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Avoid the Churn: Seeking a More Profitable Portfolio

By Michelle Graff

"To give real service you must add something which cannot be bought or measured with money, and that is sincerity and integrity."
- Douglas Adams, Writer

Businesses are under intense pressure to increase top-line revenue and implement best practices that improve the bottom line. The competitive nature of today's marketplace in the payments industry makes the high rate of customer churn a devastating problem for many firms. In some cases, companies experience attrition rates in excess of 15 - 25% annually.

Losing customers has a dramatic impact on an MLS's business. Not only do loyal merchants spend more, purchase more value-added products, and often refer additional customers, but essentially, attrition drives market prices lower and leads to lost profits and higher customer acquisition costs.

Analysts estimate that acquiring a new customer is five times more expensive than keeping an existing one. With this in mind, it's clear that merchant retention is crucial. As competition for new customers grows more intense, acquirers and MLSs must focus more on cross-selling and up-selling to existing customers.

Unfortunately, the complexity of selling to new customers while managing a customer base that has a variety of POS solutions and application needs makes cross-selling/up-selling easier said than done.

Marketing to the Base

When armed with a better understanding of customer preferences and needs, successful companies can maximize the impact of every customer contact and dramatically improve retention rates. Offers and programs tailored to specific target accounts that present a true value proposition help increase customer loyalty.

Avoid the "one-size-fits-all" formula. Learn from the consumer product companies. Don't send a coupon for dog food to everyone, including people who don't own a dog. Targeted promotions based on a blend of customer attributes help your message resonate with the particular audience by demonstrating the value that the offer will add to their business.

An organization that drives a deep understanding of the customer into the sales process; has clear insight into customer behavior; and empowers reps to become trusted advisors will succeed in exceeding customer expectations and increasing customer loyalty. With a strong understanding and foundation in place, companies can enjoy increased account penetration, better close rates and higher profits.

Ideas to Drive Change

It all begins with a blank pad of paper and a closer look at your merchant portfolio. Spend time analyzing your merchant data to really know and better understand your highly valued customers. Your goal is to be well connected to those customers so that you can better retain them.

Segment your base by market, volume, length of service, application and solution needs, and profitability. Now find a common denominator among each segment and think of opportunities to go back and touch that merchant again with clear goals in mind for cross-selling, up-selling and improving retention. Let's explore a few ideas relevant to our industry.

The "Little Gray Box" Program

I think it's finally safe to say that the era of selling or re-programming one-dimensional terminals (a.k.a. "little gray boxes") is finally coming to an end. The terminal vendors are rightfully rejoicing, and MLSs are now armed with many reasons why a merchant should finally buy a new terminal. All-in-one designs save counter space and eliminate extra cables and powerpacks. Plus, ATM-style interfaces are the only way to go for merchants that experience a lot of clerk turnover.

The Security and Compliance Program

The card associations are continually enhancing security regulations to stay a step ahead of fraudulent activity. Use the new regulations to educate merchants about fraud and the new solutions that address it. Identify merchants in your portfolio that have:

  • terminals that do not truncate account numbers
  • non PED-compliant PIN pad devices
  • a lot of Internet orders and could be helped by Code 10 processes.

Educate merchants about the risks and costs associated with fraud, and convince them to upgrade to newer solutions to better protect their business and their cardholder data.

The MO/TO Program

If you have a number of merchants that process phone- and mail-order transactions, two programs come to mind. First, determine whether using a terminal is really the right solution, or if POS software might be better suited to their needs. Additionally, find merchants in your base that are using solutions that don't support CVV2/CVC2 or AVS.

Talk to them about interchange qualification rules, chargebacks and the associated costs. If you can become a trusted advisor in the area of fraud prevention methods and in recommendations to reduce chargebacks, you will improve the loyalty of that merchant.

Value-add Program

The true secret for improved merchant retention is to get more hooks into the customer relationship. And the best way to do that is to sell value-added applications, such as electronic gift cards, electronic check conversion services and prepaid card programs. Once again, it's important to segment your market. Not every merchant is a target for every value-added service offering. Additionally, the value proposition for different value-added services will change depending on the merchant environment.

For example, the drivers for check conversion might differ between dry cleaners (high volume, low average ticket, low risk) and computer electronics merchants (low volume, high average ticket, high risk), but they are both good candidates for check conversion. Tailor your programs to address the specific needs of each target audience.

Maximizing the Acquirer Relationship

The businesses that succeed will be armed with the right data to design meaningful (and profitable) programs. This is where the relationship you have with your acquirer partner is important. A processor/acquirer that has a dedicated MLS relationship management team can do much more for you than a pure processor that simply routes transactions. A strong account manager holds the key to merchant demographic and processing information.

If you use an acquirer to obtain all of your services, you can work with them on mining the data in your portfolio and designing programs that really pay off. Just as you strive to build loyalty with your merchants, acquirers are interested in building loyalty with you. A strong mutual relationship will go a long way in improving your overall business.

Michelle Graff is Vice President of Marketing for NOVA Information Systems. You can e-mail her at .

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