In a Down Economy, Go Big or Partner Up

The opening bell of the New York Stock Exchange, once the exuberant signal of a day of robust and largely escalating financial activity, now sounds like a frantic alert. And when the trading day is over, the closing bell sounds like a clamorous alarm clock waking us from nightmares, but not rescuing us from them.

As disconcerting and glaring as the recent Wall Street meltdown has been, however, it was only one of many looming economic problems. On the way up: the Consumer Price Index has more than doubled to 5.4% over last year’s level. On the way down: consumer confidence has plummeted to distressing lows. The Conference Board’s August U.S. Customer Confidence Index at 56.9 was 40 points below its base-year 1985 level. Similarly, business indexes reveal fading corporate and CEO confidence levels.

And U.S. borders are hardly containing the problems of tightening credit and liquidity. In Canada, figures released by TNS Canadian Facts show that Canadian consumer confidence is mired at a multi-year low despite some recent upward bumps. And even the nascent China Consumer Confidence Index (CCCI) didn’t take long to dip to its lowest point in September.

The natural corporate reaction in such an environment is to hunker down, tighten up—and if you’re reading this, you and your marketing program are likely one of the targets. A recent MarkingProfs survey, for instance, reported that the economy has already forced planning and budgetary changes on 52% of marketers; 65% are anticipating negative effects. Too many CFOs need small enough excuse to pare back on long-term loyalty programs that, to their eyes, exhibit short-term expense and cumbersome liability.

Add to the CFO’s “just say no” arsenal a looming potential accounting shockwave for stand-alone programs. A new set of accounting standards governing points-based loyalty programs, known as IFRIC 13 and prepared by the International Financial Reporting Interpretations Committee, was put into effect internationally on July 1. U.S. companies are not required to follow IFRIC 13 standards—yet. Complete compliance may be required by 2012, with levels of compliance phased in until that time.

For many companies, IFRIC 13 will force a significant one-time adjustment to the company’s books. Where many companies had been accruing liability based upon the actual cost of program points and rewards, they will soon be required to accrue liability at the fair market value.

Going forward, a portion of the company’s revenues must be deferred. Without special notations and explanations, comp-store sales and similar year-over-year comparisons will appear to decline. Such perception can additionally spur reducing investment in the very programs that can preserve and strengthen customer loyalty at a time when we need our loyalty customers most.

With the convergence of these financial pressures, both actual and perceived, we anticipate that marketers will seek benefit from one of two approaches:

Use this time of uncertainty to double-down on your loyalty program investment in anticipation of the next upswing.

Consider this the “buy low” side of investment allowing you to “sell high” later on. Increasing value propositions in troubled times can further lock in your best customers when they are most susceptible to abandoning you in favor of the bargain brand. Simple soft-benefit recognition of customers’ loyalty can remind them of the program’s past value, and adding more hard-benefit value can reinvigorate their commitment.

As well, a sweeter value proposition may bring outside bargain hunters to your value table. And backing off your program efforts tosses you into commodity land at best, and at worst drives away best customers offended by perceptions of ingratitude.

Build even greater interest in forging partnerships and alliances with other non-competitive companies.

The go-it-alone model loses efficiency when consumer spending wanes, earn velocity slows and corporate taste for financing rewards subsides. Partnerships can strengthen program effectiveness by increasing company visibility and reducing program investment. Shared marketing and shared data insights, for instance, spread investments over the combined expanded communications reach.

Most important, partnerships and alliances add to a richer reward base and overall value proposition and leverage the combined credibility and loyalty of partner brands. Give your customers a way to earn even faster and you’re more likely to consolidate their lower spending levels with your brands—and your partner’s brand.

The bells are tolling, both physically on the stock exchange and figuratively in the market itself. Troubled times, unusual financial straits, upcoming accounting challenges. Don’t ask for whom the closing bell tolls. Ask instead how and with whom you will energetically answer the opening bell.

Kelly Hlavinka ([email protected]) is a senior director for LoyaltyOne.