Driving Sales

Strength in numbers isn’t just for armies or political coalitions. Retailers are banding together in card-based, merchant-funded loyalty networks that multiply marketing impressions and boost sales.

One such network increased spending among certain Citibank cardholders by 60 percent last year at Golfsmith, an Austin, Texas-based chain of 75 stores that also sells online and by mail-order catalog.

These networks are thriving and appear likely to proliferate, says Ron Shevlin, a senior analyst at the Boston-based Aite Group. Card issuers use the networks to offer a wide array of rewards in the competition for the relatively affluent consumers who are most likely to respond to card offers. Retailers benefit from increased sales and exposure to those same well-off shoppers, and cardholders enjoy richer loyalty-program rewards.

Vesdia builds its networks on top of a credit or debit card issuer’s established loyalty program, says Lars Holmquist, chief marketing officer for the Atlanta-based company. In most card issuers’ non-network programs, cardholders earn cash back or points for each dollar spent with the card.

Merchants that join a Vesdia multi-retailer network usually pledge to add 3 to 5 percent to the value of the points or mileage cardholders earn if they use the card at their stores, websites or call centers; Vesdia takes a cut of 20 to 25 percent of those additional rewards, Holmquist says.

Vesdia operates 30 merchant-funded networks. “Some are quite small and some are as big as the Citi ThankYou Network,” which has millions of members, Holmquist says. More than 700 national merchants and nearly 3,000 local or regional merchants participate in the Vesdia networks.

A single network could have hundreds of merchants participating online, but a network needs about 30 bricks-and-mortar merchants to attract cardmembers, Holmquist says. The card issuers that sponsor the networks tend to promote 20 to 30 of the participating merchants.

Those promotions have proven meaningful for Golfsmith, which signed on with Vesdia just in time for the 2008 Father’s Day selling season.

Golfsmith belongs to six Vesdia networks — two with Citibank and one each with Citizens Bank, Kroger Personal Finance, Hawaiian Airlines and BabyMint, a Vesdia-owned college savings plan.

Golfsmith also participates in rewards networks operated by other firms, but vice president of sales and new business development Michael Polishook especially likes the statistics he receives from Vesdia. “Not a lot of programs offer you analytics that allow you to truly see the lift that you are getting by being in the program,” he says.

To compile stats on lift, Vesdia measured Golfsmith’s sales on the participating cards before the retailer joined the network and then calibrated them again after six months. Polishook estimates business from those cards increased 60 percent. Some of the customers now using the cards to make purchases at Golfsmith may have had the cards in the past, but bought from the company on another card or with cash.

Holmquist could not say exactly how much of the increase came from new customers and how much is the result of increased business from established customers. “I think the short answer is it’s a bit of both,” he says, “incremental customers and incremental sales from existing customers.”

That means Golfsmith may be paying for extra rewards for a few customers who would have been buying anyway, but the increase in sales has proven so large that nobody’s complaining, Polishook says. “We have a significant amount of growth from Citibank reward cardholders in our stores,” he says, and “we have seen … average order value per transaction go up from these cardmembers being in this program.

Extra rewards, marketing
Growth comes from the extra rewards and a flood of extra marketing for the participating retailers. The credit and debit card issuers or other network sponsors benefit from the coalitions because the retailers pay for the networks’ increased rewards, says Shevlin. The retailers benefit because the sponsors pay for the increased marketing.

Much of the marketing exposure Golfsmith gets from its merchant networks comes from the Citibank ThankYou Network website, Polishook says. “During our [2008] Father’s Day period we were a featured merchant on the Citibank ThankYou home page at about a million views per month,” he says. “Then we were on a particular offer page that got 300,000 views per month.”

Citibank also featured Golfsmith and other retailers in a newsletter sent to 1.5 million cardholders and in Father’s Day promotions that included an e-mail blast to five million cardholders, a two-million-piece direct mail campaign and a special newsletter that went to 300,000 people.

“I could never get all these impressions on my own,” Polishook says. “Citibank funds this. That’s the return I get from my investment – this type of exposure. That’s why you see such growth in Citibank cardholders coming back into my store. That’s how we’re acquiring new customers.”

Add-on to in-house
Prompting new customers to log onto the Golfsmith website exposes them to the services the company offers, which include tips, lessons, sign-up sheets for local tee times, golf travel deals, tournament tickets and club reconditioning.

For Polishook, the network marketing feels like an extension of Golfsmith’s in-house loyalty campaigns, which reward frequent shoppers with discounts, deferred interest and special events. Golfsmith isn’t big enough to offer cash-back on its own, and consumers don’t spend enough on sporting goods to earn a significant number of points, he says. But working collectively through Vesdia with banks, airlines and other retailers, Golfsmith can participate in cash-back and points plans.

Polishook notes that sales have increased among cardholders in his networks despite the economic downturn. “In a year that we’re seeing declining sales – nationally, not just us specifically – when we see a segment that has lift to it, it’s a good thing,” he says.