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Is Loyalty On Chip Worth The Investment?
Posted By: eugene* on 7/12/2004 9:41 PM (CST) 125 Points
The concept of customer loyalty has been around for a long time and organisations have come up with multiple programmes that have come and gone. However, with smart cards taking over from magnetic stripe cards in the credit card market in view of the EMV migration, will it really take off with retailers and other non card issuers? Or is it just too expensive to maintain or even to start with? I've read that magnetic stripe technology work well in the U.S., due to the effecient and effective communication infrastructure but elsewhere in Europe, where communications infrastructure still lack somewhat, smart card technology is preferred in view of its capability to perform offline transactions etc.

Posted by: darcy.moen Accepted Answer
7/14/2004 1:04 AM (CST)
Stuff the smart card. Look into RFID. RFID means Radio Frequency IDentification. These are small chips that when placed in proximity to an antenna, the chips resonate at a "frequency" that the is picked up. Your point of sale system then looks up the ID assigned with that chip, and you can record your data.

I like RFID because its a smart dumb technology. Its dumb because the chip itself does not record or store any data...its just a chip...like a barcode is just a barcode..and the data that means anything is stored someplace else other than on its own self. Its smart because...you, or another business could be placing these chips out in the field, and you can "ride along" on their equipment. For example, Exxon (or Esso here in Canada), have these devices called "Speed Passes". They are a RFID chip in a key fob that you hang on your car key ring. This chip, when passed close to the pump's antenna, is read, and your credit card information is brought up on the clerk's scree, to authorize and complete your purchase, and process your payment. You can "ride along" with these chips because if you have a chip reader antenna, and you have your own point of sale system, you assign your own id in your point of sale system data base to correspond with that chip. Your custom now has one less loyalty card to carry with them, one less loyalty device to look after, and you don't have to shell out for the chips because the gas company did. Almost a free ride.

I guess you could do the same with a barcode..but, for some reason, businesses get all hung up about this thing called "brand"...and want THEIR name on THEI loyalty program tools.

So, now let me go off tangent and pose a few thought provokers back at ya.

Is any loyalty program worth the investment? I think so.

I mine data that point of sale systems generate. I use information that loyalty programs generate to answer questions just like yours (and a few others).

If you could prove that your loyalty program, and loyalty system was not only recovering the capital it cost to set up, would you consider the investment worthwhile?

What if your loyalty program began to cause customers to remain with you for longer periods, purchase more goods, and do so more fequently? Would that make your investment more worthwhile?

What if you hired a guy like me to devise or tweak your programs so it increased your customer's response(s) to your loyalty programs, as well as caused customers to come in more frequently, increasing their average purchases? Would that make your investment even more worthwhile?

These loyalty programs are tools. Tools should be used.

If you are going to do it...use it, and get your value out of it. They do work! I used to turn 200 dollars worth of marketing investment into $2,000 worth of additional sales every and any time I wanted to. That is the power of loyalty marketing, combined with a decent loyalty program and datamining.

Darcy (Customer Loyalty Network)
 
Posted by: eugene Accepted Answer
7/14/2004 2:38 AM (CST)
Hi Darcy,

Thanks for the interesting and thought provoking reply.

RFID is in fact an interesting technology with unlimited possibilities. However, it is also expensive (both the chip and reader) and comes with risk assosicated issues. It is especially useful for use in public transportation and high traffic areas, hence some organisations have opted for combi / hybrid chip (or contact and contactless) technology.

Magnetic stripe technology will require transactions to go online and where the communications infrastructure is not adequate ie in developing countries, this will be a problem, hence the smart card technology will come in play ie transactions can be performed offline.

Though the benefits are obvious with whatever technology employed, cost is definitely a critical issue to consider.

I suppose it still boils down to a chicken and egg situation...
 
