Market conditions have changed significantly since the onset of the traditional loyalty programs in 1990’s and have been changing even more in the recent years.
Financial institutions are under pressure to reduce program operating costs and find new sources of revenue, while at the same time facing shifting customer expectations and major technological change as the world is turning digital.
The pure transformation from issuer funded loyalty to merchant rewards only is not going to do the trick any more, as customers desire choice, both a wide range of offers and options to engage with their program in a wider ecosystem – online and in-store alike. They seek relevant and instant fulfillment, with their focus shifting from functional product features towards customer values. Everybody wants to feel special and loyalty programs can help do that.
Many have predicted that loyalty programs would outlive their usefulness and slowly disappear, but it seems that this was an exaggeration. The death of loyalty programs is still not in sight and it is safe to say that they will continue to be a part of the customer value proposition for the foreseeable future. There is still a huge opportunity for loyalty program owners to better engage with their customers – to help drive more value for both the program, and most importantly, the customer. Needless to say, this largely depends on the ability of financial institutions and reward program providers in general to listen to the customers, recognize their new values, anticipate their desires and never stop innovating.
Loyalty encapsulates a long-term relationship and a value exchange between a brand and its customers. It is all about perceptions and goes far beyond a simple purchase transaction. The strongest drivers of loyalty are trust, value for money, as well as quality products and services. The reward programs are just the mechanics for the achievement of this.
Customers differ in what they believe is of value to them. Recognizing these differences is a key challenge for ensuring a highly personalized nature of loyalty programs in the future.
Customer centricity to the extreme is the new buzzword. Financial services companies have to engage their customers in real-time communication, in a transparent manner and to tailor their offers to meet the specific, individual needs. Personalization must take place equally across all points of interaction.
The Millennials are here
One of the largest generations in history is about to enter its prime spending years. Millennials have come of age during a time of technological change, globalization and economic disruption, which has molded their different view of the world, entirely reshaping their hierarchy of needs and values. The first generation of digital natives has brought on the always-on culture and has significantly raised importance of social media.
Whether questioning their loyalty is a misconception or not, it is a fact that that they tend to display higher rates of participation in rewards programs than other age groups. According to a recent research (Bond 2014 Loyalty Report) nearly 70% of them would change where they shopped in order to get more loyalty rewards.
The multifaceted customer
Segmenting people by age or gender is becoming less effective and more focus should be turned towards the customers’ shared interests, involvement in social groups and communities. Our customers are complex beings and should be treated as such. Millennials especially value the feeling of belonging and recognition and are above all socially conscious. Getting to the heart of what is important for the customers is becoming crucial to achieve sustainability of loyalty programs, with rewards being more experiential, lifestyle and life-goal oriented.
Going the Extra Mile
A broader look at loyalty requires that it is approached from different angles and not merely through loyalty reward programs. A loyal and engaged employee is more likely to excel in customer service. The opportunity to directly engage with customers, build empathy and connect on an emotional level should not be overlooked.
Big data has been on the agenda for some time now, but more and more it will prove to be a game-changer. Crunching customer data on an individual level will enable a more personalized approach through improving customer segmentation. Although a costly undertaking in the short-term, improved customer data analytics will pay back in the long-term and boost revenues.
On the other hand, customers are increasingly aware of the worth of their data and incentivizing them to provide it or to give feedback will become of increasing importance. A proven track-record in security and data protection is also beyond questioning.
The smartphone is becoming the consumer device of choice for many daily activities, from banking, and e-commerce purchases to in-app purchases or payment by phone in a classic brick and mortar store. The opportunities for interaction have multiplied and incorporating loyalty programs and initiatives into payment card and mobile ecosystems is becoming a must as it provides the opportunity to deliver value-added benefits and deliver a differentiated customer experience.
Challenges and opportunities
Customer loyalty programs are emerging as the base for a variety of personalized customer experiences. The days of the one-size-fits-all programs are gone. The modern customer seeks recognition each and every time they engage with a bank and desires tangible and meaningful benefits. Banks and retailers alike, in order to succeed, must stay on top of new trends.
In addition, embracing digital technology provides the ability to communicate with customers through more channels than ever before and demonstrates that the business is customer-focused and wants to build relationships.
The days of the one-size-fits-all programs are gone.
It seems that the financial services industry is facing turbulent and challenging times when it comes to loyalty. With a timely and innovative approach, however, the future looks positive. Especially when we leaf through some of the recent research:
- Aimia’s Global Loyalty Lens carried out a worldwide survey in which consumers in eight of eleven survey markets cited “they reward my loyalty” as the top reason to be loyal to a credit card issuer
- According to Collinson Group, research shows high customer expectation with regards to loyalty – 65% of affluent middle class customers expect their bank to reward them for their loyalty.
- The same research reveals that banking loyalty programs encourage 82% of customers to spend more and dedicated credit card initiatives influence 79% of customers.
Crucial Factors to Consider
A multitude of factors will be shaping the outlook of loyalty programs of the future. According to the Collinson Group, there are several key factors to be considered when designing or redesigning a loyalty program.
- The importance of data and of incentivizing customers to provide it
- Personal experience – the human touch still beats the digital one
- Embracing digital – payments and loyalty, especially in mobile, go hand-in-hand and the shift from share of wallet to share of screen is happening already
- The power of emotion and communities
- Relevance vs. transactional rewards – generic programs are no longer “in”; the breadth of rewards appealing to highly differentiated customer segments, experiences and personalization are the new norm