An Inside Look at Zynga's Bribable Approach to Customer Loyalty

Social and casual game-maker Zynga (Nasdaq: ZNGA  ) isn't going down without a fight. The company yesterday announced a new partnership with payments processor American Express (NYSE: AXP  ) in a move to resuscitate investor confidence. Together, the duo is launching a rewards program that lets gamers earn virtual currency by making real-life purchases on a Zynga-branded prepaid AmEx card. However, I'm not sure the benefits are weighted in Zynga's favor.

Game on
A strategic agreement between Zynga and American Express is definitely a game-changer, but not necessarily for the game-maker. This comes at a time when Zynga needs a lift more than ever. The digital gaming company has had a tough time holding onto gains since its December stock market debut. In fact, shares hit a new 52-week low of $6.36 on Monday after being strangled by investor fears over the company's ability to keep growing revenue.

Facebook's (Nasdaq: FB  ) troubled debut as a publicly traded company last week only made matters worse. With Zynga accounting for 12% of Facebook's total revenue, it wasn't surprising to see shares of the social gamer fall as much as 23% on Friday after the much-anticipated Facebook IPO. Zynga is down about 15% in the past week, despite headlines about the company's strategic partnership with American Express.  

Encouraging loyalty
While the new deal can't hurt Zynga, there's certainly more upside for American Express, as it will help increase its customer base. Of course, this isn't the card company's first play date with Zynga. In 2010, AmEx let Zynga fans cash in Membership Rewards points for virtual gifts and game cards that could be used across six of Zynga's popular social games.

Under the new agreement, cardholders will need to spend more than $25 on the first five purchases to reap the in-game cash for Zynga's FarmVille title. With 4.5 million unique daily users, FarmVille provides an ideal platform for AmEx to attract new members and Zynga to incentivize brand loyalty among its users. Zynga said it plans to expand the rewards program in the future to include other games such as CastleVille and CityVille.

While this is a step in the right direction, Zynga needs to pull off many more deals like this if it wants to keep gamers coming back for more. Track these social media-related stocks by adding them to My Watchlist -- The Motley Fool's free tool that lets you track and monitor your favorite stocks.

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Fool contributor Tamara Rutter owns shares of Zynga and American Express. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. Motley Fool newsletter services have recommended creating a write covered strangle position in American Express. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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