Loyalty programs have always been classic way to get customers to return to a business. Small business can easily make cards they can hole punch to mark how many times a consumer has been there, a reward them after x number of visits. Larger companies can create a larger rewards program, and even distribute a swipe able card. Well now that practice has taken another leap forward, eliminating the need for even an extra card.
Companies like Cartera Commerce, Plink, Cardspring, and Mirth are all working with businesses both local and national to change how customer rewards are done. Some companies turn credit cards into a reward cards that gives a consumer rewards across the country. Other companies enable connecting a Facebook account to give free Facebook credits with purchases.
The new companies provide advantages for businesses big and small. Larger business can outsource rewards programs and no longer need to manufacture their own card. For smaller business they can offer reward programs that would have been impossible before. Smaller business can also track their customers in ways that would have been out of their reach before. They can now see how much consumers spend and how often them come.
The digital reward market will only continue grow. Aite Group LLC estimates that about 900 million transactions will be made with cards connected to merchant loyalty programs in 2015, generating $1.7 billion in revenue for providers. In 2011 that number was $300 million.
A rapidly growing industry with the purpose of helping customers find discount products and giving reasons returning customers to come back? Sounds a lot like the deal site industry.
“I see them going head-to-head,” Peter Krasilovsky, a vice president at researcher BIA/Kelsey tells Bloomberg. “It’s an evolution of the deals space. The goal is to go beyond new customer acquisitions and become part of the integrated business of merchants.”
Loyalty card software providers can certainly mach daily deals in the venture capital department. Makers of loyalty-card software have attracted more than $155 million in venture capital Krasilovsky said.
“We think it’s a massive opportunity,” Jeffrey Bussgang, a general partner at Cartera investor Flybridge Capital Partners told Bloomberg. “Card-linked marketing benefits card issuers and consumers equally.”
One of the key draws for business in a digital loyalty program over a daily deal site is the commitment they have to make. Companies like LivingSocial and Groupon take about 30 percent of a transaction. Digital loyalty programs however only force companies to lower their prices by about 5 to 15 percent.
“A lot of merchants have voiced their frustration with deep discounts and deals,” Mirth CEO Jeremy Galen told Bloomberg in an interview. “With us, you don’t have to lower your price.”
The way all the digital loyalty cards are all connected allows for companies to offer rewards beyond the simple discount or a free item. As mentioned before some companies reward purchases with Facebook credits. Other companies reward purchases with discounts at other stores.
The emergence of digital loyalty cards continues to raise questions about the long-term feasibility of deal sites.
“We continue to question whether Groupon can sustain its high growth and begin to generate sizable profits while scaling back marketing costs,” Edward Woo, an analyst at Ascendiant Capital Markets LLC told Bloomberg.
The public market is likely not the answer for either of these companies. Groupon’s IPO is selling for about half of what it originally was at $10 and LivingSocial said recently that they are not going public.
Not surprisingly, both companies have realized the trend of reward sites and started similar programs of their own.
LivingSocial unveiled a partnership with JPMorgan Chase & Co. in May that involves a credit card users can be used to earn points that can later be used toward LivingSocial deals. Groupon’s program works in a similar matter of rewarding consumers for buying at participating companies with a registered credit card. Their program began at the end of Q1.