The loyalty and reward solution is becoming central to the paradigm shift occurring in merchant sales. The rise in the importance of loyalty thus represents a potentially more profitable way to sell merchant services.
Online customer verification service provider SheerID can attest to this shift. The Eugene, Ore.-based company, which specializes in verifying the identities of military personnel and other consumer groups as part of omnichannel loyalty programs, reported that it processed seven times more verifications in the second quarter of 2013 than it did in the same period in 2012.
SheerID said verification of military personnel has been its fastest growing segment, with a 390 percent increase since the end of 2012. The company noted that its growth points to "the larger surge from the retail industry as a whole, as more merchants take steps to capture growing, loyal consumer segments."
Jake Weatherly, co-founder and Chief Executive Officer at SheerID, said retailers increasingly recognize that targeting specific consumer segments and offering them personalized deals is not only a "great way to recognize loyalty [and] increase the frequency of transactions and the level of engagement, but also to speak to their customers in a sort of appropriate language and put offers together that are exclusive to these specific groups."
Along with military personnel (both active and former), SheerID targets such large consumer groups as students and teachers. Weatherly said loyalty programs can help retailers engage with customers on a deeper level by making their lives easier.
One example concerns retailers who offer discounts for teachers. After SheerID verifies teachers are who they say they are, retailers offer them discounts for school supplies. Weatherly said when the back-to-school period arrives, teachers in these recessionary times are forced to spend money out of pocket. "They're going to the retailer, whether online or brick-and-mortar or mobile or telephone, that recognizes the sacrifices that they've made and gives them discounts and speaks their language," Weatherly said.
Research conducted by the Electronic Transactions Association and global investment firm Goldman Sachs Group Inc. confirms SheerID's findings. Of the 77 merchant acquirers and ISOs polled in the ETA-GS Merchant Acquirer and ISO Survey - 2013, 67 percent said offering loyalty or other valued-added services represents an opportunity for them to create "stickier" relationships with merchants. Additionally, 17 percent of survey respondents see loyalty as a way for service providers to achieve additional revenue streams.
The researchers also asked service providers what percentage of loyalty transactions merchants would be willing to pay to service providers. Nearly 37 percent of respondents said merchants are willing to remit up to 5 percent of loyalty-based transactions back to providers, and that an additional 23 percent would pay up to 10 percent.
While the research indicates no provider of a white-labeled loyalty platform yet dominates the market, the value proposition is clear. "Given the potential positive impacts to both attrition and revenue per customer, we expect to see a lot more merchant acquirers and ISOs offer loyalty-based solutions to merchants," the researchers concluded.
SheerID is involved in loyalty programs that take advantage of "trigger events" in peoples' lives, such as students graduating from college and entering the workforce. Weatherly said a three-month window exists after graduation when people are preparing for the often arduous job search.
That period represents an opportunity for resume software providers and online job forums, for example, to capture consumers and make them long-time, loyal customers via discounted offers, he noted, adding that SheerID is also in talks with apparel retailers about offering recently retired or discharged servicepeople deals for turning in their military uniforms when purchasing professional attire. "You're used to putting on your fatigues every day, and now it's time to suit up for an interview," he said. "And there are a lot of companies who recognize that."
This type of loyalty application fosters deeper engagement between merchants and consumers, but it also requires ISOs and merchant level salespeople to rethink their relationships with merchants. It's the difference between hunter mode and relationship, customer service mode, Weatherly noted.
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