Rewards Network Inc. In , Rewards Network's 3. Rewards Network's main U. Rewards is headquartered in Chicago and has a support center in Miami. The company provides restaurants with interest-free loans in exchange for blocks of meals sold to Rewards Network for half price.
The company also has a program for restaurants to offer discounts on specific off-peak times. In addition to straight discounts on restaurant meals, members receive reduced hotel room rates and frequent flyer miles.
The founder of Rewards Network Inc. Beginning as a young entrepreneur in Colorado, Chasen had experimented with everything from selling security alarms to running a mergers-and-acquisitions firm before he settled on the media barter concept that became Rewards Network's business model.
In , while still in his early thirties, Chasen founded his first company, Midway Enterprises Inc. In the early s, Chasen, with the help of ad agency executive Hank Seiden, entered the media barter industry. In media barter, companies buy up blocks of advertising from media outlets such as newspapers, radio, television and exchange them with companies for their excess merchandise or services. Often such companies will get an advertising equivalent to the wholesale price of their goods or services rather than having to settle for the heavily discounted price they would charge in a closeout sale.
To capitalize on the media barter idea, in Chasen renamed his business Transmedia Network and located it in New York City, where he began arranging advertising-for-services exchanges between radio stations and potential radio advertisers who needed ready cash. The majority of these companies were restaurants, which because of the dining industry's notoriously high turnover and thin profit margins were often unable to get loans from banks.
Early on, Transmedia also operated as a media placement firm, earning 15 percent commissions on ad space purchased from such publications as New York magazine. In exchange for financing his new business, Chasen's investors insisted that he run it, and in Chasen introduced the Transmedia card through which restaurant goers could receive 25 percent off meals at restaurants that had bartered meals for blocks of advertising. Chasen soon discovered, however, that restaurants much preferred cash to advertising space, and despite his own tight cash reserves he began offering pure cash advances to restaurants that agreed to accept the Transmedia card.
The change in strategy paid off immediately and cash-strapped restaurants began lining up for Transmedia loans. The amount of money Transmedia loaned restaurants was based on their reputation and capital needs as well as the amount of time Chasen estimated it would take Transmedia's cardholders to "pay off" the loan through restaurant visits. Since restaurants' actual cost for food and beverages ranged from only 30 to 40 percent of the cost charged to customers, Chasen's major obstacle was not in finding restaurants willing to participate, or investors willing to loan Transmedia capital, but in getting consumers to believe they could get 25 percent dining discounts without some "catch.
Working in Transmedia's favor were the features that made its card an improvement over earlier incarnations of the discount dining concept; no coupons had to be clipped and presented, maitre d's and waiters did not have to be forewarned that the customer intended to pay with the Transmedia card though large parties had to make reservations in advance through Transmedia , and there were no limits on dining times or menu choices.
As a Transmedia executive later recalled to the Los Angeles Times, "We designed the card so that there would be no restrictions, no coupons, no negatives. In July, Chasen reincorporated Transmedia which, as an outgrowth of Chasen's earlier ventures, had been a Colorado corporation in Delaware. The Transmedia card generated traffic for restaurants, filling up empty seats and conferring an image of popularity on struggling startups in the business.
Despite the heavy two-for-one price of the Transmedia loan, restaurant owners began embracing the idea of cash-on-the-spot loans that never had to be repaid in cash and offered the prospect for increased word-of-mouth traffic as Transmedia card users brought in new customers.
To expand his business even further, Chasen began offering Transmedia franchises for sale in , and by its first franchisee was offering the Transmedia card for restaurants throughout the New Jersey area. In , the torrid pace of Transmedia's growth began to draw the attention of Wall Street and the national media.
In and , a new entrant in the discount dining market, The Signature Group of Chicago, began negotiating with Transmedia for a joint licensing agreement in which the companies would honor each other's cards. Chasen allowed the talks to collapse, however, and the stage was set for Signature's entrance as a new player in the industry in June Already, in , a fourth discount card service, A la Carte International Inc.
