A truly rewarding customer relationship, powered by Relationship-based Pricing
Banks across the globe are now chanting the customer loyalty mantra louder than ever. Elementary, because customer acquisition is a dearer game than retention. As you would agree, customer retention starts with creating trust. Most banks, especially those in the retail sector, run loyalty programs with this objective. Traditionally, loyalty programs are centred on a single product – usually credit or debit cards – to reward customers and drive retention. The mechanism is simple; spend more, gain points and win exciting gifts in return. But banks have now realised that reward points-driven loyalty programs have increasingly turned non-compelling for customers.
The reason? Customers are now looking for a unique and personalized experience from banks, more than just periodic tangible rewards and third-party gifts. Banks need to go beyond these single dimensional rewards, and focus on customer experience as a whole, providing the customers with incremental benefits based on the value they bring in. A Forrester survey conducted in 2009 across 12 industry segments confirmed that the correlation between customer experience and loyalty has increased over the last few years.
Entry-level loyalty programs based on plain rewards devised by several early-adopters among banks have failed to yield the desired fruit of enhancing customer experience and long-term relationships. Redemption of loyalty points and enrolment-based program management become tedious over a period of time, and they need not always improve customer experience. They usually fail in ‘recognising customer value’ and ‘providing right customer benefits’.
Properly tailored customer benefit programs recognize the value of the customers in total. When I say customer benefits, they are mainly in two dimensions – recognition and rewards. Experience is enhanced when we recognise the customers’ value and reward them instantly.
| Rewards program | Customer benefits program |
|---|---|
| Objective: Enhancement of product usage and product affinity | Objective: Long-term relationships and stable customer wallet share |
| Loyalty points computation based on product-centric usage | Loyalty points computation based on total relationship value across products, regions |
| Reward options mostly limited to third-party gifts, vouchers, annual fee waivers | Wider options of customer benefits (cash-back, earnings credit, price discounts, and so on) based on total long-term relationship value and customer needs |
| Redemption needs to be triggered by the customer | Redemption is proactive; banks can offer benefits in instantaneous and incremental modes |
| Generates product level loyalty and helps repeat purchase | Generates long-term customer loyalty, improved customer experience and relationship value |
| Owned by product line managers/marketing managers | Owned by relationship managers |
Benefits beyond rewards: Options galore with flexible technology
Enhancing customer profitability and ensuring loyalty requires cautious and consistent grooming of customers, particularly for business lines like corporate and institutional banking, where the profitability contribution of each customer counts significantly to the organizational profitability. Banks, mostly limited by their system capabilities, fail to provide timely and innovative benefits to their highly profitable/valuable customers – be it high net-worth individuals or corporate customers – most of whom may not want to wait to redeem their rewards.
The type of benefits that a corporate entity might look for can be proffered only if the bank enjoys adequate flexibility in pricing, packaging and discounting.
The existing back-office infrastructure of most banks works in a decentralized fashion, based on separate product silos. Current loyalty systems in the market are built for a single product line, and can capture the customer behaviour pertaining to only a single product category. These systems lack the capabilities for creating a single customer view across product lines and divisions. They are not flexible enough to incorporate personalized loyalty programs based on multiple parameters like value, volume, profitability, balances, etc. Moreover, loyalty platforms are disconnected from operational systems like pricing and billing platforms, thus limiting the reward options to more tangible third-party gifts or a few annual waivers. It is extremely difficult to manage options like price discounts, earnings credit and cash-backs, as they need to be handled in these operational systems. Also, they seldom possess the modeling and analytical tools to monitor the effectiveness of loyalty programs on the banks' performance.
Every bank desires to treat their most valuable customers differently, and a customer benefits program that considers the total relationship value of the customer will be an ideal tool for this. Total relationship value can be derived from the information consolidated from various criteria that guage the customer’s relationship with the bank - like account balance, loan repayment, volume of products/services subscribed to, channel behaviour, etc. In order to overcome the challenges mentioned above and establish a sophisticated customer benefits program, banks need the capability to see the customer as a whole. This implies a holistic view of the usage patterns and preferences of the customers across all banking products. The centralized platform for relationship-based loyalty management should sit on top of the various siloed product processors. This would enable the banks to offer loyalty-based benefits specific to each customer across products and regions, depending on the total business they bring in. Moreover, the system should be able to simulate various loyalty programs, monitor their progress, and help banks automatically choose the best value loyalty plans for their customers. The enterprise-wide loyalty platform needs to be integrated with pricing and billing systems, as well as core banking systems, so as to enable banks to offer a wider array of reward options like cash back, earning credit, price discounts and so on, instantaneously.
In a nutshell, customer benefits need to be offered knowing the pulse of each customer. Options are innumerable, and can be tailored based on customer segment and behaviour. Wisely drafted customer benefit programs, provided at the right time to the right customer, can invoke the loyalty of the customer towards the bank, which in turn, will contribute positively to their bottom line.