Bolstering Retention with Private Label Credit Cards in Loyalty Programs

by Grace Miller |

Bolstering Retention with Private Label Credit Cards in Loyalty Programs

A major focus of marketers has rapidly shifted from pro-customer to pro-customer choice. That’s the reason why businesses opened their doors for all forms of payment modes along with becoming device-agnostic. Private label credit cards (PLCC), store-branded credit cards issued by a bank or commercial finance company, were an attempt to remold business by adopting that much-needed pro-customer choice model as well as to ensure higher lifetime value of their customers. Naturally, the convenience of payment provided by this card created an instant liking for it among people. At present, there are more than 190 million PLCC accounts in the US.

But as the movement of private label credit cards has been closely observed by many, an unequivocal conclusion that PLCC alone is not enough has emerged. One of the major cited reasons for it is that private label credit cards only capture a percentage of your overall customer transactions. Another reason is, as there is a credit application, many consumers may stay away from it. It has been argued that the users of this card will be heavy buyers only. Clearly, the humongous acceptability that this card has among the consumers needs to be leveraged in a much better way by aligning it with a multi-tender framework. And looking at the motive of PLCC, which is to increase repeat purchases, placing private label credit cards in loyalty programs is a logical choice.

What is a Private Label Credit Card? 

Private label credit cards, also known as white label credit cards, are store-brand cards used exclusively at a particular retailer. Managed by a bank or commercial finance company, the private label credit card does not carry any logo, such as Visa or Mastercard. Like standard credit cards offered by banks, these cards cannot be used at any other store other than the brand where they are issued.

The private label credit card helps retailers to offer extended terms to customers while making shopping more convenient through features, such as accepting returns without receipts.

Why Private Label Credit Cards? 

Companies issue private label credit cards to draw multiple benefits. One of the best advantages is that these cards increase sales since they encourage customers to spend more by offering similar benefits to a credit card. Not only that, when customers shop using a private label credit card, they earn loyalty rewards, which they can redeem to get a discount in the future. In addition, the card with the company’s logo creates a bond with customers because of the convenience, exclusivity, and rewards offered by it.

How Do Private Label Credit Cards Work? 

Private label credit cards are managed by banks or third-party financial institutions. The card provider assists the retailers in issuing, funding, and payment collection. As private credit cards are taken care of by banks or financial institutions, the card offers the same level of security and transparency as other standard debit or credit cards.

Benefits of Private Label Credit Cards in Loyalty Programs: 

1. A Strong Motivation to Sign Up for the Loyalty Program

Remember that every cardholder in a PLCC program will get the same benefits without considering whether he is active or not, valuable or not, a long-time customer or a brand-new recruit. While customers get cashback or benefits based on the amount they spend, it’s almost always at the same rate–say, 5% for those who spend $150 a year and for those who spend $25,000 a year. Private label credit cards on their own are unable to provide differentiation and recognition- a mainstay of any loyalty program.

This lackluster and dull scenario is the reason why even retailers with strong private label card portfolios find that cardholders will not use their private label card every time they shop – sometimes less than 50% of the time. When sellers put private label credit cards in loyalty programs, though, customers can see some extra value in signing up for the credit card. It may result in increased adoption of the card, as rewards are giving them a strong motive to do so. This is especially important for the customers who can spend more, or who are spending enough but are not your cardholders.

2. Retention is Addressed From Two Sides

If a seller starts out with just a private label credit card and no other type of loyalty program, their user base is going to be limited. Many customers might buy frequently from that merchant, but they don’t want to go through the hassle of signing up for another credit card.

Consequently, adding on a loyalty program open to all shoppers covers much more ground. For example, Nordstrom’s loyalty program saw major success when it followed this logic in 2016. In the first quarter after opening up the program to all customers, it grew loyalty enrollment by 30%!

3. More Actionable Data through Better Communication 

Banks generally put restrictions on how retailers communicate with their PLCC holders. But with private label credit cards in loyalty programs, you have the data and the reason for better communication. Your content is all about loyalty program communication, and it creates the context for using member data without the emails “feeling creepy.”

People have already become much more cautious about sharing their information due to privacy issues. With private label credit cards in loyalty programs, you have systems that cover all forms of payment. It’s like receiving explicit permission from your customers to track everything they do and to communicate with them. And remember that subject lines with key program-related words such as “Your Reward…” are almost twice as likely to be opened as purely promotional messages. This primitive need to have rewards makes them keep their contact information updated.

Naturally, it is giving you a 360-degree view of your customers, as you learn a lot more about each individual member. Bloomingdales came up with a multi-tender “Loyalist” program. As Frank Berman, Bloomingdale’s executive vice president of marketing said: “[Now] we’re capturing 100% of the information. We are able to understand a great deal more about what our customers are doing in our store which makes our marketing efforts much more relevant.”

