Insight Center ARCHIVES

Industry knowledge to help you grow your business

Harland Clarke Home

Brag About Your Rewards Program and
Watch Account Holder Loyalty Soar

Don’t Be Shy! The More You Promote It, the More It Gives Back to You

RewardsHow much is a loyal customer worth? Not merely a satisfied one, but a loyal one who refers others to your institution, who is a committed and vocal advocate, and who sticks with you despite the occasional error.

If having more loyal customers is your goal, we have good news: you are halfway there if you already have a rewards program in place. Rewards foster loyalty. All you need now, in essence, is a megaphone to help spread the word.

“Most financial institutions that offer credit and debit cards have rewards programs,” says Jim Marous, Marketing Services director with Harland Clarke, “but many are not actively marketed, so there’s a lot of lost potential.” While financial executives likely would agree that it is important to actively generate enrollment in rewards programs, the biggest mistake is to start a rewards program and then to forget about it and let it run itself.

Rewards programs will get stale if they are static add-ons to credit or debit cards. Like any other product—from cars to computers—if you do not promote it, you risk losing share of mind in your market. Just as web site click-throughs are an indicator of engagement, if your account holders are not actively redeeming their rewards, it is not doing much for you. “It’s not about doling out points,” Marous explains. “It’s about building strong relationships.”

The major resistance to promoting rewards programs is the mindset that it is a poor investment to pay for customer activity that is already taking place. But that is shortsighted as the point of offering rewards is not to reward past activity but to encourage greater future activity. “This requires a shift to a forward-looking mindset and an ongoing pursuit of relationship growth,” says Marous.

Nurture Account Holder Relationships with a Little TLC

Loyalty is not easy to come by. According to a 2006 BAI research initiative, only 19 percent of customers considered themselves loyal. More than half (56 percent) were hesitant about the relationship or considered it at risk. According to another BAI study, while 68 percent of customers desire to be rewarded for the size and duration of their accounts, only 25 percent actually felt they received such recognition.

According to Marous, a great proportion of a financial institution’s customer base simply stays put due to inertia, a risky proposition as there are always competing and inticing acquisition programs with strong incentives competing for customers. And, he adds, not surprisingly the accounts that financial institutions desire most—high-value households—have even higher expectations than the average customer in terms of being rewarded for their banking relationship.

It would seem that Mom was right: all relationships need a little tender loving care—even those between account holders and their financial institutions.

Reward Programs Perceived As Valuable?

Reward Programs Valuable?

Rewards programs succeed because people prefer them. Research by Carlson Marketing found that while the vast majority (77 percent) of customers do not currently participate in a financial services rewards program, more than half (51 percent) would join one if it were offered. Similarly, a telephone survey conducted last year1 by Synergistics found that more than 40 percent perceived rewards programs to be valuable, compared to only 19 percent who said they were “not valuable.” (See pie chart at right.)

Airlines are very good at taking advantage of this. “They continually reinforce the value of their points to customers via periodic reports, co-branded offers from partner companies, web site reminders and other means, all of which stimulates customers to keep flying their airline,” says Marous. “Some credit cards don’t do as good a job because they’re often giving points only because everybody else is. When you do that your program becomes another cost of doing business rather than a loyalty-enhancing opportunity.”

Nevertheless, financial institution rewards programs, which first became popular with credit card companies, have expanded tremendously over the past three years. The biggest growth has been in how innovative they have become. (See box opposite page: “3 Types of Rewards Programs.”) Smart financial institutions are finding even more ways to strengthen the account holder experience. “It’s moved from credit cards to debit cards and now runs the gamut across the entire institution’s portfolio of accounts, including mortgage loans and small business relationships,” says Marous.

What Goes Around, Comes Around

The goals of communicating your rewards program should be to (1) stimulate enrollment, (2) reinforce active participation, and (3) encourage redemption. Most importantly, you can use rewards programs to gather account holder information, so that the program can be further personalized. “It is an open invitation for a dialog,” says Marous of rewards programs. “Take advantage of that and dig deeper.” Find out if your account holders prefer direct mail, e-mail, or phone calls. Offer additional points if they tell you, for example, who the financial decision-maker is in their households and what their financial goals are. Then use that information to create more communication in order to enhance their banking experience.

