Loyalty program benefits financial institutions, merchants, members.
by Phil Britt
Financial institutions and local retailers and restaurants alike find themselves competing with much larger national companies for customers.
For the local financial institutions, the need to attract and retain customers has never been more critical. The largest banks in the country control half of the financial industry’s $15 trillion in assets.
In order to gain and retain customers, a number of financial institutions have turned to loyalty programs, including some in Northwest Indiana. Some of the loyalty programs offer discounts on credit products or bonus earnings on CDs or money market accounts depending on the number of financial relationships the customer has with the bank or credit union.
Financial institutions that issue credit cards sometimes opt for loyalty programs with airline miles, cash back or some other type of rewards.
But other financial institutions have opted for other loyalty programs. In Northwest Indiana, Michigan City-based Members Advantage Credit Union and Elkhart-based INOVA Federal Credit Union, have partnered with Buzz Points to partner with local businesses to reward members (credit union vernacular for customers because all are shareholders) for banking local and buying local.
“We have been searching for a loyalty program that could not only support our mission to improve our members’ financial well-being but also improve the financial health of the communities we serve,” says Kerie Sekal, managing director of card services for INOVA Federal Credit Union, upon announcement of the program. “Buzz Points aligns with these goals by empowering us with the means to reward our members for shopping locally. It also importantly provides the many independent merchants in our areas of operation with the marketing tools they need to compete. We are confident this program will exceed our members’ expectations and help support the shop local movement.”
The program rewards consumers who choose local participating businesses over national chains, enables community banks and credit unions to compete with big banks and gives local businesses insights into consumer spending habits, business intelligence that is important for competing in today’s economy. As a marketing platform, Buzz Points also enables local businesses to target active, local consumers.
According to Buzz Points, several studies show that independently owned stores benefit the local economy more than national chains. A national survey of independent business owners conducted by the Institute for Local Self-Reliance in partnership with the Advocates for Independent Business coalition found that “local first” initiatives are boosting customer traffic and improving the outlook for local businesses. Yet many small businesses lack the marketing resources and scale needed to compete with online retailers and national chains.
Locally owned businesses and community financial institutions are the foundations of a prosperous community, according to Buzz Points officials. The Buzz Points loyalty program connects the two by leveraging the marketing data that is otherwise inaccessible to each set of stakeholders.
Cardholders get rewarded for using their Buzz Points/financial institution co-branded debit or credit card everywhere they shop and earn at least twice as many points for shopping with enrolled Buzz Points merchants.
These businesses also gain insights into local market trends and can track performance through an online merchant portal, Buzz Points added. The program allows them to customize point values, promotions and redemption options to fit their budgets and marketing objectives. The merchant portal includes an analytics dashboard to gain a better understanding of their customers, advanced marketing interfaces to create multi-platform promotions, as well as tools to evaluate the success of these initiatives.
“This is something that differentiates us from other credit unions other than just offering free checking,” says Frank Beachnau, president of Members Advantage Credit union. “When everyone is offering generic free checking and multiple branches [offering loyalty rewards] does tip the scale. People want to go where they will find better value. It enhances our relationships with our members.”
Members need to have a Members Advantage account to use the debit card. Since the debit card transactions tend to be small, that means the member needs to make recurring deposits to have the needed funds prior to making the transactions. The additional deposit transactions drive a stronger relationship bond between the credit union and the member, Beachnau explained. “Most people will have one primary financial institution where they will have their deposits.”
The credit union benefits because every time the credit union member uses the debit card, Members Advantage earns a small interchange fee, the settlement fee on every payment card transaction. The card user earns points he or she can later redeem.
Cardholders earn a half of a point for every dollar spent with any merchant, a full point for every dollar spent at a local business and additional points for purchases at Buzz Points preferred local merchants.
Cardholder then can redeem points for gift cards at national chains, a prepaid debit card, a charity donation or for discounts at local merchants. Cardholders receive the best return when using the cards at “preferred” (participating) local merchants.
Points are accrued automatically and can be redeemed easily with the Buzz Points web interface or mobile app. A continually expanding network of more than local merchants nationwide and an innovative mobile app allows cardholders to shop locally, accrue points and redeem rewards, according to Buzz Points officials.
The preferred local Buzz Points merchants benefit because cardholders will opt to shop there knowing they can earn additional points, which they can redeem after reaching certain tiers, says Mike Foster, owner of Wana Pizza, with locations in Wanatah, Hebron, Michigan City and LaPorte. “It keeps people coming here rather than going to a competitor as often as they might.”
The ability to earn and redeem points quickly is another key feature of the Buzz Points program. According to loyalty research firm COLLOQUY’s biennial report on the scope of U.S. customer rewards programs, American households hold memberships in 29 loyalty programs spread among the retail, financial services, travel and various other economic sectors, but are active in just 12 of them.
The corresponding household membership figures in the 2013 census were 22 and nine. Those numbers add up to a drop of two percentage points in the active membership rate, from 44 percent to 42 percent, a 4.5 percent decline. That marks the beginning of a trend, as the active rate declined for the first time in the 2013 report. An active member generally is defined as one who earns or redeems at least once a year. Since Buzz Points offers redemptions at low dollar amounts and at local merchants, cardholders can redeem much sooner than with programs with high point redemption levels, like airline mile programs.
According to Buzz Points, other loyalty programs level out after reaching a 50 to 60 percent redemption rate, whereas Buzz Points is based on full redemptions, with the company instead earning its money on a small percentage of the interchange fee.