The Green Sheet Online Edition
January 11, 2010 • Issue 10:01:01
A new era in digital marketing
Wherever people communicate, businesses can advertise, and out of the digital age have emerged a number of channels that support marketing efforts. In the coming years, a big challenge for the payments industry - for merchants trying to entice consumers and ISOs selling them new ways to do it - will be to market its services using a broad spectrum of media, and to do it in creative and resourceful ways.
Observers say those who readily adapt to changing modes of advertising will be uniquely positioned to thrive.
Three dynamic platforms for advertising are today generating the most interest among payment professionals: e-mail, text messaging and social networking. Insiders say how, and to what extent, industry professionals use these platforms in the coming years will play a substantial role in their success.
The new snail mail
Of the three, e-mail is by far the most tested and widely used among businesses that advertise. Many say e-mail's influence is waning because it has reached an oversaturation point: spam and other forms of mass messaging have deluged inboxes to the point that even potentially useful e-mails often go unread.
"E-mail was very popular in the late '90s when it came into favor as a way to reach out and touch someone," said Doug Hardman, founder and Chief Executive Officer at SparkBase, a company that provides private-label, stored-value programs to ISOs. "When you got an e-mail, you opened it, and everybody was excited about it. It's gotten to the point now where it's no longer such an effective way to reach customers."
Others echoed Hardman's opinion that the excitement surrounding e-mail at its inception has dissipated, but it remains a viable advertising option if only because it is fast, easy and cheap. And not everyone is convinced of e-mail's declining effectiveness.
Vaden Landers, CEO of merchant services provider ProfitPoint Inc., said the emergence in recent months of better spam blockers has spurred a rejuvenation of the medium.
"I think it's more effective [than it has been] because people are paying attention to the e-mails, "Landers said. "Now more than ever they're getting only the e-mails they want to receive. You still get spam, but there's more ways now than ever to control the amount that comes in. I'd say in the last 12 to 18 months it's gotten under control, and prior to that it was truly out of control."
Spam, a lot
An awareness of the pitfalls exposed by unpopular e-mail practices like spamming could inform the cultivation of emerging marketing channels, which will challenge advertisers to devise marketing platforms that are impactful but not overzealous or intrusive.
The lessons of spam apply most patently to text messaging. Otherwise known as short message service (SMS), it is a medium that has, especially among young people, revolutionized interpersonal communications. Many experts predict the impact it has had on society will soon be replicated on the marketing side of the payments sphere and that its widespread use among ISOs and merchants depends only on the willingness of sales forces to adopt it.
"Not a lot of ISOs are using it yet," Hardman said, adding that SparkBase has begun to emphasize the use of text message marketing with the ISOs it serves. "In the last three months we've really seen it take off. It's been one of those things where it was a great idea ... but nobody knew what to do with it.
"We've spent the last several months really working on educating our ISOs so they do use it. Now they have to go out and educate their merchants, which doesn't happen overnight."
Hardman believes text messaging will soon supplant e-mail as the preferred digital marketing tool among merchants.
"When a retailer can, with a few clicks of the mouse, send a text message directly to every single one of their customers that they have information on within 30 seconds about something happening in their store right now, that goes way beyond what traditional direct mail or e-mail can do," Hardman said.
SMS on the rise
Several factors appear to be driving a heightened interest in SMS marketing. First, of course, is the explosion of texting in social realms. Second is the appeal of a channel that communicates instantly, alerting recipients upon message receipt and making messages immediately accessible.
"Text messages are very pervasive and they [provide] instant gratification," said Dyson Barnett, founder and President of merchant service provider LIFT Network. Barnett said studies show that texts are opened 96 percent of the time. "Compare that to anything that's out there," he said.
A third factor driving the use of texting is the increasing popularity of gift card and loyalty programs, which have provided a context for devising ever more creative marketing strategies using digital mediums. In today's retail world, customer loyalty is the name of the game.
