Digital Trends Force Financial Marketers to Rethink Loyalty Strategies

With consumer behavior increasingly digital-centric, retaining customers' loyalty has become both more important and more challenging. New data suggests that traditional rewards may no longer be the best choice for banks and credit unions. Mobile-first, personalized options are moving up in importance.

“Money talks” remains true, but the age-old problem with competing by price, rate or cashback amount is that those who come for the bucks will leave for the bucks, making it a very expensive game.

Nobody is predicting abandonment of monetary rewards as a key component of loyalty programs in financial services or business at large. They clearly still work. But there’s a definite trend away from dependence on points, miles, discounts and cashback to other options. Not just because of cost, but because of shifts in consumer habits and expectations.

Loyalty marketing is being impacted by digitalization as much as any other part of financial services. The success of fintechs and neobanks over the past several years is evidence of this. These disruptive brands found a way to solve problems digitally, or to serve a previously unfilled need, in ways that appeal to a growing number of consumers. A blog on the Wise Marketer site asks, “How can we leverage the lessons witnessed by the successful disruptors to have a similar impact in customer loyalty strategy?” Bank and credit union marketers need to forge personal connections with consumers to understand their needs and changing attitudes. “Points are not dead,” the blog notes, “but customers are seeking so much more in a relationship with your brand.”

“Today’s consumers don’t necessarily need to receive something tangible to feel rewarded.”

That conclusion was reinforced in a new study of customer loyalty trends by Harvard Business Review Analytic Services, sponsored by Mastercard. Companies are looking beyond traditional loyalty built on monetary rewards, the report states, and are increasingly striving to offer personalized experiences and interactions, including unique access to events.

Although traditional monetary rewards still work, the study concludes that traditional loyalty strategies don’t appear to be keeping pace with changing customer expectations. Fewer than half of survey respondents (42%) believe their organization’s customer loyalty strategy is effective. Further, 46% say their loyalty strategy lacks innovation and just 43% say their organization has developed a digital-first loyalty strategy. The study was conducted globally among 400 senior executives in several industries. Financial services was the largest industry sector at about 30%.

“Today’s consumers don’t necessarily need to receive something tangible to feel rewarded,” observed one of the survey respondents. That dovetails with the idea that the experience itself, if intuitive and meeting a real need, can be the reward. “Rewards need to be simple to earn and simple to spend,” says Madhu Kejriwal, head of cards, loans and payments at HSBC UK. “If a loyalty program tries to be too clever in terms of how you earn or spend rewards, it can end up being non-sustainable, even if it’s backed by a very strong marketing budget.”

Economic Rewards Predicted to Decline

While survey respondents considered traditional economic rewards such as miles, points and cashback to be the top determinant of a loyalty program’s success just five years ago, those rewards now rank fourth in importance, trailing exceptional customer service, digital and omnichannel access, and ease of use. More telling, the respondents predict that by 2025, economic rewards will rank a distant eighth in importance.

Features considered most important to loyalty program success

Nearly three quarters of the executives responding (72%) say that optimizing customer loyalty is a top-five priority at their institution in 2020. They recognize that customer expectations are rapidly evolving and loyalty strategies must become more sophisticated, the HBR report states. The survey found that more than half of the companies have already updated their loyalty strategies within two years. The chart below identifies what changes were made, or are planned, for the next 12 months. The two most common changes relate to meeting consumers’ digital expectations.

Loyalty reward program changes made or planned

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Technology Priorities to Enhance Loyalty

The most common areas where financial institutions and other companies are investing to improve customer loyalty program are the following:

  • Mobile capabilities  52%
  • Customer service chatbots  38%
  • Application programming interfaces (APIs)  27%
  • Artificial intelligence/machine learning  25%
  • Geolocation/proximity-based services  25%

“No customer cares about technology, they care about their experience using technology.”

“It’s no secret why mobile capabilities are the number one investment when it comes to customer loyalty,” the report states. “A digital-first approach is quickly becoming the new standard, as consumers prize seamless omnichannel experiences alongside traditional rewards.” Financial institutions are ahead of some other industries in recognizing this. The research found 66% of banks and credit unions are investing in mobile applications to improve customer loyalty compared with 52% of the sample as a whole.

Instant gratification through simple solutions is an increasingly important function of any loyalty program, the report states. Wise Marketer, however, notes that the average American has about 80 apps on their phone. “What value will you create in your app to stimulate engagement?” the blog asks. It reminds financial marketers that, “No customer cares about technology, they care about their experience using technology.”

4 Signposts Leading to Improved Loyalty Strategy

The HBR research includes several recommendations that banks and credit unions can use to update or refresh their loyalty programs.

Create unique experiences. Customers still appreciate rewards points but they love experience perks and customized offers that make them feel special. Brands are becoming more focused on personalization and cross-industry partnerships that make this possible.

Some financial institutions are increasingly using partnerships to create such unique experiences. In a report on credit card ancillary benefits, Eric Fahey, Director of Content and Analytics at Comperemedia, a Mintel company, states that as rewards programs “hit the ceiling” on standard benefits, card issuers are turning to ancillary benefits, especially exclusive access, to differentiate their offerings. Chase, American Express, Citibank and Capital One, for example, all do this and promote these benefits heavily in emails.

Capital One email campain

Keep it simple. Improve the ease of use and transparency of your loyalty program. “Otherwise customers will abandon it for other options,” the HBR report states.

Shared values build brand affinity. Emotional connections generated by shared values allow financial institutions to strengthen customer bonds and drive engagement in ways that traditional rewards can’t.

Invest in new technologies to enhance loyalty capabilities. Mobile was discussed earlier but artificial intelligence and machine learning can be used to greatly improve personalization of reward offers and related communications. This is particularly true for larger institutions where AI can help extract insights at scale.

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