Merchant Networks and Critical Mass
By: Lars Holmquist, Vesdia
November 17
Merchant networks have become a very popular feature of the nation’s loyalty programs. All large credit card issuers have or soon will have a merchant network incorporated into their existing loyalty programs. The same is true for airline frequent flyer programs and several large debit card issuers. Even more remarkable than the growth of these networks generally is the proliferation of the online shopping mall. These simple merchant networks will soon be available as a link from virtually any website. The popularity of merchant networks, like any hot topic, is fueled by the perception that they are free or cheap, easy to implement, loved by consumers and will generate loyalty and significant revenues. This paper will examine these issues and the importance of critical mass and velocity in driving merchant network performance.
In the context of loyalty, a merchant network is two or more merchants participating in an external loyalty program by supplying members with offers for their products and services. Consumers will earn additional rewards (e.g. points, miles or cash-back) for shopping at participating merchants. Loyalty program sponsors can either assemble merchants independently or solicit the services of a merchant network provider. In any case, a merchant network is a technique and a type of partnership marketing ...
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