"Any method having to do with getting out to your customer base and increasing not just retention but repetitive use of that customer - that's where the sales growth is," said Tim McWeeney, Vice President of North American Sales for POS solutions provider WAY Systems Inc. "One customer using my service 10 times over is much easier than finding 10 customers who are using it once."
In place of traditional gift and loyalty programs whose only meaningful feature was the plastic card, more evolved programs are cropping up that employ various mediums, feature communiqu‚s to consumers and allow cardless transactions at the POS.
"Not only do loyalty programs really work, but what we really see is that the merchants that are properly executing a loyalty program are by an order of magnitude more successful than the ones that have it that aren't using it properly," Hardman said. "Secret gift card programs don't work; secret loyalty programs don't work. You have to actively use them."
In contrast to misapplied stored-value programs, some loyalty providers have fixated on communications between customer and merchant that promote participation in stored-value programs.
For example, customers on the SparkBase network can check balances and loyalty point accruals by visiting a Web portal, where they are asked to provide e-mails and phone numbers (often in exchange for discounts or other promotional offers).
For customers who opt in to a retailer's promotional offerings, merchants are provided the contact information they need to send such offers - by either e-mail or text message.
"It gives them the opportunity to collect data not only for loyalty cardholders but also the gift cardholders," Hardman said. "So that when I give you a gift at Christmas time, that merchant may or may not know that I bought the card, but they certainly don't know who I gave it to.
"So now there's something on the back of it that says, 'Register your card here and get 10 percent off your next order.' Well, now the recipient of that gift card has an incentive to go online and update their information."
According to Barnett, LIFT Network similarly employs a creative, multipronged approach. Among other things, it establishes platforms that allow consumers to win items or participate in polls through text messaging, which helps merchants in multiple ways. It is a way to obtain customer feedback and contact information, as well as to draw customers into the store through deals or announcements of new offerings.
Hardman forecasted a three- to five-year honeymoon period for SMS marketing, during which time merchants and ISOs would stand to reap the greatest rewards from its use. After that time, he said, it is likely the medium will grow stale, as some say e-mail has, or get eclipsed by the next, new technological fix.
Still, most industry insiders (Hardman included) doubt that text inboxes on mobile devices will ever be saturated by advertising to the extent that e-mail inboxes have been.
For one, texting is governed by stricter regulations, including tighter restrictions on mass messaging and easy opt-out provisions for consumers.
Because texts travel over the airwaves, they are subject to regulation by the Federal Communications Commission, along with that of the cell phone companies and text message aggregators (intermediaries for inter-company text messages and mass messages sent from computer platforms).
The growth in text-based marketing has been accompanied by that of another advertising medium long since discovered by the teenage set but, as yet, foreign to many advertisers: online social media, including social networking sites like Facebook and Twitter, and professional networking platforms like LinkedIn.
"I see those two [SMS and social media advertising] harmoniously working with each other," Barnett said. "There are applications coming out that are combining the efforts ... Let's say you're a Facebook fan and you're using our mobile message platform. We'll be tying the two of them together.
"You send out a message on the text platform, and you can have it, at the same time, integrate down into the Facebook community, so that your wall has a similar tone as your mobile definition or mobile marketing."
While almost all retailers, large and small, now have at least some advertising presence online, sources say that, among merchants, online social media has to this point been used almost exclusively by corporate giants like Target Corp. and Wal-Mart Stores Inc., both of which have Facebook "followers" that number in the hundreds of thousands.
Businesses that advertise on social networks can do it by creating a profile for others to visit and by spreading information within online discussion settings. One unique advantage of social network advertising involves the "viral" phenomenon of cyberspace: the potential for information to fan out through interactive platforms, ultimately bringing increased traffic to the Web site where it originated.
That said, chatter isn't always good, and thus going viral has the potential flip side of an unflattering comment or bit of information gaining wide circulation.
