It is the perennial question on every business leader’s mind: how do I ensure demand for my products and services? In a world turned upside down by a global pandemic, the stakes are higher than ever for arriving at the right answer.
One tried-and-true tactic — corporate incentives — is getting renewed attention thanks to the effectiveness of flexible payment cards powered by modern card issuing platforms. Under the traditional approach, companies sought to affect customer or vendor behavior by giving out payment cards that served as cash equivalents. But this sometimes backfired, creating customers who were chronic switchers. An equally undesirable outcome occurred when customers failed to redeem their incentives and the money allocated to the program was awarded to third-party program managers. Marketers and finance folk both needed a more targeted method of delivering rewards.
Modern corporate incentives programs recognize that high-value customers value not only cash, but also relevance, choice, and convenience. These customers respond to rewards that have aspirational as well as economic value.
Flexible payment instruments, such as cards issued through a modern card issuing platform, allow companies to create programs that can attract and retain the most desirable kind of customer, and they help ensure payments end up in the hands of the intended recipient.
Corporate incentives programs that leverage modern payments technology enjoy four primary advantages over more traditional approaches.
- Higher engagement.Unlike traditional incentive cards, modern cards are totally customizable. Organizations have the latitude to develop programs that are unique and flexible. They can target incentives based on merchant, merchant category, geographical location, and date/time, among other factors.
- Increased traffic.Companies can offer tiered incentives to drive traffic to a particular store or to a group of retail partners. Program sponsors may choose to increase the value of their cards if they are spent in their own stores, while offering a smaller but still desirable incentive if the card is used elsewhere. In this way, using modern payment cards for corporate incentives programs provides a best-of-all-worlds approach. Similar to closed-loop cards, which can only be spent at the merchant sponsoring the program, they are able to generate targeted demand. And, like open-loop cards that can be spent anywhere, they give consumers a choice in how to spend their incentives.
- Flexible funding.Corporate incentives programs have traditionally required companies to set aside the total amount of expected spend in a dedicated account. The downside of this requirement was that cardholders could take years to redeem incentives, tying up needed capital and adding to balance sheet liabilities. This unredeemed amount is known as “breakage.” Breakage can sometimes be reclaimed at the end of an incentives program — as stated in the incentives card’s terms and conditions. But it is also possible for breakage to be taken by third-party program managers. To avoid breakage losses, modern cards rely on just-in-time (JIT) funding. With JIT technology, companies only load the money onto cards at the moment purchase is authorized. In this way, JIT funding could dramatically decrease program costs.* (Please see disclaimer at the end of this article.)
- Instant issuance.Traditional incentives cards are sent to consumers by mail, yet many new cardholders would prefer to begin spending right away. This is possible when a card is provisioned directly to a customer’s digital wallet, either in the form of virtual card or a tokenized physical card that arrives in the mail a few days or a week after it has been digitized. Seventy-nine percent of consumers said they are more likely to join a rewards program that doesn’t require them to carry a physical card.*
The purpose of a corporate incentives program is to give a prospective or existing customer an additional reason to choose your company’s products or services.
Incentives that deliver the biggest reward for the least amount of effort are most likely to be effective, as are those that either speak directly to a consumer’s need or provide the largest degree of choice.
The underlying technology matters because it determines how customizable your program is and how easily you can change it in response to new information about customer preferences or needs. Open API platforms enable developers and program managers to leverage sophisticated functionality and existing relationships to create incentives programs that match the unique characteristics of their companies. They can creatively apply spend controls and learn from real-time transaction data. Rather than getting locked into a less agile program may result in a high degree of costly breakage, they can experiment until they find what works while potentially reducing the costs associated with breakage.
