Digital Coupons How Loyalty Programs Will Cash In by wuyunqing


									June 7, 2011

Digital Coupons: How Loyalty Programs Will Cash In
By Dave Andre
Founder and Chairman, Cartera Commerce

No one will deny that rewards and loyalty programs bring tremendous benefits to companies that adopt them in
banking, credit cards, travel and other industries. Yet both critics and consumers see room for improvement—a
recent industry study, for example, showed that 27% of loyalty program cardholders have no interest in the rewards
actually offered.

To improve these statistics, rewards and loyalty providers are looking for new ways to boost the relevance,
convenience and reach of their programs. One way to do that is to reward members for “everyday spend,” or the
things they buy every day.

And what do consumers buy every day most? Groceries.

Imagine this scenario. You’re in the grocery store, shopping, and tap your bank’s loyalty program app on your
smartphone. Instantly you’re presented with digital coupons for products you actually like in the store you’re actually
in. With a few touches, you activate coupons for a few items, find them in the store, and add them to your cart. At
check out, you swipe your grocery loyalty card as usual, and check out. A few minutes later, you pull up the app
again and see that your coupons were not only instantly redeemed, but converted into cash back in your checking
account. No paper, no rebates, no extra cards.

If this sounds like fiction, it isn’t. The convergence of three trends – the rise of digital couponing, the exploding
popularity of smartphones and tablet computers, and the rapid growth of loyalty shopping services – now enables
loyalty program providers to tap into the largest, most coveted everyday spend merchant category: groceries and
drugstores. Let’s examine how fiction became fact by exploring these trends more closely.

Gaining traction: digital couponing. Consumers toss out fully 99% of the 20 train carloads of paper coupons
printed every week. This staggering waste (363 billion coupons annually) is leading consumer packaged goods
(CPG) manufacturers—who print and fund most of these coupons—to investigate the increasingly obvious alternative
of digital couponing.

While more than 24,000 grocery and drug stores nationwide accept some form of digital couponing, CPG firms have
historically done little digital advertising—but that’s changing. Their annual ad spend on mobile platforms alone is
expected to grow fourfold, to $1.6 billion, by 2013.

A mobile home for digital coupons. Enter the smartphone. 50 percent of Americans will own one of these handheld
marvels by the end of 2011, and no marketer wants to be left behind. With on-the-go consumers using these devices
to locate both merchants and deals, the opportunity to present digital coupons is obvious. The “cool factor”—and the
convenient savings—can attract even those who’ve never clipped a paper coupon.

The rise of loyalty shopping services and merchant networks. While digital coupons on smartphones certainly
have value on their own, that value is magnified when they can be linked with consumers’ existing loyalty programs
and magically converted into miles, points or direct cash back. A new breed of loyalty shopping services – powered
by networks of merchants in search of new, targeted ways of marketing offers to shoppers and growing wallet share –
has emerged to help loyalty programs deliver more value to their members.

These partnerships work because everyone wins: loyalty programs for banks, hotel chains, airlines and credit cards
gain repeat business and market share by offering consumers points or miles when they make in-network merchant
purchases; consumers earn cash back, points or miles on a wider range of merchant purchases; and merchants, who
fund the rewards, acquire new and repeat customers and can even market to consumers while they’re shopping with
When digital coupons and loyalty converge.
Now, the payoff. Imagine the frequent flyer program member who never clips grocery coupons—but who does have a
new smartphone (not too difficult to imagine!). Naturally, the smartphone has an app from the frequent flyer
program—and that app presents digital coupons for toothpaste, or frozen dinners, or paper towels, all redeemable at
any of thousands of grocery and drug stores. Now this is interesting: instead of discounts, the digital coupons offer...

The member simply selects the coupons he wants to use, right there in his smartphone, and the offers are linked to
his grocery or drug store loyalty card. At the store, he swipes his loyalty card and he’s done. Behind the scenes, the
merchant reports the purchases to the loyalty program, who in turn converts the coupon value into our consumer’s
bonus miles. As he’s taking his free flight a week later, he can thank the toothpaste, frozen dinner and paper towel
manufacturers for buying a few gallons of jet fuel.

If the loyalty program is for a debit card or hotel chain, instead of an airline, the coupons are redeemed as points or
cash instead of miles, but the system and value distribution works the same way. All the member needs to do to
participate is register his grocery and drug store loyalty card(s), one time only, and then start choosing coupons.

Good for you, good for me, good for everybody.

It’s a simple scenario, but compelling for a number of reasons. First, it’s a new, intriguing way to shop, and a new way
for the member to earn in a “currency” he values highly. Second, the member can earn miles not just with occasional
online purchases, but with everyday buys at stores he visits regularly. Third, it’s a new source—a huge one—of fully
funded loyalty program awards, in this case coming from CPG companies, who gain new customers and greater
wallet share for their discounts.

Cartera has partnered with SavingStar to turn this potential into reality. On one side you have Cartera’s solution that
runs merchant networks and shopping programs for 4 of the top 5 U.S. card issuers and 3 of the 4 largest U.S.
airlines—reaching more than 150 million consumers who are already earning cashback, miles, and points with over
3000 online and in-store merchants. On the other, you have SavingStar with eCoupons available at over 100 retailers
nationwide from Rite Aid to CVS, Safeway, and Winn-Dixie. This means every day savings for grocery shoppers in
the rewards currency of their choice.

These eCoupons are totally paperless. There's nothing to clip or print. Here’s how it works:
1. A shopper selects the eCoupons he likes on the website or mobile app, and they are automatically linked to his
    store loyalty card.
2. He uses his card when he checks out and the savings are added to the loyalty account of his choice.
3. He can then choose his payout in the form of miles, points or direct cash back.


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