Tying together and facilitating the adoption of new marketing platforms are today's ever-evolving mobile phones, onto which every last technological marvel seems to be converging.
"I believe the growth of this industry is mobility," McWeeney said. "Anything you can do in a mobile environment will be big. ... As this continues to grow, be it mobile applications, networking, social networks, no matter what it is, if you can do it in a mobile environment, it's going to increase the value of that device."
Indeed, as more and more consumers buy Internet-based mobile phones, complex new advertising campaigns will develop a common destination no matter what channel they run on: the customer's pocket.
"They expect mobile marketing is going to be literally in the trillions of dollars, surpassing Internet advertising," Barnett said. "And why? Because it's connecting to you - to your person."
There is little doubt that such accessibility will help drive merchant advertising campaigns and the loyalty programs which increasingly accompany them. Finding effective ways to communicate with customers will become even more crucial in a landscape dominated by digital media. In the new mobile phones, the information age has a focal point; that will likely become the focal point for advertisers, too.
One of the newest revolutions in phones has accelerated their integration into the payments space. In December 2009, within a week of each other, Twitter co-founder Jack Dorsey and payment equipment and systems vendor VeriFone unveiled separate card swipe terminals, Square and PAYware Mobile, respectively.
These can be retrofitted to existing Apple Inc. iPhones, which will almost certainly accelerate the adoption of cell phone payment acceptance devices. A corollary will be more phone-to-phone communications between retailers and consumers, and thus more marketing opportunities.
"If you can combine the loyalty component with mobile payments, you're really going to have some powerhouse marketing capabilities," said Peggy Olson, founder of the marketing and communications consulting firm Strategic Marketing.
According to Olson, the trick is to build loyalty from the moment of the first payment.
"A scenario is you can have [a merchant] and they attach the Square device or VeriFone jacket and they conduct a payment," she said. "At that point they're going to ask the purchaser for an e-mail or a phone number that they're either going to text message or e-mail a receipt to. So now they have that information and can later promote that I've got the latest, greatest thing."
Tap and touch
Then there is the untold impact of near field communication (NFC) technology when it hits the American market, essentially giving phones the same capabilities as payment cards.
When such phones are finally deployed on a large scale, and more consumers use phones as payment vehicles, retailers will have unprecedented access to consumer data, according to Mohammad Kahn, President and founder of NFC technology firm ViVOtech Inc.
ViVOtech is conducting NFC trials in the United States and Europe using special NFC "tags," or chips, that adhere to the back of a cell phone and make it NFC-enabled. Kahn said NFC phones would significantly enhance loyalty programs by simplifying the process of sending coupons and other promotional offers and having them redeemed at the POS.
ViVOtech's back-end software enables merchants to send offers to customers through SMS messages. When customers come in to redeem the virtual coupon, at the time of transaction they tap their NFC-tagged phones on the reader and the coupons are redeemed automatically. "I call it the machination loyalty program - loyalty 2.0," Kahn said.
Kahn noted that consumers with NFC tags on their phones tend to use coupons more frequently. "Often they don't carry all their loyalty cards in their wallet or pocket, and even when they do, they don't go through the extra effort to take it out," he said. "But having that in the phone makes it a lot more accessible. And because I'm receiving a text message on the phone, there's a linkage that makes my phone a lot more lively."
Live wire act
On the merchant's end, NFC networks will provide retailers with a wealth of reporting on their customers' purchasing habits, with specific information about who opts into promotional programs and what their shopping histories are.
With that information, merchants will be able to send promotional text messages tailored to individual preferences, Kahn said.
Such a vision of merchant marketing contrasts sharply with the spam that has dominated the digital advertising sphere. While spam is sent indiscriminately, the NFC ads that Kahn describes would target individuals in an informed way, using customer-specific research to create the most enticing offers possible.
This is only part of what promises to be a new, more sophisticated era in payments industry advertising. And it seems as close as the touch of a button.
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