While private-label credit cards typically do a good job leveraging the economic side of the loyalty equation, marketers are becoming more savvy about soft benefit techniques, such as exploiting multiple dialogue channels and using data to build brand continuity and trust.
  As a platform for customer relationship management, private-label cards offer a ready-made platform to build customer loyalty and a tangible asset in the form of a marketing database. They also provide the same dramatic lift in business results seen in traditional loyalty programs-and at far lower costs to the merchant than do other forms of credit tender.
  Both private-label and traditional loyalty programs seek the same goals: to identify good customers, grow the marketing database, gain consumer insights and provide incremental revenue. Both systems need a value proposition, consisting of hard economic and soft recognition benefits, to entice consumers. In the case of private-label cards, the hard benefits are liquidity and increased purchasing power.
  Studies confirm that private-label cards create significant incremental sales for retailers. How well it works varies depending on the demographics and credit needs of the retailer's customers. No studies I know of have shown that private-label cards have failed to achieve positive results.
  Through rigorous testing and the use of control versus test groups, three primary drivers of incremental sales on private-label cards were uncovered:
  Financial shift: With greater customer liquidity comes increased share of wallet to the retailer.
  Marketing lift: A good private-label program includes a stream of offers to encourage usage and dialogue.
  Retention effect: A private-label card allows brand loyalists to belong to an exclusive club and to earn recognition and rewards in exchange for becoming visible to the marketer.
  All three of these drivers work tightly together to build loyalty both to the card product and to the brand.
  Traditionally, a private-label card does a better job on the economic side than on the emotional side of the loyalty equation. That is because in most proprietary loyalty programs, the retailer funds the rewards. In a private-label program, the retailer, the bank and revolving consumers contribute to fund the program together, allowing for a more compelling value proposition.
  On the soft benefit side of private-label programs, there still is room for improvement. But as marketers become more savvy about loyalty-marketing principles and practices, such as fully exploiting multiple, permission-based dialogue channels and using data to make their offers more relevant, then they can build the brand continuity and trust needed for successful loyalty programs.
  There is a tendency in the private-label business to run the standard playbook: flood the marketplace with card offers, get everybody and their uncle to take up the card with a 15% discount offer and hope for the best. But there's more work to do on customer insight, behavioral segmentation, and demographic and attitudinal overlays to provide private-label customers with the range of offers and services that will build out the value proposition beyond the typically tired offers that have changed little since disco was in vogue.
  Under the hood, private-label cards and loyalty programs fundamentally are similar machines, built for similar purposes. The sooner marketers understand this, the sooner they'll transition their card programs to become 21st Century marketing engines.
  Jim Sullivan is chief marketing and planning officer for the Retail Services Division of Alliance Data, a Dallas-based payment industry services provider.
  He also is retail editor at Colloquy. Sullivan can be reached at jim.sullivan alldata.net
  (c) 2006 Cards&Payments and SourceMedia, Inc. All Rights Reserved.
  http://www.cardforum.com http://www.sourcemedia.com

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