Posted by: boni Accepted Answer
7/19/2004 3:18 AM (CST)
Hi Eugene,

The reply from Dracy has indeed been a thought provoking one, and so has been your counter to Dracy's answer. I have a few points to make, with your permission:-)

1.>Any technology used in the customer loyalty program(whether it is RFID, Barcoding or any Bespoke system) has only one part to play and that is enabling the Customer loyality or customer retention starategy. Technology is just an enabler rather than an end itself. RFID may be costly, but if one can generate economies of scale it may prove to give higher incremental benefits per customer than Barcoding or magnetic way. Similarily, Barcoding for the same economies may not give higher incremental benefit. So it essentially is not a chicken and an egg problem, but a strategy problem, where you finalise the technology use vis-a-vis your targets(Revenues, costs, retention, service levels etc).

2> Now if the retailers and others can come out with some collaborative systems, they may as well start using RFID or other systems. In any case RFID is gaining lots of ground on account of Collaborative Supply chain initatives.

Hope i made some sense.

Best Regards,
Boni
 
Posted by: mlamers* Accepted Answer
7/23/2004 5:37 AM (CST)
Hello Eugene.
Without talking too widely or generally, if you are wanting to invest in a loyalty program, do not bet on EMV being the enabler in the sort term.

Although the technology has been around for a while, implementation in the field is reletavly new, and many, many gremlins are still kreeping out the woodwork. (See UK stats on number of EMV cards and terminals being recalled due to incompatiblity issues).

This is especially true in an open network, rather than a closed retail based implementation.

My advise : give it two years, leading with innovation doesn't always have to mean "bleeding edge", and learing the hard way.
 
Posted by: tigertek Accepted Answer
7/23/2004 9:50 AM (CST)
RFID is expensive and insecure. You can not control who reads the data as easily as smart cards. Many consumers are resisting RFID technologies when they are enlightened to how easily it invades privacy and security. Gillette is one of these doomed companies. Many courier companies such as FedEx and UPS are using them also.

Oh and Darcy - I'll have your car keys and fill up the tank in everyones SUV ;-P Simplifying credit fraud aye!

Stick with smart cards for the moment.

 
Posted by: Val (Moderator)* Moderator Response
7/31/2004 10:29 PM (CST)
Hello all. I am closing this question since it's more than 2 weeks old. We do this to reward the contributions of participants in a timely manner + to give increased visibility to the newer questions.

Thanks, so much, for participating!

Val (Moderator)
 
Posted by: darcy.moen Member Response
8/1/2004 1:01 PM (CST)
Umm, the RFID chip is passive, it doesn't store any information.....just like a barcode. Does the barcode store the inforamtion? NO! The information is stored in the Point of Sale system.

As for hacking my "Speed Pass", without my 4 digit security code to complete the sale and authorize the transaction, I don;t think you'd be getting much free gas for you or your friends.

Buy the cheaper "non-writable" chips. Writing data to chips is expensive, and un-neccessary. Contain the information you want in your dtaabase, and, if you buy a reader that reads a broad range of chips, you can piggy back on exisiting chips out in the field.

Costs of RFID is coming down. Microsoft announced a package to work with their great plains CRM software this week. Chips, reader and software to interface with their Great plains system, $25,000

As for smart cards, gee, how secure are they? For 100 bucks, I bought a smart card reader/programmer to program my own satelite card. The same tool can be used for other things. I have a smart card for running large industrial washers that took me all of ten minutes to get into. C'mon man, it isn't the ultimate answer, and neither is mine...

Darcy (Customer Loyalty Network)
 
Posted by: santhi_s* Member Response
8/3/2004 8:49 AM (CST)
Smart card is defintely worth the investment for loyalty programs, in some cases.

- While cards like RFID, or magnetic swipe store only the customer id or some such information, smart card can store all kinds of info like customer purchase history, loyalty points, reward points, etc.

Why this is important is when you involve multiple parties into the loyalty program, it is not possible to have these parties POS systems link to each other. By using smart card, you eliminate this and can store all info on the cards for the parties to read only relevant info and upload new info. (You can get periodical reports from these parties and update to the central system)

Of course there are many other advantages that one can think of because of this nature.

- Info on Smart cards can be encrypted so that only specific parts of the card info can be read by specific parties. (also not readable by any other application.)

So depending on your need you can choose smart card or magnetic swipe card.

As you have stated - cost of smart cards is prohibitive, but looking at the total cost of ownership for the loyalty program can give a better insight for decision making.
 


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