Expert corner
Oct 2, 2008
Retaining and Rewarding Loyalty
By Sathish Chandran, Head – Application Management and Consulting, SunTec Business Solutions. You can reach the author on Sathishc@suntecgroup.com
Given a choice - customers don’t like shopping around for their financial needs, says Gartner. They would rather spend their entire wallet with a single bank if the bank is able to provide them with all that they need valuing their multiple touch points within the framework of their ‘relationship’.
But in reality how many banks are able to provide customers what they want seeing their associations (multiple touch points) with the bank as a whole and not mere pieces of a jigsaw?
Is there a way to deliberately maximize customer wallet share, control customer attrition and maximize profits while increasing the perceived cost of defection multifold? Relationship Loyalty Programs hold the key.
Banks have long used loyalty programs centered around a single product, usually credit or debit cards to reward customers and drive retention, but now these measures lack the oomph and are non-compelling to the bank’s customers. Today, industry pundits are unequivocal on the fact that a well equipped Relationship loyalty program results in better product portfolio penetration and cross-selling, is able to positively influence customer behavior and can result in optimal segmentation.
Driving customer behavior the Kernel of Relationship Loyalty Programs
There is no doubt that customer behavior can be swayed by rewarding or penalizing. Just by having more products does not make the customer profitable unless the products are used. For instance a customer who has an account but does not maintain any balance is not profitable; a customer who has subscribed to online bill payment, but never pays bills online is not beneficial.
Rewarding customers for maintaining higher balances, rewarding points only when they pay bills online and charging a fee when they use other channels are means of influencing customer behavior positively.
In order to drive and influence customer behavior positively (in a manner that is beneficial to both the bank and customers) Optimal Segmentation is imperative.
Not all customers are equal or have similar needs. So a broad and generic reward program is not optimal. The right strategy is to align benefits with customer value, depth of the relationship and preferences. Just to illustrate, students are in need of education loans. Consumers in higher age group look for mortgages, auto loans. Consumers with families are looking at savings and investment options. Rewarding different customer segments as per their needs is a win-win strategy for both the bank and the customer.
Similarly, the redemption schemes should also vary by segment and should fit the lifestyle of the target audience. Banks should have multiple options for redeeming points to satisfy every customer’s needs or desires like cash rebates for paying school / university fees, repayments on home loan, reduced loan interest rates, new product discounts, donations to charities, exclusive gifts like vacation packages, cruises, skydiving session, tickets to a popular show, etc.
Another important takeaway of a well chartered Relationship Loyalty Program is the ability to define loyalty. This can be done by creating loyalty programs that reward customers for availing multiple products and services. Rewards can be earned by customers based on deposit or investment balances, the number of products held, number of transactions done, channel used, payment by direct debit or even one-time events like taking up a mortgage. The idea here is to reward the customer for every association (touch point) they have with the bank across all products or business units
A loyalty program will not sustain unless it is constantly reviewed, analyzed and evaluated. It is important to understand how the program has affected performance – whether customer behavior has changed as expected, product sales increased, customers experience and satisfaction has increased, etc. Based on the observations, changes need to be made to the program. Monitoring, reviewing and making relevant changes to the program in real time should be built-in.
Implementing an enterprise wide Relationship based loyalty program is easier said than done. This requires a centralized platform that has data from all products to give a holistic view of the customer. But unfortunately, most banks today work in product silos that are decentralized. Existing loyalty solutions are all product centric – a separate loyalty program for each product – and not customer centric.
Most banks neither have modeling and analytical tools that constantly monitor the progress, trends and effectiveness of these programs. There is no way to simulate hypothetical scenarios to see the impact
Besides, these existing systems are not flexible enough to incorporate personalized loyalty programs, or programs based on multiple parameters like value, volume, profitability, balances, etc.
The aforementioned and personalized pricing, relationship discounts, fee waivers, product bundles, volume / value based pricing are all features of Relationship- based Pricing (RBP) and centralized Billing solutions. Most loyalty programs are just stepping stones for banks and Insurance firms to ultimately move towards a complete RBP and Centralized Billing model.
About SunTec:
SunTec is a leading provider of Relationship-based Pricing and centralized billing solutions for Banking, Financial Services & Insurance (BFSI), convergent transaction pricing and billing solutions for Communication, Media & Entertainment (CME) and advanced meter-data management and billing solutions for Utilities industries.
We conceptualized and created our core pricing and billing platform, horizontal in nature, flexible enough to address pricing and billing requirements of any transaction based vertical. Our product offerings, the TBMS-F suite for BFSI, the TBMS-T suite for CME, and the TBMS-U for Utilities verticals provide comprehensive solutions to our customers for measuring and monitoring transaction value, enabling tighter control on profitability. We leverage our extensive domain experience to successfully define, design and deliver cost-effective solutions for our clients across the globe.
SunTec is a SEI CMM Level 5 certified company and its client list includes ICICI Bank (BSE NSE: ICICI; NYSE: IBN), HSBC (LSE: HSBA; NYSE: HBC), ING Bank (NYSE: ING) and Lloyds TSB (LSE: LLOY) in the BFSI vertical, and Comcast (NASDAQ: CMCSA), Cable One, Batelco, BSNL and HFCL in the CME vertical. For more details, please visit www.suntecgroup.com.
