When Harry Cardoza's Big Town Hero restaurant in Eugene, Ore., decided to become part of Umpqua Bank's locally focused Rainbow Rewards program, the store was looking for a loyalty program to secure local repeat customers. Cardoza likes the fact that local residents are encouraged to return to the store for a 6% discount on purchases.
"Repeat business is really important for me," he says.
Indeed, Cardoza's support for a rewards program that encourages cardholders to shop locally falls in line with the franchisee mentality of being a "little guy" competing against the behemoths. Big-box retailers' ability to negotiate cheaper rates has caused local merchants in many towns to shut down.
Over the past few years, smaller merchants in various communities have fought back by teaming with card issuers to support reward programs designed to keeps transactions, and money, local. One New England community has gone so far as to create its own local currency to promote the economy of its local merchants.
Such companies as Rainbow Rewards Inc., Maritz Inc., Rewards Now Inc. and even American Express Co. are operating home-grown programs in various municipalities. And merchants and banks looking for ways to compete for local business are signing on.
Local merchants feel they have been ignored by national rewards programs that focus on more well-known retailers. And some community banks want in on local-merchant programs to compete with bigger issuers, which tend to tie rewards programs to national merchants, says Steve Van Fleet, president and CEO of Rewards Now, a Dover, N.H.-based firm that develops loyalty programs.
"If a bank can work with local merchant partners, then that can put [the institution] above a national plan," he says. Van Fleet notes that local rewards programs are increasingly the topic of conversation with regional card issuers looking to differentiate themselves.
Roseburg, Ore.-based Umpqua is a community bank with 144 branches throughout California, Oregon and Washington. It is rolling out a debit card rewards program that allows cardholders to earn up to 20% cash back on their first purchase and up to 16% on all other purchases made at participating local businesses.
"We are fighting big-bank creep every minute of the day, so we had to find out how to differentiate ourselves in our product mix to represent our community-bank philosophy," says Lani Hayward, Umpqua executive director of creative strategies. "This was our opportunity to show our value proposition."
Umpqua and its partner, Colorado-based Rainbow Rewards, are developing the local rewards program to not only encourage cardholders to shop at merchants near where they live and work but to support a sense of community, says Jen Sanning, Rainbow Rewards chief marketing officer.
To date, the Umpqua program has more than 100 local merchants participating in Oregon and 300 more in line to participate in Washington and Oregon. The California portion of the program is just starting to build its merchant base, says Hayward.
'Coalition Lite'
Kelly Hlavinka, director of Colloquy, a Cincinnati-based loyalty-marketing consulting firm, refers to local-rewards programs as "coalition lite" because the merchant networks that offer the rewards are made up of smaller merchants.
"This is a way for smaller, local merchants to band together to give consumers more reason to pay attention to their marketing message that they can earn rewards in a variety of local merchants, instead of those merchants trying to go it alone against the big boys, such as Wal-Mart," she says.
When Umpqua started work on developing a loyalty initiative, most of the available programs dealt with larger retailers. "We wanted to find something that was a tangible benefit to cardholders in their everyday purchases and at the same time support the community," says Hayward.
Merchants also benefit from Umpqua's program because they only pay when a participating cardholder makes a purchase as there is no participation fee. Rainbow Rewards merchants pay from 2% to 16% of the sale.
"A lot of these merchants don't have the money to advertise," says Hayward, noting Umpqua and Rainbow Rewards do the program marketing. She did not disclose the cost of the marketing but said it takes up "very little" of its budget.
AmEx also tackled the program marketing for its "Keep it Local" campaign in Brooklyn. The campaign to promote shopping at local merchants, which ran for six weeks and ended in June, gave AmEx cardholders special discounts or access to special events, such as a pie-making class, in several Brooklyn neighborhoods. AmEx conducted a similar promotion last year in Brooklyn.
"The campaign is designed to bring together the Brooklyn community to spend money in their own back yard," says Dionne Rogers, AmEx vice president of client management in New York City.
Brad John, cofounder of high-end travel goods store Flight001 in Brooklyn, says he was pleased with the results of the campaign. "We've done several promotions with different people, but this was our best one," he says, noting as an example a customer who bought a full set of luggage from his store specifically because of the AmEx campaign.
John cites AmEx's marketing efforts as a major reason for the success. "AmEx was out there on the weekends giving out gift cards to American Express cardholders, so [people] really knew something was happening locally," he says. "And people appreciated that it was in the community."
Part of supporting the community with these programs is giving something back, participants say.
Though stores pay Umpqua a few percentage points on top of what cardholders receive in discounts, the bank donates roughly one-third of its share to a local charity. AmEx's campaign donated $50,000 to the Heart of Brooklyn, a partnership of Brooklyn cultural institutions.
Local rewards programs also can help banks develop new merchant relationships and improve upon existing ones.
Labor Intensive
"Rainbow Rewards, which does most of the work to sign up merchants, is going to merchants that don't currently bank with us," says Hayward, noting the bank does not yet know how many new clients the program has generated.
Both issuers and marketers that sign up merchants for the programs say one drawback to doing local merchant programs is that the efforts are labor-intensive.
For AmEx's promotion in Brooklyn, some 60 to 70 representatives went shop to shop to sign up merchants, says Rogers. However, the extra work paid off, as AmEx doubled the size of its Brooklyn merchant base in its second year from 100 to 200 merchants, says Rogers.
Maritz, a St. Louis-based loyalty-marketing provider, reaches out to merchants by contacting trade groups and associations, says Shea Long, vice president of sales and marketing. Maritz developed the Scotia Star local program three years ago with Scotia Bank, which offers cardholders discounts at more than 350 retailers in such major Canadian cities as Vancouver and Toronto. Long says Maritz plans to launch several other programs but could not disclose details.
Local Currency
While more issuers are teaming with local merchants in pockets around the country, a community of nearly 15,000 residents in southwest Massachusetts is taking the "keep it local" theme one step further. It has created its own currency for use at participating local merchants.
BerkShares Inc., a nonprofit organization working with the Southern Berkshire Chamber of Commerce, uses so-called BerkShares to keep sales local and money within the region to bolster the local economy. Although BerkShares have been in circulation for less than a year, Pittsfield, Mass.-based Berkshire Bank soon may begin to issue BerkShare checks and debit cards.
"It's in the exploratory stages right now," says Susan Witt, administrator of the BerkShares initiative.
With the BerkShares system, U.S. currency can be exchanged for BerkShares at 10 area banks. Ninety U.S. dollars can be exchanged for 100 BerkShares, which are available in denominations of 1, 5, 10, 20 and 50.
At press time, about $810,000 worth of BerkShares were in circulation, and the currency is accepted at more than 265 merchants, Witt says.
Though creating new currency probably is not the path many other communities will take, keeping money local by encouraging consumers to shop local with rewards programs is likely to continue, observers say.
"Business, like politics, is all local. So the best programs that generate the most loyalty and best response are going to be local," says Steve Mott, principal of BetterBuyDesign, a Stamford, Conn.-based consultancy. "That's where the market is certainly headed."
Rainbow Rewards already is feeling the impact. The company, which opened its Pacific office to launch the Umpqua program, plans to expand its operations later this year to accommodate growing interest in local-merchant loyalty, says Sanning. "We are hunting right now for bank partners in the Midwest and Northeast," she says.
Smaller financial institutions and merchants working together to build meaningful loyalty programs will enable their initiatives to stand out from bigger, national programs, says Van Fleet of Rewards Now. "I've been around payments for long time," he says. "It works."
