With customer loyalty in the financial services markets still in flux, banks have an opportunity to strengthen consumer relationships through rewards programs that are relevant to their customers. This is particularly important because as many as 20% of banking consumers say there is a high likelihood that they will change primary institutions this year and nearly half say they prefer relationships with multiple institutions, according to the ath Power 2011 Ideal Banking Study. Such results show the current challenges for retention and growth of customer share of wallet.
In the past five years, loyalty and rewards programs have increased in number at U.S. financial institutions and have proven to be effective in engaging customers and significantly reducing the likelihood of attrition. Yet, data from the study reveals that most organizations fail to fully leverage some of the key elements of customer loyalty and advocacy such as focusing on communication and cross-sell in the customer’s best long-term interest.
Our study shows that more than 40% of consumers would prefer to maintain all of their banking accounts with one primary institution. However, two-thirds of consumers maintain three or fewer accounts at their primary bank or credit union. While loyalty programs have a positive impact on customer retention and share of wallet growth, most consumers do not rate their satisfaction with their bank’s respective loyalty or rewards program very highly. For example, on average, only 34% of customers participate in rewards programs at their primary bank or credit union. Of those who do participate, only one-third are completely satisfied with the program.
The highest participation rates nationally were seen at PNC Financial Services Group Inc. and Citigroup, where two-thirds of each of these bank’s customers reported utilizing their respective rewards program. As with other categorical comparisons within the study, regional banks and community institutions received higher satisfaction ratings regarding the rewards programs they offer. However, their participation rates are much lower than at the larger institutions with only 17% of customers participating.
The most highly rated program is provided by USAA Federal Savings Bank, where 63% of participating members said they are highly satisfied with the rewards offering.
Successful loyalty programs get customers invested in the relationship by rewarding them on the most optimal products and services and with the types of rewards that speak to them individually. If consumers have a difficult time making the value correlation, engagement is low. Study respondents repeatedly say that they want loyalty programs that are actually rewarding. Customers view most of these programs as worthless because they either take far too long to actually acquire enough points or miles to redeem a reward or the potential reward choices are poor. Offering customers the ability to customize their reward package, based on a specific product bundle, enhances buy-in to the program and accentuates engagement.
Regardless of the structure, however, a major problem with current loyalty programs is how poorly they are communicated to prospects and the current customer base. The majority of consumers simply do not understand the program details and the benefits of joining. Banking organizations will drive more program adoption by regularly communicating the details to their customers over a variety of touch points – websites, emails, statements, etc. More importantly, get your frontline staff talking about your program! The success of a loyalty program can receive a powerful lift from banking employees knowledgeably discussing the long-term benefits of participation for their customers.
Our research shows that even slight diversions from developing or maintaining enterprise customer experience strategies puts banks and credit unions in a less competitive position and certainly reduces customer loyalty and employee engagement. Given the success rewards marketing initiatives have on improving loyalty, there is a clear opportunity for customer acquisition through strategically targeted program development or improvements.
Mr. Aloi is president and CEO of ath Power Consulting, which is based in Boston and Washington, D.C. and is a full service marketing research firm providing demand-side research to banking and financial institutions. Mr. Aloi can be reached at [email protected].
This report features insights from our recent BAI Banking Outlook: 2024 Trends survey that identified the top priorities for the upcoming year: deposit growth, followed by new customer acquisition and rounding out the top three was customer digital experience....