3 Types of Reward Programs

Rewards programs generally fall into three main categories.
Some financial institutions utilize a combination:

  1. Frequency/Points—rewards account holders for using a product or service
  2. Membership/Recognition—acknowledges the longevity and value of the account holder relationship
  3. Relationship/Pricing—offers account holders discounts, better rates or bundled services

The more innovative programs have gone beyond points to
include all product lines within a financial institution, which
ultimately stimulates the growth of relationships.

“It’s like going to the dry cleaner and they know you and how you want your things pressed, whether you want express service, etc.,” he explains. “If you know the equivalent preferences on the banking side, you build satisfaction and loyalty because now they don’t want to train another financial institution to know what you already know.”

Actively communicating your rewards program brings the rewards right back to you, in the form of more loyal customers and members who are motivated to keep higher balances. This proves the old adage that “what goes around, comes around.”

The alternative is that account holders—who are busy people just like you—have plenty else to think about besides your rewards program. According to recent studies, nearly one in five rewards program participants forget they are even in the program. Even worse, 40 percent never redeem their points for rewards earned.

Yet the key to a successful program is tied to the level of redemptions, not the level of enrollments. According to Maritz Loyalty Marketing, attrition rates for non-redeemers is 22 percent, whereas it drops to only six percent for those who redeem multiple times. “Redemption is the most valuable part of a rewards program for a financial institution,” says Marous. “Yet many actually discourage it through cumbersome processes, fees or a simple lack of communication.”

green iPodIt is not until they have received their first reward that account holders truly feel like they are part of the program. This act builds loyalty and word-ofmouth referrals. Therefore, it is important to communicate redemption eligibility as frequently as possible. Get customers to visualize their rewards. They want to know what the points are worth to them. “Receiving 10,000 points doesn’t mean much to consumers. But knowing they have enough points for an iPod does,” explains Marous.

Finally, you must measure results, which few financial institutions do effectively or not at all. Most financial institutions think they need to use a direct marketing company only at the start of a campaign to help target the right customers. But a good direct marketing firm does not stop there. “Not measuring results is like being on a diet without weighing yourself,” says Marous. “You may think you’re successful, but you won’t know for sure.”

Keys to Implementing a Rewards Program

Have you ever pondered the age-old question: If a tree falls in the forest and nobody hears it, does it make a sound? Similarly, if your account holders are not actively engaged in your rewards program, do they know it even exists? And is it doing anything for your financial institution?

“Even the best programs will fall short if people aren’t using them to redeem rewards,” says Marous. He adds that it is also necessary to have the internal support of management and employees. “Successful rewards programs cannot be implemented in a vacuum.”

Like life itself, the more you put into it, the more your rewards program will give back. Here are a few tips to get you started:

Keep it simple
Complex programs and cumbersome redemption policies can lead to lack of participation and spell the death of the program.

Take two steps
First communicate incentives to join. Then offer higher reward levels for greater engagement, especially within the first 90 days, a pivotal time for keeping the account holder involved.

Establish a timeline
Plan your communications to coincide with milestone events such as account openings, balance increases, program changes, and redemption eligibility.

Who Loves You Most?
Who is most likely to participate in your rewards program? You are likely to get the most bang for your marketing buck with account holders who….
... are female, age 25 – 60
... live or work near your branch
... have been with your institution fewer than 10 years
... have more retail credit cards and debit cards, which directly correlates with acceptance rates.

Vary your communication
Use direct mail, statement reminders, branch materials, your web site and e-mail notifications, ATM messaging, telephone, mass media, and personal communications.

Target your message
Not everyone should receive the same type of communication or be involved in the program. Tailor the content and frequency of your communications to the importance of each account holder demographic. Focus on high-value and high potential-value households. (See box to the right for a few helpful hints.)

Show them what you’ve got
Customers care about points insofar as what rewards it gets them. So focus on the gift, notthe currency.

And keep reminding them
A rewards program is an invitation to begin an ongoing dialog with customers. For example, send an e-mail saying, “Congratulations! You’re halfway to redeeming….” and insert a reward. Or better yet, ask which rewards the account holder is interested in.

Incent your employees
Give them extra incentives (such as double points), so they talk positively about the program with account holders.

Analyze results and account holder behavior on a regular basis.

To learn more about enhancing the potential of your rewards program and how to effectively communicate it to account holders, contact your Harland Clarke account executive or call 866.609.8609.