Do-It-Yourself Loyalty

Jupiter Communications sent out a report last week saying (surprise) that loyalty programs by themselves are not a promotions strategy.

This is a bit like saying Froot Loops should only be eaten as part of a balanced breakfast. We all know that. But if that’s all your kids will eat for breakfast, that’s better than nothing.

So with that caveat, maybe you’re interested in building a loyalty program. There are basically three ways to go.

You can go the S&H Green Stamps route, using the currency of someone like MyPoints, CyberGold or NetCentives. You’re buying all your points, but there’s an infrastructure behind you.

You can private label a generic currency, giving out frequent flyer miles, for instance. You’re still on the hook for the value of the points, and you’re also building someone else’s brand.

The third route is to do it yourself, but you’ll quickly discover why Alan Greenspan is worth every penny he’s paid; managing a currency is hard work.

Alan Gunshor wants to ease your pain. Gunshor is CEO of PassPoints in San Francisco, and if you want to play Monopoly with your loyalty program he’ll be your banker.

“We’re an outsourced solution, better, faster and cheaper than what you can do yourself. We can get you to market quickly. You can set up a program by putting a link on your site. It’s cheaper because you’re sharing the cost of things like merchandising loyalty offers, fraud management, data scrubbing, address verification and customer service features.”

Gunshor released the “Version 2.0” of his program effort, called FrequentShoppers, in late March. Among the outfits he’s handling loyalty programs for are American Express, AT&T, Dell, and Lands’ End. A fairly complete list is on his web site.

Let’s say I join the program for my store, Dana’s Widgets. I set the value, I issue as many points as I want, and PassPoints doesn’t charge for each point. I pay to create the program, and I pay when people redeem their points.

But people don’t just have to get widgets for their points, Gunshor says. While my points are redeemed only at my site, Gunshor explains, “they can be redeemed for any of the products on our site.” That means PassPoints is buying my widgets, when widget lovers want them, say, for points earned at ToysRUs. This system also means that content and community sites that don’t sell or make anything can have a loyalty program, he adds.

“We share the money downstream, continually,” Gunshor says. “We create a distributed model. We’re using the network to create a pre-fabricated program,” so someone can leverage his or her own expertise at selling widgets as well as PassPoints’ technical knowledge.

PassPoints doesn’t do badly from all this, either. “We get cash in two ways. We get cash when earning points,” from merchants paying for set-ups and fulfillment, “and in the redeeming points side,” from margins on the merchandise.

Small merchants offering their goods through the program can actually make more in sales than they pay for service, if their stuff is popular in redemption, Gunshor notes.

“We’re an invisible Amazon in that way. We buy at wholesale and sell at retail, for points. Then we share the money downstream.”

Just remember that you can’t do your marketing solely through loyalty, anymore than your teenager can live solely on his or her favorite cereal. It’s just one part of a balanced promotions breakfast.

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