What motivates you to tackle that home repair project with items purchased from, say, the big purple home improvement store rather than the big green one down the block? Your decision is probably based in part on familiarity; it's where you habitually go. It could also be that you prefer the retailer where you can find items quickly, get the best service, or receive appealing rewards or rebates.
Affinity Solutions knows the process of winning loyal consumers isn't easy. But when successfully executed, it is invaluable to merchants and the ISOs and merchant level salespeople (MLSs) who serve them. To that end, Affinity creates unique relationship-marketing programs sponsored by bankcard issuers, insurance companies and magazine publishers.
Since 1998, Affinity has worked with leading retail chains, including Exxon-Mobil Corp., Pizza Hut Inc. and Gap Inc. It has also developed rewards programs for a variety of bankcard issuers and processors, including Capital One Financial Corp., JPMorgan Chase & Co. and Citigroup Inc.; Geico, Hearst Corp., and Condé Nast Publications are also Affinity clients.
Affinity's programs include nearly 60 million cards and approximately 10,000 retailers with more than 50,000 locations. They incorporate rebates and rewards to drive purchase behavior. They also provide shopping-related editorial content to attract new customers and build deeper relationships with existing customers.
Affinity also works with issuers that have existing rewards programs and use Affinity as a rewards accelerator. Most of Affinity's bankcard programs are for debit cards and are not considered to be rewards cards by Visa Inc. and MasterCard Worldwide. Thus, they enjoy lower, nonrewards card fees.
Affinity is distinct in that its programs are sponsored by card issuers. Jonathan Silver, Affinity's President and Chief Executive Officer, said, "Most of the merchant-based loyalty, or rewards, programs today are proprietary programs that retailers offer their own customers.
"The fact is that many consumers today don't want multiple rewards programs; they want to aggregate their cash-back or rewards from multiple retailers in one place."
Silver also noted that while proprietary rewards programs may drive customer retention, they don't necessarily drive customer acquisition. "Affinity is the pioneer of merchant-based rewards programs that are sponsored by card issuers that organize a network of select merchants," he said. "They're very different from proprietary programs the retailers create themselves."
Silver said consumers look to Affinity's issuer-sponsored merchant networks to aggregate and redeem cash or rewards in one place. "The result is not only increased retention for the retailer, but an opportunity for merchants to access the millions of prospective customers who carry bankcards from those issuers," he said.
Initially, most of Affinity's programs were cash-back programs that focused on national retail chains. Its first debit card merchant-based rewards program was for AmSouth Bank. (AmSouth later merged with Regions Financial Corp.) Other issuers, such as U.S. Bancorp and Washington Mutual Inc. (WaMu), quickly came on board.
Affinity recognized that local and regional banks wanted to zero in on the local and regional retailers that could reinforce their community bank status. So, three years ago Affinity began to recruit local and regional retailers, focusing on traditional merchants and their online businesses. Through this, Affinity created new marketing channels and partnership opportunities that promoted retailers to bankcard holders.
"Those [initial] programs offered up to 20 percent cash back to cardholders, with most of the big box retailers offering between 3 percent and 8 percent," Silver said. "Now, with our focus on local and regional retailers, the average cash back is between 5 percent and 15 percent, and the local retailer is now able to get the substantial marketing value previously available only to national retail stores."
Affinity's expanding programs include local, regional and national banks across the United States. WaMu is launching a new rewards program in November 2008 for Florida, Texas, Illinois and Washington State.
But according to Silver, retailers are the real stars in Affinity's programs. "Cardholders earn significant rewards only when they shop at the merchants in each issuer's network," he said. "We're careful to include only a select number of merchants in each category for a given issuer program. Then we promote those retailers to cardholders in lots of ways."
For example, some Affinity-managed programs give a low level of rewards to cardholders on all purchases, but cardholders can earn significantly more by shopping at merchants in the program's network. Other programs reward cardholders only when they make purchases at participating merchants.
Affinity uses a variety of tools to market to existing and potential consumers, including advertising via newspapers, radio and TV, as well as ATMs, statements, e-mail and mobile devices. Programs and offers are tailored to each merchant and can be changed quarterly to incorporate seasonal promotions and reflect the results of prior promotions.
Merchants do not need to change their existing POS systems, as there is no integration required with retailers' POS systems. Affinity tracks qualifying purchases using transaction data provided by issuers and directly credits rewards to consumers' accounts. Then it invoices merchants and settles via the automated clearing house. This also means ISOs and MLSs need not change processors to participate in Affinity programs.
Affinity hired a direct sales force and built relationships with select independent contractors nationally. It soon found that the most effective channel was ISOs and MLSs who used Affinity programs to differentiate themselves from their competitors. Using Affinity programs, agents can send consumers directly into specific merchant locations, increase merchant revenues, reward consumers and create loyalty for merchants, as well as for themselves.
"We're now able to offer ISOs the ultimate value add," Silver said. "They are now able to send new people into their merchants' stores in exchange for simply funding a rewards offer at a fraction of the cost of other advertising and promotional opportunities." According to the company, participating merchants typically see a 15 percent to 20 percent increase in spend volume from Affinity's programs, which means greater processing revenue for ISOs and MLSs.
In addition, MLSs receive an upfront fee of at least $100 for each new merchant location brought into an Affinity program, plus a fee per merchant location, per issuer program and per year. ISOs also earn a share of a small administrative fee Affinity charges to process qualifying rewards transactions. "All together, those fees can be significant and grow over time," Silver said. "They represent an annuity to the ISO or MLS."
Affinity is selective when determining the ISOs and MLSs with whom to work. And it offers regional exclusivity or partial exclusivity to Affinity ISOs, depending on their geographic footprint, sales force size, breadth of existing portfolio and the rate of new business generated. Affinity also provides ISOs and MLSs with co-branded marketing materials.
A typical merchant with $150,000 in card processing might pay a fee of $60 per month to be in an Affinity merchant network. In return, the merchant receives marketing in a number of channels, including account statements, bank branches, Web sites, newsletters, and local media and events.
"It's a much more personalized form of marketing with the endorsement of a consumer's bank," Silver said. "We've learned how to deliver the right message to consumers at the point when they're ready to buy."
Also, with Affinity merchant networks, merchants pay only when people actually shop. "With a Yellow Pages or newspaper ad, the merchant pays upfront, regardless of whether they get business or not," Silver noted.
The company provides an online reporting interface for its agents. "We're working to develop ISOs into true marketing partners for their merchant clients," Silver said. "And with our reporting tools, the ISO can demonstrate the results of our programs, topline revenue growth, new customers and shift in spend from the merchants' competitors."
Merchants can also access a reporting interface that reveals when and how cardholders spend money in their stores.
In addition, since many ISOs have agents located throughout the country, sales trainers will either provide training at an ISO's central location or via phone or webinar. "We've worked successfully with ISOs for several years, and have learned what it takes to be successful," Silver said. "We make it very turnkey, so it's easy for a new Affinity ISO coming on board."
Affinity is not simply seeking more ISOs and MLSs; the company wants motivated individuals who are highly service-oriented. "We want to make sure we are working with the top tier ISOs and MLSs that are in it for the long haul," Silver said.
"Our programs are the first step in a series of solutions for local and regional retailers designed to expand the role of the ISO as marketing partner to the merchant," Silver said.
"This is a true paradigm shift for ISOs and the merchants they serve. The merchant will begin to see the ISO as a source of new customers and topline revenue for their businesses."
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