Hey this is a great idea for consumers and merchants. Problem is business model for banks. If this pre-paid was sold by a regulated bank entity I doubt if they would be able to take advantage of the breakage which drives Groupon’s profitability. Banks will also be responsible for things like escheatment..  this is where state regulators come looking for unclaimed funds.

Your thoughts and feedback are appreciated.

A related blog on Visa’s activities is listed below.

http://tomnoyes.wordpress.com/2011/05/20/visas-mobile-strategy-portfolio-manager/