One Loyalty Program’s Impact On A Bank’s Customer Relationships

The Aite Group recently published an excellent report on reward/loyalty programs in financial services. I can’t share their analysis and forecasts here, but they did give me permission to share the following chart, which shows the impact that Banco Popular’s loyalty program, Premia, had on the depth of their customer relationships.

premia.jpg

[Note: The point of comparison with the plan’s 250k members wasn’t just all other customers, but a control group with demographics similar to the plan participants. In addition to the product growth, attrition among Premia members was 4% versus 11% for the control group and 13% for all customers]

A couple of thoughts on this:

  • In addition to the loyalty program, which rewarded members for their relationship across a range of products (not just credit or debit card), Banco Popular must be doing something else right — those are impressive cross-sell statistics even for the control group.
  • My bet is that plan members (and thus, the control group) skew towards younger adults, who are more likely to: 1) be in the market for credit cards and auto loans, and 2) consider doing business with one firm (us Crankys don’t like to put our eggs in one basket).
  • There’s another benefit here: The impact on employees. Richard Davis, of US Bank, said in Banking Strategies: “…[our] program has grown into a full suite of rewards including cash, miles, or merchandise. For the first time, the employees, en masse, said, “I like this program. I’m finally giving something to my customers that they may want.”

Results like these, coupled with the loyalty program efforts of high-profile firms like Citigroup and Bank of America, point to increased deployment of cross-product loyalty programs within financial services. Smart firms, though, won’t just rely on a loyalty program to build long-lasting relationships. They’ll use loyalty programs to:

  • Increase engagement. A loyalty program can be effective at creating economic loyalty. But to create emotional loyalty, customers need to be engaged with the bank in meaningful interactions. A loyalty program can be instrumental in creating these opportunities beyone simply balance checking and problem resolution.
  • Glean customer insights. Doing market research is expensive and potentially time-consuming. Highly engaged loyalty program members will prove to be a timely (and cheap) source of customer behavioral data as well as attitudinal data.
  • Compete. Large banks will face some internal organizational structure hurdles when trying to create cross-product reward programs. I expect to see a number of large and mid-sized credit unions to capitalize on this and aggressively pursue loyalty programs to compete with these firms in their marketplaces.
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2 thoughts on “One Loyalty Program’s Impact On A Bank’s Customer Relationships

  1. Ron .. is this typical. I sense disillusionment with loyalty programmes. I will have to dig back, but I thought loyalty programmes were becoming commoditised.

  2. It’s NOT typical from a number of angles: 1) most programs don’t reward customer for total relationship, and 2) few banks achieve those kinds of results. That’s why I made the point that Banco Popular must be doing something right beyond just the program — their products/customer growth even for non-loyalty program members is excellent.

    As to disillusionment… there very well may be some out there. Wouldn’t surprise me — loyalty programs aren’t a silver bullet (just like online banking and bill payment which so many people touted as the key to retaining customers, remember?).

    I can’t speak to what’s happening with the banks in Canada, but in the US there’s growing interest as more and more firms see what Citi is doing w/ the ThankYou network, US Bank’s talk of expanding their program, BofA’s success with the “keep the change” program, and the prize-based savings efforts from Centra Credit Union.

    If you ask me, the industry has believed for some time now that its products have become commoditized. Going forward, I think more and more financial firms will look to loyalty programs as a *platform* for (or enabler of) differentiation — not a silver bullet.

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