Each offered variations on the others' program, tweaking the discount card business model to strike the right balance with consumers. Restaurants and hotels that participate in our programs benefit from the following: incremental customer traffic that fills tables and guestrooms, receipt of upfront working capital for growth, marketing support and promotion, and development of consumer loyalty programs. Moving forward, the future never looked brighter for Rewards Network.
We're adding restaurants on a daily basis to broaden our dining opportunities and provide an even more rewarding member experience. Our hotel program now includes over 10, hotels and resorts—including independent and marquee properties. Building on this momentum, Rewards Network is seeking to expand our variety of rewards currencies and loyalty platforms in order to offer still richer rewards to members while offering an ever-expanding number of restaurateurs, hoteliers and other merchants programs that effectively increase traffic and sales.
In August , Transmedia had optimistically predicted its membership would reach , by When closed, however, more than , members were actually toting Transmedia cards, which were now honored at 1, restaurants. By the end of , Transmedia was adding new restaurants a month, had extended its program throughout most of the East Coast, and had established franchise beachheads in San Francisco and Chicago. In late , Chasen began a policy of partnering Transmedia with selected U.
Transmedia also absorbed the restaurants honoring the Times card into its own network. The program had produced 64, new Transmedia cardholders by mid and spawned a series of co-branding, "retail loyalty" deals with such direct mail catalog merchants as The Sharper Image and Jos.
Bank Clothiers and eventually even cruise lines like Carnival. Moreover, by the end of the year Chasen had announced plans to introduce the Transmedia program to Los Angeles, Texas, Georgia, Arizona, and Mississippi. With more than , cardholders and 2, participating restaurants, Transmedia struck agreements with Cellular One, the cell phone service provider; Prodigy Services, the commercial online service provider; Amtrak; credit card issuer MBNA America Bank; and cable company Comcast to market the Transmedia card to the four companies' customers.
Transmedia picked up 4, new card members when Cellular One offered its San Francisco customers the card as a premium, and Comcast generated another 3, members through a similar program.
Prodigy made a blanket offer of the Transmedia card to any of its , subscribers who lived within 20 miles of a Transmedia-affiliated restaurant, and in July Amtrak began binding the card into copies of its on-board magazine on its East Coast routes.
Aided by a new federal tax law that reduced the allowable business meal deduction from 80 to 50 percent, which forced many business people to look for cheaper ways to wine and dine clients, Transmedia went ahead with plans to expand outside Los Angeles into Orange County and basked in the glow of a Financial World magazine article that ranked it as America's third-best growth company.
The year marked a watershed in the company's history. On the one hand, it expanded its network to 5, restaurants and almost , cardholders, began trading on the New York Stock Exchange, established a literacy-promoting philanthropic program called "TransReadia," and continued to expand its offerings beyond restaurant discounts.
In an agreement with GE Capital it offered cardholders substantial discounts on long-distance phone calls and initiated a new program called Transmedia Dollars that allowed cardholders to forego the 25 percent discount on meals in exchange for credits toward the purchase of airline tickets. Members could also use the Transmedia card for discounts at a growing number of hotels, ski resorts, and spas. On the other hand, the shimmer was beginning to fade from Transmedia's growth story.
Its attempt to franchise its license was also proving costly, and in July it repurchased its Chicago franchise and waited for its so far unprofitable Denver and Phoenix programs to turn the corner. Moreover, two new competitors, CUC International's Premier card and the Florida-based Gusto card, were offering new competition, and in June Transmedia announced that its upcoming quarters would show earnings below Wall Street's estimates. Although revenues grew by 20 percent in , that pace marked the slowest increase in the company's short history and net profits remained stagnant.
Forbes magazine questioned Transmedia's business concept as a kind of restaurant-punishing sleight of hand and wondered aloud, "How far can Transmedia go on this marketing ploy? The rarely spoken doubts behind four years of media hype seemed to come to a head all at once in late , when Transmedia's stock began a harrowing decline from which it still had not recovered more than 18 months later.
The seeds of investors' concerns could perhaps be traced to worry over Transmedia's pell-mell expansion, but the media suggested that the company's trouble might involve the very core of its business scheme. Promote from within. Lunch and learns.
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