Management Strategies

12:57 PM
James Berry
James Berry
Commentary
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Making Rewards Count: Turning Data Into Profit

Four steps to improving loyalty programs through data and analytics.

The digital revolution is transforming the way in which consumers interact with brands, and the retail banking sector is no exception to this. Over the past decade, the retail banking experience has evolved to deliver a more connected experience and these services have driven competitive differentiation for banks. Particularly for newer, more agile entrants, like First Direct.

However, online banking, mobile banking and remote account management are now more often considered a necessity rather than a benefit for the "connected customer" who expects a personalized service from their bank 24 hours a day, seven days a week.

So, the question is, as "connected" banking becomes the norm, how can banks continue to differentiate themselves from the competition and maintain customer loyalty -- whilst also keeping the business happy by protecting the bottom line?

Understanding the potential of existing customers
Defining customer loyalty in the retail banking sector is difficult. Last year, a Santander report found that 58% of consumers keep the same current account for more than 10 years, while one in six keep the same account for more than 30 years -- so does this make them brand loyal?

The simple answer is no. While at first glance these figures look promising, research has found that a high percentage of these "loyal" customers will stay with a bank: out of habit (they have always been a customer of the bank); out of fear (they have a lot of money invested in the bank and switching is considered high risk); or because they are worried about the associated hassle of moving banks.

[For more on how to improve loyalty programs, check out: Customer Loyalty: How Technology Is Changing the Playing Field]

With the cost of keeping an existing customer at around 10% of the cost of acquiring a new customer, we believe that banks are missing a trick when it comes to unlocking the value (and financial gain) from their existing customer base. By creating a reward and redemption program that translates just one of these "loyal detractors" -- staying with a bank out of habit/fear -- into a "loyal promoter," banks can gain £5,850 ($9,403) more profitability from that customer over their lifetime.

With more and more "new entrants" swooping in to offer value-add financial services to customers, how can banks keep up?

Step 1: Using big data for big benefit
Making sense of big data in an intelligent manner has transformed the meaning of "knowing your customer" and when used effectively, big data enables organizations to understand consumer preference and predict consumer behavior.

Data has, of course, always been an important part of any loyalty/reward program strategy, but big data allows you to profile customers, understand which ones are profitable and crucially, deliver programmes that are relevant and attainable for each and every individual. Reward programmes that are built on intelligent and responsive technology platforms aid this process by offering a 24/7 view on member behavior. This continuous insight means that the personal touch, is much more than just a one off as programs can be continuously tweaked to make them more relevant and engaging to specific individuals.

Step 2: Tailoring rewards
Once you've generated all this insight, the next step is creating a portfolio of rewards that match the diversity and profile of your customer base. There is also now an ever increasing variance in terms of online savviness -- from the novice, through to the digital native, giving ever more opportunities to tailor your programme, or, ever more opportunities to get it wrong.

It's not just about selecting the right content and rewards for your members, it's also about ensuring your customers can engage and make transactions in an environment and at a time that suits them.

Step 3: Creating beneficial partnerships
To achieve the breadth of rewards required for a relevant and engaging rewards program, you need to create a supplier and partner base of retailers/ merchants that can support the different needs of your customers.

The good news is that the retailers and merchants want to participate, and why wouldn't they?

·       Partners get access to often huge bases of customers, with huge opportunities to generate revenue and customer data.

·       Members get a broader selection of relevant goods/ services and receive relevant, timely and exclusive offers.

·       Banks/financial service organisations get happy and engaged customers and -- crucially -- direct ROI on their loyalty programs.

Step 4: Driving long-term engagement
So now you've established your network of retail and merchant partners - you know exactly what your member base want and you're seeing large numbers of customers transacting with your program. It would be very easy to rest on your laurels, as after all, you now have engaged and happy customers. But it's important not to let this huge investment go to waste.

The key to this is regular communication, in fact our research shows that when a program member has completed their first initial transaction, they then become up to seven times more profitable to your business. If you've got the data insight right from the very beginning, and have put the right content in place, your communication will be timely, relevant, and personalized and ultimately, add more revenue to your bottom line.

James is responsible for Collinson Latitudes product led e-commerce strategy, looking at innovative ways to ensure ongoing optimisation of client platforms throughout the world, and managing a global team of e-commerce and digital marketing experts.James has led the ... View Full Bio

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Nathan Golia
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Nathan Golia,
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10/31/2014 | 3:15:35 PM
Re: Existing customers
Of course, banks that embrace automated tools and customers that use them often have high customer experience ratings.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
10/28/2014 | 10:16:31 AM
Re: Existing customers
It's the only reason I've ever switched too. Although an offer for rewards points did play a big role in which bank I wound up switching to.
Byurcan
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Byurcan,
User Rank: Author
10/28/2014 | 9:38:04 AM
Re: Existing customers
Pretty much the only reason I've ever switched banks is because I moved to a new area and there was no branches there. The branch still has power!
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
10/27/2014 | 9:20:22 PM
Re: Existing customers
I would think that the primary reason that someone would switch banks would be if they move to a new area. I keep reading that branch location still plays a big role in choosing a new bank. So if someone moves and they need to find a closer bank that makes sense. But otherwise I think people continue to go to the same bank they always have out of intertia.
Byurcan
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Byurcan,
User Rank: Author
10/27/2014 | 1:33:02 PM
Re: Existing customers
Especially with so much people have automated -- direct deposit, autp bill pay etc -- it becomes a hassle to switch banks. One of the reaosns why the infamous "bank transfer day" of 2011 failed so miserably.
Kelly22
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Kelly22,
User Rank: Author
10/27/2014 | 12:34:16 PM
Re: Existing customers
I agree - unless they experience really terrible service, I feel like many customers stick with a bank simply because it's more convenient than making a switch. With big data and analytics tools, there's a big opportunity for banks to learn more about their existing customers and deliver experiences that will ensure their loyalty for many years down the road. 
Byurcan
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Byurcan,
User Rank: Author
10/27/2014 | 8:58:22 AM
Existing customers
The point about understanding the potential of existing customers is a good one. Often, people will stay with a bank for years out of convenience. And banks, like many other industries, can often fall victim to the trap of spending so much time luring new customers they often don't cultivate existing realtionships.
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