Harshad Agashe – VP of Product Management at Emailage, A LexisNexis Risk Solutions Company. Harshad leads the Product Management team with a focus on building Risk Management Products focussed on solving for key customer outcomes. Works closely with stakeholders across Customers, Partners, Customer Success, Data Science & Analytics, Technology, Marketing & Sales teams to identify, build and communicate value for customers. Prior to Emailage, he worked at American Express as Director of Marketing Technology.

Using Brand Loyalty Incentive Marketing Without Inviting Abuse Fraud

For digital-first brands, customer acquisition has always been a challenge, and as the number of merchants entering into this space is rising. The current state of affairs globally has many people staying home, making it difficult for traditional promotional activities, like events, to remain viable. The shift to digital engagement is opening up opportunities for services and direct-to-consumer brands to acquire new customers through limited-time, or trial promotions. This creates a competitive environment where it’s even harder to stand out with unique offerings and customer-friendly policies. The increased competition for audience attention on social media and consumer market share, the channels that have fuelled DTC growth to-date are becoming crowded with #stayin deals and promotion costs are getting prohibitive. And it’s creating an ideal scenario for promo abuse.

Incentive marketing, which provides a reward for completing a desired action, is among the top go-to alternatives for brands looking to attract new customers. These incentives can range from referral bonuses, first-purchase discounts, or, especially for subscription services, free trials. In fact, according to a McKinsey survey, financial incentive is the top reason people sign up for replenishment subscriptions, which are those for regular delivery of items like razors, dog food and toilet paper.

As effective as these tactics can be for retailers, they are not without risks. Because anytime there’s a chance to get something for nothing, there will be nefarious individuals looking to exploit the opportunity. Falling prey to incentive fraud is not inevitable, however. You just have to know the risks and how to mitigate them. Retailers are starting to use unique enterprise technology and putting anti-fraud procedures in place to help offset some of the risk. Besides implementing technology, below are some key issues all merchants should keep a close eye on.

Incentive marketing isn’t the only thing that consumers can take advantage of, friendly policies offer another channel for fraud. This happens when a consumer takes advantage by using the policy in a way other than the offering intended (think of someone telling a retailer an item or service wasn’t delivered to get a new product or fraudulently accruing points by attaching their reward account number to a purchase they didn’t make).

 So, who are the “bad guys” retailers should be looking for?

Battle Bonus Bad Guys

In online gambling, getting a monetary bonus in exchange for signing up is essentially expected. While these bonuses are supposed to be one-time only, a practice referred to as gnoming is frequently used to collect that bonus multiple times. Because it’s so simple to execute — all you need to do is make multiple accounts using a different email address for each —  most online gambling operators say this is the most costly type of fraud in the sector.

Gambling isn’t the only area where new customers are rewarded with valuable bonuses. DTC brands like StitchFix and Adore Me, ride hailing apps like Uber and rewards sites such as Rakuten have all given free money for new accounts at some point. Banking and credit institutions also frequently give away bonuses, sometimes dollars or airline miles, which makes them vulnerable to this type of fraud as well. Earn a points bonus based amount spent? What happens if a consumer then makes a return…

 So how can merchants prevent this strategy intended to bring in new customers from becoming a money pit? One solution is increasing the number of steps involved and information required for account set up. That way, you increase the likelihood of detecting a shared input that links a fake user to a real one. The caveat is, if the sign up is too arduous, the legitimate prospective customer may abandon account creation all together.

Subscription Sign-Up for the 5th Time

By 2023, 75% of DTC brands will have subscription-based business models, per a report by the Subscription Trade Association (SUBTA). For these merchants, customer acquisition almost always involves some sort of try-before-you-buy. Perhaps the first one is free, or maybe there’s a fixed trial period. Either way, the intention is to show the prospect that the product or service is something worth paying for.

The scam that’s plaguing this form of incentive marketing is called email “tumbling.” Employed by professional and amateur fraudsters alike, this practice is quite similar to gnoming. The person simply creates a new account with a different email account every time the trial period runs out. Now you know why you’ve never seen john.smith@domain.com, j.ohnsmith@domain.com, and johnsmith+trial@domain.com in the same room: he’s the same guy and he’s exploiting your marketing infrastructure with no intention of converting.

One method of deterring freeloaders in these situations is the model used by giants such as Netflix and Amazon: simply require the person to provide valid credit card information when setting up their free trial. Not only will this small step prevent people from setting up serial account trials because they know they’ll forget to cancel before the trial is up, the extra detail that comes along with the credit card information can be cross-checked with past trial accounts. In short, you’ll see that john.smith@domain.com and j.ohnsmith@domain.com have the same address, and it’s highly unlikely they’re roommates.

What should the industry do? Protect incentives. Identity is the key.

Businesses use incentive marketing because tactics like bonuses, points systems and sign-up offers are an effective way to acquire customers. Merchants shouldn’t abandon this growth strategy just because there are occasional bad actors. Instead, they need to be vigilant and make it more difficult for their well-intentioned campaigns to be exploited.

Because the methods used to stop the crooks can impact genuine customers, merchants need to be conscious about the balance between friction and vigilance. For example, having a registration process that’s too long can keep potential customers from completing it. In fact, a survey by business guide The Manifest revealed that form length is the second most common reason people abandon online forms. Still, the same survey showed that many do return in order to get an incentive. At the same time, new technologies that leverage today’s vast data repositories and advanced analytics technologies are entering the market. These services that operate in the background can reduce friction while providing merchants with more reliable customer authentication.

Here are a couple tips to get started:

  • Track creation, redemptions and budgets
  • Limit promo duration and number
  • Personalize/individualize coupon codes
  • Limiting promos to customer identity parameter

Learn more about the broader topic of Promo Abuse in a conversation with Lyft to explore even more fraud tactics and ways to deter this kind of fraud.