Getting started with social media

Q: I am trying to get a handle on how much time and effort I should spent in social media initiatives and what kind of return on investment I could expect. Frankly, it’s hard to know where to start. Any suggestions?

A: Social media is obviously is a hot topic today for retailers. There has never been a time in history where a retailer, without much capital, can fully engage with customers and potential customers at this level. When you think about it, fashion is inherently “social” so what a wonderful medium to play within to connect with customers.

These technologies are developing at such speed that it can be a bit daunting to determine how to best integrate social media into your marketing and branding efforts. There also seems to be a lot of debate on what to expect in terms of sales conversion from social media efforts and how to monetize the social media space.

First off, you want to ensure that you are properly harnessing the power of social media if you wish to benefit and control the way your business is perceived. All too often when social media is used, retailers think it is enough to simply sign up to a few social networks and then put them on autopilot. This is not an effective strategy. You will only get an ROI out of social media if you make the proper time investment, and put together a strategic plan on how to incorporate social media into your overall business plan.

As far as ROI and sales conversions, retailers should first step into the social media space to connect with their customers, and allow them to engage your brand, rather than focus solely on sales as a starting point. By doing so, social media can create a strong relationship with your customer and deeper brand loyalty, and that in turn will have an impact on sales.

Facebook and Twitter are the best social media platforms to build a social media strategy, Facebook being the 800 lb. gorilla. According to a research study published by ForSee, more than half of everyone that shops online uses Facebook, and of those online shoppers who engage in social media, more than 80% use Facebook.

Start with Facebook. Make sure you have someone to monitor it and post good, timely information. Promote it to your most loyal customers through your regular communications venues (emails, ads, stores, etc.) Use your Facebook page to post promotions and product information.

Think about what kind of content you can share to provide value and “buzz” to your audience. How can you create excitement around your business? The buzz phrase in social media is “content is king.” You need to develop content, even bite sized content that people like and see value in.

And remember, Facebook are Twitter require time commitments. Keep it fresh and answer your customers consistently and constantly. Before too long you will begin to harvest the revenue generation that comes from a well thought out, long term, social media strategy.

Making sense of the cap on debit card interchange

Q: I just read about the cap on debit card interchange, and I’m wondering how this will impact me as a five-store menswear chain. Will I see a significant drop in my fees? How will I be able to account for it?

A: The passage of this legislation was a huge victory for retailers, a $16 billion victory. First, a little background because we have been following this debit card legislation very closely.

This was a hotly contested battle between the retailers and the card-issuing banks. Debit cards generate fees of $16 billion for the banks annually. The Durbin Amendment, which was a piece of legislation added to the Dodd-Frank bill, sought to limit the interchange rates that banks could charge for debit from an average of 44 cents to 12 cents.

Interchange rates are the fees a bank charges to retailers when consumers use their credit or debit cards. The Durbin Amendment covered only debit card interchange where it was argued that banks enjoyed a windfall in fees, without the commensurate costs of issuing credit cards.

The banks made the case that a cap on fees would not give them a needed reserve to protect against debit card losses and provide the necessary risk management. It would therefore require them to limit the amount, or cap, what a consumer could put on a debit card, ultimately hurting the consumer.

In addition, the interchange fees funded the rewards program for debit cards. As a result of this legislation, many banks, such as Chase, are ending those rewards programs that had encouraged consumers to use these cards.

Last May, the Senate approved The Durbin Amendment by a 64-33 margin to cap the debit interchange fees, and the vote that took place last week, championed by Sen. Jon Tester (D-Montana), was a last attempt to delay the changes from going into effect to allow Fed to further analyze the potential impact. The banks failed to get the necessary 60 votes to make that happen, and the Federal Reserve Board will move forward to cap the charges banks can charge on debit interchange by July 21.

Now that the Interchange regulation on capping debit fees is official, what does it mean to you, the independent specialty retailer?

The first thing to understand is that any reduction in debit interchange doesn’t necessarily mean most merchants will realize these savings. As I discussed in a previous article, the majority of merchants are priced on a tiered credit card pricing structure (with a “swiped” qualified rate, a mid-qualified rate and a non-qualified rate). In a tiered-rate structure, individual interchange levels (such as debit) are not broken out but are bundled together, and as a result, retailers on this plan will not receive the penny for penny cost reduction the legislation provides.

So while the interchange fees for debit are being reduced by more than 70 percent, only a quarter to a half of the savings will most likely be passed on to merchants. The nation’s largest retailers, who had the lobbying heft in Washington to get this passed, and are all on interchange plans, will certainly get their share of the $16 billion. However, this will not be the case for the small and mid-size merchants that are still on tiered pricing plans.

In addition, there will be little motivation by processors, who enjoy high tiered-rate margins, to change clients to interchange pass-through and pass along the cost reductions. Since the fees on debit cards are coming down precipitously, the profit margin on tiered-rate programs will spike for processors using this structure. On a pure interchange pass-through plan, the savings all goes to the merchant, penny for penny. That means you need to make sure you get this structure in place for your business to benefit.

Another cautionary note is to be aware of faux interchange rate plans. There are programs disguised as interchange pass-through plans that are actually hybrids of both interchange and tiered-rate plans with sizable markups.

In an example of this type of interchange pricing, you would find interchange plus 20 basis points for a “qualified” transaction, but 50 basis points over interchange for a mid-qualified transaction and 100 basis points over interchange for anything they consider a non-qualified transaction. This goes against everything a true interchange program was designed to do, eliminate tiers and the large markups on credit card transactions.

So what actions should you take now in light of this legislation? Take a look at your most recent merchant statement and if you are not on a direct interchange pass-through pricing plan, make that a priority before the July 21st date when the Fed changes the fee structure. That will allow you to immediately benefit from the price reductions in debit, along with all the other financial benefits an interchange plan delivers over tiered pricing. (Again, see my previous article for benefits of interchange over tiered rate plans.

If you would like to discuss the benefits on interchange pass-through in more detail, e-mail me at michael@retailmerchantservices.com.