When we think of bank customer loyalty, we think of rewards programs. These programs are usually associated with credit cards, and a few encompass multiple bank products. The latter can be referred to as “relationship banking” programs or “enterprise loyalty.” The goal, as with many legacy loyalty programs, is to create preference, drive revenue, and reduce attrition. But these types of programs may be underperforming and thus doing your brand a disservice.
Because these types of rewards programs are not working as hard as they might be to provide mutual value to both the customer and the bank, it’s worth taking a moment to ask yourself, “Could my loyalty strategy use a reboot?” Below are indicators of bank loyalty programs that might be underachieving:
- The cookie-cutter program: These programs not only resemble each other but also your competitors’ programs. There is little that distinguishes your bank rewards program from another. There may be a difference in earn rates, either in total or in specific categories, and in “burn,” that is how much the rewards are worth, and what they can be used for. But you can’t really tell the difference, and neither can your customers.
- The wide net program: These programs try to be all things to all customers, and a lack of personalization means customers end up slipping through the gaps. By casting a wide net and trying to be all things to all people, you actually wind up with a card that is not top of wallet, and a customer that can be easily poached.
- The money pit program: These loyalty programs are considered a cost center by the organization, because they‘re not being leveraged as a resource allocation tool. Loyalty strategy is a means of methodically allocating resources to optimize value creation. Banking rewards programs have a significant opportunity to improve in this area, which would better ensure that the program expense is reaping commensurate value.
- The forgettable program: Many banking loyalty programs do not allocate sufficient resources to reinforce the rewards program throughout the customer lifecycle. Don’t assume that just because someone signed up for the program, they will forever remember its benefits. The program itself may be fantastic…but if customers are not cognizant of the value it can provide them, it serves no purpose in driving ongoing engagement.
- The fake diamond program: Rewards can be important levers, but loyalty does not equal rewards. There must be greater meaning behind the shiny object. Additional motivators can drive customer loyalty and engagement, resulting in greater outcomes than just rewards.
The Cookie-Cutter Program
Credit cards are where most banks house loyalty (rewards) programs. Cardholders spend using the card and earn rewards (points, miles, cash back) based on some percentage of spend. Generally, higher levels of earn are accorded cards marketed with higher credit lines and/or with annual fees. If this seems all too familiar, it’s because nearly every one of these loyalty programs seems the same.
That’s not to say there isn’t some variation. There may be nuances in terms of how much the “points” are worth, and how they can be spent. For example, although most travel rewards cards require that the cardholder book travel through the rewards platform, Capital One’s Venture card allows cardholders to charge travel to the card and then reimburse themselves with earned “miles.” Such minor differentiators might appeal to a small subset of credit card point enthusiasts.
While giving cardholders more flexibility in how they spend their points can be an enticing benefit, if your loyalty program is nearly identical to your competitors, what drives retention? It’s a question worth asking if you’re relying on your credit card rewards program to be a mainstay of customer loyalty.
The Wide Net Program
The best loyalty strategies—across industries—are built around the needs and interests of a unique group of customers. Loyalty programs that try to be all things to all customers end up missing the mark.
To create more targeted loyalty programs, understand which potential customers represent the greatest opportunity, assessing the potential value associated with these individuals, your organizational capabilities, your brand, and the white space in the market. Then design a loyalty strategy that appeals directly to those individuals, considering all aspects of the value proposition, including rewards and benefits, servicing, and ongoing marketing/positioning.
For Capital One, which introduced its Savor card in 2018, engaging customers who enjoy dining, cooking, and entertainment made exceptional business sense. For the distinct, and large, audience that thinks of themselves as foodies or just enjoys dining out, this card’s value proposition and positioning is well-targeted. With rewards that include higher earn in food and entertainment categories, as well as a variety of benefits such as partnerships with OpenTable and James Beard, the card appeals directly to the target audience.
Many credit card programs may obliquely appeal to individuals who have certain spend patterns, like paying higher on everyday spend such as gas and groceries, but do not add any other benefits that would be relevant for that audience. Everybody buys gas and groceries. Highlighting those benefits casts too wide a net, allowing customers to be poached by competitors.
