BOSTON-Merchant-funded rewards programs that perform best are those whose offers are simple, provide a mix of online and in-store redemption, and include local businesses as well as national retailers.

That is the collective opinion of several card processors and cards analysts, who also add credit unions need to spend marketing dollars to properly position the rewards and explain them succinctly.

"You want to get your members engaged and aware of the program," said Madeline Aufseeser, senior analyst at Aite Group and the author of the report: "Evaluating the Vendors of Merchant Funded Incentives." "If consumers think the offer is confusing at all they will simply use rewards that are less complicated."

Programs that do well deliver an easy-to-use consumer experience for the cardholder at the point of sale. "No hurdles and steps to go through and they don't require a coupon," said Aufseeser. "They make it automatic and seamless so there is no friction at the point of sale."

Tim Kolk, owner of TRK Advisors, agrees, adding that if the cardholder is required to go online exclusively for the rewards, the program can become "irrelevant. Now, if the program is broad and has the consumer card enrolled in a discount right there at the store, that has mileage with shoppers."

Kolk also emphasized that credit unions can't make merchant-funded rewards the "last thing they talk about in their card marketing, which they often do. 'Oh, yes, by the way, we do have a merchant network.' Say that and by then you have lost the consumer's attention. They don't understand the offer, see it as complicated, and sometimes feel they have been tricked."

So far, observed Kolk, the real challenge for the merchant-incentive deals is to get consumers to recognize the value so they are influenced as they either sign up for plastic or decide which card to pull out of their wallet. "Quick, effective communication by the issuer is imperative."

But Bob Legters, SVP of loyalty for FIS, Jacksonville, Fla., believes credit unions have a natural marketing advantage when it comes to merchant incentives. "They already have a close relationship with their members who trust them and pay attention to the offers the credit union makes. That is the first step through the door."

Next is to make sure the offer is relevant to the members and the program is easy to access and redeem rewards. "You never want to have the cashier say, 'Let me check with my manager.' You don't want to complicate things or embarrass the cardholder."


Having A Mix Is Important

Jeff Russell, senior advisor for the Des Moines, Iowa-based The Members Group, emphasized the importance of having a mix of national and local merchants, as well as online and in-store discounts. But Russell sees an opportunity, as merchant-funded programs mature, to take greater advantage of local deals. "This becomes a differentiator for the credit union's card over the big issuers who have a harder time offering local incentives."

Anna Cox, director of loyalty solutions for the St. Petersburg, Fla.-based PSCU, said effective programs allow the credit union to select their own local merchants. "This is a good option for the credit union to partner with local businesses they know."

But don't get too hung up on local offers, countered Steve Ryerson, president of UNFCU Financial Advisors, a wholly owned CUSO of the $3.7-billion United Nations FCU, New York. The CUSO just introduced a merchandise shopping platform that provides cash-back and coupon offers with an emphasis on national retailers (Credit Union Journal, Aug. 6). "Consumers clearly want the brand-name merchants."


What 1 Company's Research Showed

Ryerson said UNFCU Financial Advisors conducted a great deal of research before introducing its platform that is being offered to other CUs.

"I have seen programs that have over emphasized local and they seemed to be harder to manage and perpetuate. In this economy, small businesses are really struggling and there is no guarantee they will be around when the cardholder wants to redeem the discount. Also, with our platform's cash-back option, I am concerned about whether the cash flow will be flowing at a local business. You really have to make an assessment, and in the CU space it is important to protect the member and the credit union's reputation. I know our platform is light on local, but I am OK with that."

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