Loyalty Programs

One of the most striking developments in the credit card industry has been the creation and growth of loyalty programs. A report on the meetings of the Electronic Transaction Association in Credit Card News provides insights into this significant innovation in the industry. Netcentives is a major player in the field. It has developed an online rewards program that promises to make major changes in how merchants focus their advertising on consumers and how consumers shop. Netcentives first obtains the agreement of consumers to join the rewards program. By joining, consumers agree to allow Netcentives to track their entire spending behavior at the Netcentives merchant base. Consumers will know what data are being collected and how the data will be used. This "full-disclosure" should help to allay consumers' privacy concerns.

The attraction for consumers that participate is an elaborate rewards program of special discounts and special promotions targeted to customers' profiles. The attraction for merchants is that they will be able to target their advertising to the characteristics of a defined customer segment. For example, a merchant can target an e-mail solicitation to a selected segment of customers and measure the effectiveness of the advertisements. Since this approach is far less expensive and more efficient than, say, newspaper advertising, retailers can afford to give their respondents special discounts or other rewards. The key to success, of course, is the development of a massive database that can be analyzed to target marketing efforts, thereby benefiting both merchants and their customers.