The Money Pit Program
Loyalty is a way of placing bets—targeting an audience that is likely to give a company the greatest value if motivated appropriately. As such, loyalty is a powerful margin and expense management tool. Too often though, loyalty is regarded and managed as an expense instead of as contra revenue. Like a self-fulfilling prophecy, when loyalty is treated as a cost center, it becomes one.
Done well, loyalty maximizes customer lifetime value (CLV) and assigns the correct level/type of resources to drive desired returns. Customers with greater potential CLV require different strategies and tactics. Through more focused attention and a higher level of benefits, such as special access or ancillary programs, loyalty programs need to spend money to make money, but there’s a way to do this smartly.
With a loyalty strategy in place that appeals to a customer with a higher CLV, incremental benefits can be targeted to drive share of wallet, engagement, and retention. A robust customer-focused test and learn strategy should be deployed to maximize engagement while managing expense. This consists of a constant “fine-tuning” to optimize outcomes at the customer and portfolio level.
The Forgettable Program
In our experience, banks often spend significant resources leveraging the loyalty value proposition to acquire customers. But once that customer signs on, limited effort is expended reinforcing that value prop through the customer lifecycle. As such, it becomes less of an influence on how customers make their spend and retention decisions. In fact, JD Power, in its 2019 Credit Card Satisfaction Study℠ stated:
Credit card customers who say they fully understand the benefits available to them have satisfaction scores that are 165 points higher than those who do not completely understand their benefits offerings (864 vs. 699 on a 1,000-point scale).
Bank portfolios are optimized when the loyalty program is effectively marketed, not just at acquisition but thoughtfully and relevantly throughout the customer journey. The program has no value if target customers are not aware.
Consider a leading bank whose enterprise loyalty program encompasses multiple services and products and performs well acquiring higher-value customers. However, because it is not effectively marketed, it has limited, if any, resonance. One customer stated that the only reason she knew she was in the program was because of a banner on her mobile app, located just above account balances. Although she was in the highest value tier, the bank had made no effort to reach out to her and reinforce the benefits to which she was entitled. Because the customer has little memory of the benefits, the program missed an opportunity to stay relevant in the eyes of the customer.
Once the customer is acquired, the bank gains robust insights on behaviors, value, potential needs, and interests. These proprietary insights can be leveraged to make the loyalty strategy even more relevant, and thus more valuable to that customer. The few banks that do leverage this precious information outperform the competition.
The Fake Diamond Program
Driving loyalty in banking consists of more than just implementing a shiny new rewards program. Obviously, it means having competitive products and capabilities…that’s table stakes. But it’s also about creating differentiation, incorporating relevance, driving value, and engendering emotion. Customers need to feel that they’re earning something more than points. And there are ways of doing this which are cost-effective. For example, in frequent flyer programs, the most loyal customers board the plane first…this is a highly valued benefit and costs the airline next to nothing to implement. Enhancing the loyalty program with value-added benefits can serve multiple masters, driving increased engagement at a minimal cost.
Through the combination of products, benefits, rewards, capabilities, services, and experiences, and by leveraging shared and inferred insights and targeted communications to drive engagement, banks can chip away at negative or apathetic customer sentiment. This involves breaking through the barriers that make customers need to work hard to figure out how to gain value from the bank. That is not their job. They will move their business to another provider who makes it easier for them to realize the entirety of their banking needs. Making these changes is not easy as it involves a different way of thinking. But with the ongoing flow of disruptors, the digitalization of the environment, and the relative ease in which customers can move their relationships, those changes are necessary.
Banks can only leverage loyalty to drive value if they start to think beyond the constraints of the typical credit card program. Through a thoughtful, well-designed loyalty strategy, banks can reboot their relationships with customers and improve their ROI and CLV. For loyalty leaders in the banking space, how they differentiate their programs from the wannabes and misguided attempts will ultimately determine the future of the industry.
Senior Principal, Integrated Loyalty Solutions