Science of behaviour key to bank loyalty schemes
Finding ways to stand out among the 100 or so loyalty programmes in SA is a priority issue, writes Gillian Jones
THE major banks are increasingly adopting a scientific approach to their loyalty programmes to make them more rewarding, for both banks and consumers.
It is all about big data, customer behavioural science and finding ways to stand out from the clutter of the 100 or so loyalty programmes available in SA.
But whatever banks do, they cannot ignore loyalty programmes, for they are seen as a price of entry to the market for retail banks, says Deon Olivier, executive director of Value Nettwork, which specialises in loyalty programmes.
“Ten to 15 years ago, companies had to have a call centre, five to 10 years ago it was a website. Now it’s a loyalty programme,” he says. Recent research by Value Nettwork found SA had almost 100 loy- alty programmes, with more than 50-million registered members.
The major banks tout their loyalty programmes as essential tools to acquire and retain customers.
But Mr Olivier points out that these programmes come at a cost: “All the banks are positioning themselves as the customer’s friend. But if you are too much of a customer friend, you can neglect the person who pays the bills, including the shareholders. Like any business venture, the commonsense logic says unless you are getting some return on investment, you have to think twice.”
The banks insist that the programmes are key parts of their businesses, which they are continually rejigging to ensure they are relevant to customers.
For example, eBucks is considering adding gamification — the process of adding games or gamelike elements to encourage participation — to its programme. Absa is exploring providing a distribution channel to connect its corporate clients and retail customers via its rewards programme. Last June Standard Bank launched a new rewards programme, uCount.
Nedbank’s Greenbacks programme is only offered to credit card holders, while the other banks focus on a wider customer relationship, but this might change.
The banks use the programmes as a means to influence customer behaviour. All the banks, for example, use rewards to entice customers out of branches and into transacting online. They also offer carrots to customers who transact more with their bank.
The head of transaction banking and rewards at Absa retail and busi-
A richer, more personalised offering will become a big differentiator of loyalty programmes in the future
ness banking, James Rheeder, says a rewards programme is not going to make someone change banks. “It is about increasing debit and credit card usage and customer loyalty. You want customers to be transaction loyal, which means they deposit their salary in your bank.”
First Rand’s management executive of eBucks Rewards, Monique Smith, says a loyalty programme can differentiate a bank from its competitors. “All banks have to have good hygiene, namely good products and pricing. Customers might perceive them as equal on hygiene so rewards can be the differentiator,” she says.
The Nedbank Greenbacks programme is under review to see whether it would be worthwhile to extend it beyond credit cards, says Michelle van Staden, head of crosssell, retention and loyalty and rewards at Nedbank.
“We are evaluating the business benefits and programme structure as well as reviewing the competitor space and macroeconomic environment,” Ms van Staden says.
The competitor approach has been to use very big “carrots” to attract customers and while this has been successful, Nedbank is evaluating the fit of such an approach with its brand, she says.
“Many of those carrots do not become the reality for most customers, but just for a tiny percentage of customers,” she says. “Interest margins in retail banking are about 3% and noninterest revenue in an interchange-constrained environment is not sufficient to sustainably promise customers they are going to get back 10%-15% unless you are cross-subsidising some customers from the large proportion of your base customers, or imposing restrictions and earn caps.”
Another way loyalty programmes pay their way is as an effective marketing tool.
Ms Smith says historically loyalty programmes have been funded out of the marketing budget.
“But it is not a marketing cost — eBucks is an integral part of the bank’s operations and as such, it is an operational cost,” she says. “Although the rewards programme doesn’t make money, its intent is to reward customers for behaving profitably, which in turn is profitable for the bank.”
The head of loyalty and rewards at Standard Bank, Faye Elizabeth Foster, says its rewards programme, UCount, has to make a difference to its bottom line.
“It is not a marketing element but key to retaining existing customers and customers having more products and driving the right behaviour,” she says. “The reward is just a mechanism to try to change behaviour over a period of time.”
The efforts to ensure loyalty programmes are effective and ultimately drive profitability has seen growing emphasis on behavioural science and using big data in a smarter way. Ms Foster says banks usually have good data on customers, while rewards programmes provide more detailed information, such as what people want to buy with their disposable income or where they go on holiday.
“You can use data smartly to offer customers a much richer, personalised offering, which will become a big differentiator of loyalty programmes in future,” she says. This could mean targeting customers in malls with specific offers via their smartphones or social media.
Globally, there has been some consolidation of a number of loyalty programmes in noncompeting areas, such as a bank, retailer and oil company, into one programme in which costs are reduced while members get more benefits. This has not yet happened in SA, but could well do so in an effort to drive down costs.
Mr Olivier says if loyalty programmes are well designed using behavioural science, they can play an important business role. “I can’t believe Adrian Gore would continue to invest in all Discovery’s loyalty initiatives if they didn’t work. Those Discovery guys understand numbers like no one else.”
Absa’s Mr Rheeder says the bank is looking at new ways to make its programme more effective and self-funding. One way could be to use the programme as a portal to connect Absa’s corporate clients with its customers.
“So if a retailer, who is our customer, wants to move stock, we can connect them to our customers to offer them a special deal,” he says.