Bethan Cowper Mar 30, 2015

Making a difference with loyalty programs

Every vendor from grocery stores to gas stations offers loyalty programs these days, but what makes one stand apart from another? As consumers are bombarded with offers to earn points and rewards on their purchases, financial institutions (FIs) must cut through the clutter to make their loyalty programs relevant to their customer needs and really stand out from the crowd.

The thousands of successful loyalty programs across the U.S. today can attest to the fact that consumers love being rewarded. Banks are becoming increasingly aware of the benefits of these programs for customer retention and acquisition and ultimately the positive affect on their bottom line. However, they should be careful not to confuse repeat behavior with loyalty.

Loyalty is emotion-led, generated from a psychological preference and an affective attachment to a brand. Customers that fall into this loyalty bracket will stay true to the brand regardless of the competitive alternatives available. While offering discounts and rewards encourages repeat behavior and constitutes a step in the right direction, it is a personalized customer journey that will drive an emotional attachment. With this in mind, how can FIs use loyalty programs effectively to instil trust and grow their customer base?

Don’t over personalize. While big data is certainly useful in establishing successful loyalty programs, assuming that you know your customers based on their spending history can be dangerous. Consumers don’t just use their cards for personal purchases and there have been a number of well-documented instances when such assumptions have led to insulting the customer by mistake, even if the information is accurate. It is important to realize that one bad experience can curb usage altogether and that there is a difference between knowing your customers and pigeon holing them.

Give customers control. The most successful loyalty programs let their customers choose and manage their rewards across multiple channels. Customers who can log in and view the points available to them and subsequently choose how and when to spend them are more likely to repeat these behaviors. Offering control is an essential tool for building trust and offering the customer better financial management capabilities.

Give customers choice. Work with retailers and other service providers to offer a range of rewards, from a visit to the zoo with the family to cheaper gas or better interest rates on your savings accounts. This way, customers can use points to treat themselves with a shared experience, such as a meal at a restaurant, or they can save points and use the loyalty scheme as a money-saving mechanism.

Make rewards instant. Today’s consumer is fickle. One way to keep them engaged is to offer instant rewards, such as cash back or discounts. The slow and arduous task of waiting for loyalty points to accrue before they can be used can be off-putting, especially for millennials who have been brought up in an “I expect everything now” environment.

Be available. Integrate reward schemes with social media to drive emotional loyalty. In turn, this will ensure you are actively pushing customer-centricity over product- or service-centricity. Offering feedback and answering queries 24/7 across different platforms makes for a more personal customer experience.

Communicate. Customers want to get updates and news that is tailored to them via channels they have either selected or use the most. Use these preferred channels to educate your customers about the products and services you offer and the benefits of their everyday use.

Drive behavior. In an increasingly customer-led world, it is becoming harder to drive consumer behavior; loyalty is one way FIs can incentivize their customers to exhibit new habits. Rewards can be used to drive behavior, whether you offer more points for using a credit card than a debit card or offer an incremental points system based on transaction frequency. Don’t forget to offer more rewards based on the products each customer uses. A person who has a checking account, savings account and mortgage with you is much more likely to stay put. Short-term point increases or cash-back offers can help encourage the use of a new product or technology, such as contactless cards and mobile.

Be inclusive, not exclusive. While it is natural to want to tier rewards depending on account type, points and discounts need to be accessible and realistically obtainable for all customers. This is also relevant for new customer acquisition incentives. It may be tempting to offer an attractive bank-switching package to get new business, but be careful not to alienate the customer base you already have. Offering too many high profile “new account” rewards while not adequately recognizing the current customer base could encourage customers to take advantage of the new account rewards offered by your competitors.

Measure and review success. Make loyalty an interaction; reward customers for feedback to both understand what you can do better and let them know that you value their opinion. Measure and review the success of your loyalty program. Map the customer journey; look at how you can improve it and, most importantly, make changes. 

Make everything about the customer journey. Making sure that the entire customer experience is seamless and integrated will encourage repeat business. When it comes to loyalty, the payment is secondary and shouldn’t be the process that the customer remembers. It is what happens before and after that will establish an emotional loyalty to the brand.

Ms. Cowper is head of International Marketing for Nottingham, U.K.-based Compass Plus Ltd. She can be reached at b.cowper@compassplus.com.

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