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Why Eftpos loyalty programs kill retail profit

So, you’re thinking about creating a loyalty program for your stores. But there are so many options out there, and you’re not sure whether to run a CRM based program or connect it to your Eftpos terminal.

Most loyalty providers will suggest an Eftpos based loyalty program.

That’s because it’s easy to set up through payment terminals. But the real reason is that it earns more revenue for the loyalty provider.

Your business gets charged on transaction volume. Put simply, the more loyalty transactions or swipes made, the more they charge you.

What’s an Eftpos based loyalty program?

Eftpos based loyalty programs enable customers to earn points, based on transaction through any enabled Debit, Credit or Eftpos terminal. Each transaction made against the loyalty members accounts or linked card typically incurs a transaction fee or a fee for redeeming rewards. These vary, but on average they’re about 3% of the sale.

These programs typically don’t capture product data or line data, unless you seek this information from the loyalty provider. Again, this typically comes at a cost.

How is this different to a CRM loyalty program?

CRM-based programs don’t incur transaction fees and are typically integrated directly into the Point of Sale or e-commerce software. This captures a lot more member and product data via API calls.

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What are the disadvantages to an Eftpos based loyalty program?

If your business is processing lots of transactions, you need to look at the overall cost of the program.

Let’s say you process 20,000 monthly transactions -- a decent-sized retailer. That’s 240,000 transactions per year. Of which, 15% are loyalty based or member transactions. Loyalty providers will charge you approximately 3% of loyalty transactions made with a payment card.

Let’s assume your average transaction is $40. That would generate you $43,200 in transaction fees, plus GST. This doesn’t include cost related to reward redemption or coalition program costs.

Eftpos based programmes are less flexible and less data-rich:

With CRM based programs, retailers can merge both member, transaction, SKU data but more importantly behavioural data insights.

This is extremely valuable when assessing what your customers are buying and why. Or what they’re not buying, but what you might like them to buy.

Eftpos terminals also struggle to handle line data information. That means your program is limited to transaction value amount.

So, good luck if you’re wanting to reward customers based on multiple items or specific tiers.

How profit diminishes the more engaged your users are:

The whole point in a loyalty program is to empower businesses to make a better decision through data.

But you can only do that by ensuring the business has a program that’s valuable and engaging for members.

It should be your business focus to sign up as many loyalty program members as possible and aim for a lift in average spend compared to non-members.

But with an Eftpos based programme it costs you more, the more program members are engaged.

If your loyalty program participating rate increases from 15% of all transactions to 45%, which is totally possible, your costs just went from $43k to $130k per year.

Now that’s probably fine for retailers that weigh up the cost benefit. But if your CRM loyalty program can bypass this cost altogether, then why pay?

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Why retailers pay for Eftpos based coalition programs:

Ever wondered why big retailers operate an in-store rewards program, but also participate in corporate schemes? That’s because it’s less about customer retention and more about customer acquisition.

These programs have a set of engaged users – you know, those old ladies addicted to collecting points on a $4.00 transaction.

These customers aren’t loyal to your brand.

They’re loyal to the points.

And the truth is, they’re not your points. They’re the coalition providers points!

Retailers join these programs to attract point junkies, sell their product online, or simply because they have nothing to sell.

That’s why insurance and finance companies join them. Not necessarily because they want repeat business, but because they’re tapping into new customer channels and members get someone else than a discount on their premium or waving an establishment fee – that’s not sexy. This is more about switch marketing than loyalty.

How do CRM based programmes compare?

Over the past few years, we’ve seen an explosion in options for retailers. This has been driven by cloud CRM technologies that integrate seamlessly with your eCommerce and POS software.

Now, it’s not unreasonable to run an omnichannel loyalty programme for just a fraction of the cost compared to Eftpos.

And the best part? The programme cost remains the same despite increased usage age.

The data and product ownership also remain yours to keep!