In this context, the good thing about this integration of private label credit cards in loyalty programs is that customers will willingly keep their information updated in order to earn program rewards. Businesses will not have to rely on a model to link transactions for a household behind the scenes. Once you have such a rich pool of data, you can point out who are the customers with better potential and you can put them into your preferred credit portfolio.

To pounce upon the above-mentioned benefits, Talbots launched Classic Awards, with the following goals: Increase the Talbots Charge card base, as well as drive usage and sales. To make it comprehensible, it simplified the structure. It charged customers earned 1 point per dollar spent and received a $25 reward when they earned 500 points. But by recognizing the need to alter it due to competitive rewards programs from both banks and other retail private-label cards, it revamped it drastically and came up with a new structure:

  • Members who pay with non-Talbots Charge methods participate in Classic AwardsRed and earn ½ point per $1 spent.
  • Members who use their Talbots Charge for payment are in the Platinum tier and earn 1 point per $1 spent.
  • Once Platinum members spend $1,000 on their Charge, they move up to Black and earn 1.25 points per $1 spent.
  • The Platinum and Black tiers also have escalating benefits, such as higher birthday bonuses and point rollover.

Despite being launched in a rough period, the program generated sales from members and Talbots Charge penetration reached its highest level in company history.

  • Total Classic Awards participation was up more than 10 percent
  •  Almost 30 percent of enrolled Classic Awards members were new to the database
  • Overall, members were spending 79 percent more and shopping two times more than non-members
  • In 2013, Talbots reported that Classic Awards members represented 70 percent of the business and there was 40 percent year-over-year participation growth in the Red segment.
  • Eight years later, in early 2015, it had 3.5 million members, with half of them non-Charge customers — a group that would never have been tapped under the old program.

Best Practices for Incorporating Private Label Credit Cards in Loyalty Programs:

Just like every integrated program, there are few things that cannot go amiss during and after the implementation phase. The following points try to cover those vital ones.

1. Offer a Program with Extra Incentives for PLCCs

This is an obvious point, but it’s worth stating again as it is the most likely to deliver on the rationale for having a multi-tender program. It will allow you to find out who migrated to your branded card portfolio over time, as you’ll already have a strong customer database that can be optimized with the right incentives. The structure may have an acceptable level of complexity. For example, earn X points when you don’t use a branded card and Y points when you do. This can help in creating an overall value proposition at the point of sale.

2. Enable Easy Activation to Make it Simple From the Beginning

In general, people hate to work extra just to get into the groove of the program at the initial phase. That’s why an effort must be carried out to make the activation, the first step of the program functionality, as simple as possible. PIN or phone activation can make it easier for cardholders to activate their cards and begin earning customer points.

3. Integrate Mobile Payments

Ease should be a goal throughout the customer’s use of your program–not just in the beginning. Follow the path of Starbucks’ loyalty program–which rewards users for paying by pre-loading money onto Starbucks’ app–and enable shoppers to use your PLCC digitally through their mobile wallets. It’s convenient and will gather more data for you. Learn more about mobile payment usemobile wallets, and their effect on loyalty.

4. Make the Earning Process Efficient and Flexible

A customer should not be in a big fix when he wants to claim or earn his rewards. It can be made easy and quick by using his card for both signatures- and PIN-based transactions. Make it mobile-friendly. This should also include merchant rewards if you want to strengthen partner relationships. Allow him to pool his rewards between multiple accounts, in case he has multiple accounts.

5. Make Better Use of Collected Data

This combination model will work well if it becomes a truly integrated ecosystem. And that is possible if the collected data from all the fronts are being used properly. This integrated ecosystem must combine payments, communication channels to keep your customers updated about their account, loyalty program, and rewards mechanism to make it a compelling proposition that will be hard-to-ignore for your customers.

6. Create an Emotional Bond

The risk with many programs is that they end up being a plain transaction tool, as marketers contrive them in that direction only. Your program should offer something different- something which may create an emotional kinship with the customers. One way is to offer debit and risk consulting services.

To hit the perfect note with the integration of private label credit cards in loyalty programs, these best practices are a must. They become even more vital, as limiting your program to a single card is a greater liability to your overall effectiveness and potential for incremental revenue. Besides, if devised properly they can become a potent tool of operational efficiency as well. Target has proved it by using its REDcard to minimize acceptance costs, by clearing payments on a private network and avoiding interchange.

Find out more about the impact of loyalty here and get more loyalty stats here

[White Paper]
[White Paper]