Rewards are passé, Customer Benefits are in
Services and products your customers were delighted about eight months earlier – today, they are only happy with them. What your customers were happy about six to eight months back, are only ‘satisfactory’ for them now. Services and products they were satisfied with six months before – today, they are just tolerating them. And what they would tolerate at that time, they find it absolutely unacceptable today.
Well, the financial crisis has had several fallouts, but this disruption in customer behaviour is among the most potent ones, which are surely changing the way organizations treat customers. And it is in this paradigm that industry pundits are fervently questioning the very sanctity of traditional reward programs of financial institutions (FIs).
FIs are now chanting the loyalty mantra more than ever. And why not? Customer retention is an easier game than acquisition, and wallet share fattening is relatively easier than wallet share acquirement. Banks have long used loyalty programs centred around a single product, usually credit or debit cards to reward customers and drive retention, but now these measures lack the ‘oomph’ and have turned non-compelling for the bank’s customers. Today, industry pundits are unequivocal on the fact that FIs need to go beyond rewarding loyal customers and provide them with actual benefits.
Having said that, is there a way to deliberately maximize customer wallet share, control customer attrition and maximize profits, while increasing the perceived cost of defection multi-fold?
Offering benefits to customers based on their incremental value or profitability is essential in today’s business. FIs need to explore powerful mediation systems, which can consolidate usage information based on various parameters that determine customer profitability. The ability to parameterize the usage records and consolidate them differently for different customers is the hallmark of modern FIs. Also, such customers need to be rewarded, not only based on the value they bring across the FIs’ product lines, but also for their relations across geographies. Thus the type of benefits that a corporate entity might look for, can be proffered only if the FI enjoys adequate flexibility in pricing, packaging and discounting, ranging from a product/customer segment to not only individual product/service/customer, but also to the transaction level.
Besides, most existing systems at FIs are not flexible enough to incorporate personalized loyalty programs, or programs based on multiple parameters like value, volume, profitability, balances, etc.
Though creative ideas for providing non-financial benefits for FIs are endless, this requires support from a flexible platform – which means the capabilities demanded are challenging. But the need for such capabilities has become more or less inevitable for FIs.
As FIs leapfrog to provide loyalty programs, quite often they end up providing only traditional enrolment-based schemes, which might not always wholly serve the purpose of ‘acknowledging the customer’s loyalty’ and ‘encouraging the right customer behaviour’. FIs, mostly limited by their system capabilities, fail to provide timely and innovative benefits to their high profitable/value customers – be it High Net worth Individuals or Corporate customers – most of whom may not want to wait to redeem their benefits.
Customer benefits need to be offered, knowing the pulse of the individual customer. Benefits are not limited to reward point redemptions – 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 FI, which contributes positively to their bottomline. Many forward-looking FIs are offering multiple facets to their loyalty programs, including but not limited to auto-migration of classes, cash-back, earnings credit, virtual currency, emotional benefits, CSR (‘Go-green’) benefits, etc. These benefits are offered in different modes, like incremental, periodic, instant (surprise!), or cumulative, based on the preferences or value of the customers.
All the aforementioned, plus personalized pricing, relationship discounts, fee waivers, product bundles and volume / value-based pricing, are features of Relationship-based Pricing (RBP) and Centralized Billing solutions. Most loyalty programs are just stepping stones for banks, insurance firms and other FIs to move towards a complete RBP and Centralized Billing model ultimately.
Forward–looking FIs have already rung out rewards programs; now they are ringing in the new era of tailored customer benefits.