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Encouraging Mutual Rewards


Combining loyalty programs with private-label credit cards yields rewards for retailers as well as shoppers.

For instance, “Customers paying with private-label credit cards shop more often and spend more at the preferred retailer using their private-label card than non-cardholders,” said Marc Sczesnak, president of Mahwah, N.J.-based TD Retail Card Services (formerly Shoppers Charge Accounts Co.), a business unit of Toronto-Dominion Bank, the second-largest bank in Canada.

Additionally, the average ticket paid for with a private-label card tends to be two or three times higher than those paid for with a bank card, according to Sczesnak, who discussed with Chain Store Age senior editor Connie Robbins Gentry how the current economy is impacting retailers’ private-label credit programs.

What are some of the emerging trends with private-label credit cards? 

The good news is that although retail sales are down, private-label card sales as a percentage of total sales are up, reinforcing the fact that these private-label cardholders are more loyal customers. For several years, there’s been a trend among retailers to outsource their private-label credit business to banks. As the economic environment becomes more challenging, that trend will continue. Retailers will want to free capital for their core business rather than tie it up in their credit business. However, one of the more disturbing trends is the growing disconnect between the goals of banks and their retail partners. There’s a lot of pressure on the banks to achieve quarterly performance benchmarks, which can lead them to make unilateral decisions that negatively impact the retailers’ private-label programs.

Do you mean negative impacts such as rate increases? 

Yes. If the issuer of a retailer’s private-label credit card raises its rates, that can translate into negative customer perception towards the retailer’s brand. Also, issuers can make changes to reduce their costs, such as leaving the retailer’s customers on hold longer or rushing to get them off the phone, and that negatively impacts the customer-service experience.

Isn’t building customer relationships one of the main objectives of a private-label credit-card program? 

Absolutely. Private-label credit cards are a great way for retailers to create a dialogue with their best customers, and there are typically attractive incentives such as more advantageous financing on large-ticket items or points-based reward programs that [promote] frequency and monetary spend at the retailer. At TDRCS, many of our clients are medium and small retailers that would not have the resources to perform analysis of their private-label loyalty programs, so we provide tools that allow them to maximize the value of these programs. We help our retail clients by using customer-response models within a test-and-control environment that enables us to enhance marketing effectiveness and measure incremental lifts in terms of activation rates, sales and margin, which demonstrate the value of a marketing campaign.

At the small end of the scale, what size does a retail organization need to be in order to benefit from a private-label credit program? 

We like to see a minimum of $5 million to $10 million in bank-card sales, but we have customized offerings that work for the large retailers, too.

Could you offer suggestions for how a retailer and third-party issuer can partner to provide better customer service? 

Contractual relationships need to be structured to create mutually satisfying relationships for the retailer, their customers and the issuer. Any imbalances will translate into negative experiences, and when that happens it’s usually the retailer’s customer that is on the short end of a high-default rate. Also, both parties need to be invested in the program and there needs to be integration into the retailer’s systems. For example, the retailer should have employee incentives to promote consumer applications and card usage at the point of sale. Card issuers should adjust their work pace to be at “retail speed,” which is faster and more responsive than “bank speed.”

When retailers outsource their private-label credit programs, is it still a revenue-generating stream? 

It is, but in a different way. A lot of the expense associated with the program goes away and the retailer’s capital is freed to put back into its core operations. Additional advantages include incremental sales generated from a more efficient private-label card program that benefits from the marketing expertise and systems we bring to the relationship.

Given the challenging economy, are you marketing more aggressively through retail loyalty programs to motivate consumer spending? 

Yes, we’ve done a lot of specialty financing for bigger-ticket purchases, like for the husband who wants to buy his wife jewelry or the weekend warrior who wants to buy a $4,500 lawn tractor. Things like no interest, payment deferrals or non-accrued interest—anything to help people get over the perception that they can’t afford to make the purchase.

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