Balancing Loyalty Program Costs and Rewards to Create a Win-Win for Banks and Customers

Apr 7, 2017

A loyalty program should be a win-win for both consumers and the brand that fields the program. However, that’s frequently not the case. Too often, programs tip too far in favor of one party or the other. A program that delivers more benefit to the brand than customers will soon lose members. Meanwhile, one that provides too many costly rewards undermines its own ROI, and is in danger of being abandoned altogether.

Trouble in paradise?

Americans hold 3.3 billion loyalty program memberships, according to Colloquy. The average household participates in more than 21 loyalty programs, but actively uses fewer than half of their memberships, reports Capgemini Consulting. What’s more, the firm says, nearly 90 percent of social media commentary on loyalty programs is negative.

A recent study by Accenture seems to underscore the likelihood that consumers are falling out of love with loyalty programs. According to the study:

  • 71 percent of consumers say loyalty programs don’t generate loyalty.
  • 43 percent of loyalty program members spend the same amount or less with the program brand.
  • 77 percent of consumers say they’re quicker to withdraw their loyalty than they were three years ago.
  • Nearly a quarter either respond negatively or not at all to loyalty program overtures.

It’s no mystery what consumers want from loyalty programs: everything. They want great, relevant and easy-to-get rewards, and they want them with little or no wait. If your bank’s loyalty program isn’t giving customers what they want, you may be tempted to reboot rewards to be more appealing, but that kind of effort comes at a cost.

How do you give customers enticing rewards without breaking the bank? How do you balance the customer’s interests with the financial institution’s, and implement a loyalty program that wins customers’ hearts at a cost you can afford?

Best practices

Fielding a cost-effective, balanced and impactful loyalty program requires a financial institution’s loyalty marketers to refine two types of tactics — best practices and cost control. In order to understand the tactics that can help your financial institution achieve both those goals, it’s critical to first define the goal of your program.

Define goals

Is the goal of your loyalty program: A – acquisition, B – retention or C – both? (Hint: Choose “C.”) An optimum loyalty program both helps a bank acquire new account-holders and retain them. An enriched, more profitable bank-customer relationship should develop from successful retention and rewarding. It’s possible one or the other of these objectives will hold greater priority for your organization, and that the importance of each will shift over time. For example, if your financial institution lost high numbers of account holders last year, customer acquisition may be the emphasis for this year.

Reward the behaviors that drive engagement

What behaviors are most closely aligned with your program’s objective? If it’s acquisition, then it makes sense to reward account openings and new program enrollments. Rewarding retention can be more complex — in addition to rewarding tenure, look at rewarding the customer behaviors that will drive “stickiness”  or engagement but also deliver the most profit to the financial institution. You might want to reward an account holder using online bill pay and your mobile app, which are activities that don’t drive profits but do drive engagement and stickiness (if the experience is a positive one, of course). Rewarding some of these behaviors can be challenging if you don’t have a program build to drive engagement in non-revenue generating areas like these.


Focus on the most profitable customers

Current customers with high levels of rewardable activity are obviously worth higher reward levels. However, don’t overlook the customers with the most profit potential, either. A great onboarding experience can turn a new customer into a loyal brand advocate. New account-holders going through a positive onboarding experience are the most open to taking profitable actions, so it pays to reward them for every profitable action they take.

Keep it simple

Life is complex enough, and many consumers find financial matters even more complex. They have to navigate the complexities of mortgage applications and auto loans, but they don’t have to stick around if your loyalty program is tough to understand. Make your rewards easy to understand (and relevant), the accrual process simple, and redemption speedy and uncomplicated. Enable customers to access their loyalty program accounts from mobile devices, and make every phase of the process omnichannel, from taking the rewardable action to monitoring the accrual of rewards and redeeming rewards.

Utilize customization

It’s critical to leverage customer data to create and communicate rewards that are relevant to each customer at the stage of his or her financial journey. Allow the customer’s priorities to drive the rewards; members enroll for several reasons, from a desire for savings to a craving for aspirational merchandise. Successful loyalty programs customize rewards to match member objectives. It’s important to be able to customize the reward catalog to meet the needs of your unique customers as well provide personalized reward recommendations to each customer to make it as relevant as possible.

Cost-cutting measures

While enhancing the effectiveness of your loyalty program with best practices, it’s also important to approach costs with a critical eye.

Cost-control requires more than simply calculating your per-customer cost of rewards, although that information is vital. You also need to understand how your loyalty program vendor operates in order to optimize the value of the relationship. For example, how does redemption volume affect vendor fees? Do they offer volume discounts? If so, lowering redemption thresholds could increase customer engagement and redemption activity, while qualifying you for the vendor’s volume discount.

Pay close attention to the rewards customers are redeeming for the most. Are they the most expensive ones your program offers? They may not be. What rewards are in second place? If they’re lower in cost, consider making it easier to achieve those specific rewards; this can increase redemption activity while impacting cost only incrementally. Consider terminating the least-popular rewards, even if they’re the lowest cost; they likely offer the least value to you and customers.

Budget promotional dollars to emphasize the promotion of the rewards that cost the least but offer the highest ROI. Tie those rewards to the actions that offer the highest profitability.

Rumblings that consumers are getting tired of loyalty programs are not just over-stated, they’re misinterpreted. If consumers are falling out of love with loyalty programs, it’s because brands have failed to deliver programs that give consumers rewards they truly want and need at a speed and ease-of-use their busy lives demand.

By using consumer data to balance relevancy and cost control, banks can continue to field loyalty programs that are a win-win for everyone involved.

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