Although the worst may be over, banks are still fighting a meltdown in customer loyalty brought about by a lack of consumer confidence and excess of competitive offerings. Since it costs a lot more to acquire customers than hold on to them, retention is
nothing short of a magic mantra for gaining competitive advantage. Regrettably, that famed loyalty weapon, the rewards program, has lost its edge, with bank after bank putting out clones that no longer enthuse customers. But that doesn’t mean they throw the
baby out with the bath water – with some innovation, the banking loyalty program can recover its lost sheen, and help a bank stand out from the crowd.
· Rethink loyalty
The problem with banking rewards is that these seek to reward transaction frequency or size of bank balance. However, banking is about relationships more than anything else, and relationships are complex entities, growing and evolving over time, and not
reducible to a single parameter such as account balance. If a bank can spot this flaw, and quickly inject some creativity into the structure of its rewards program, it can potentially put one over its rivals. Some ideas:
· Reward the relationship through the turns
A banking relationship has its ups and downs like any other, and needs nurturing during tough phases. Hence, banks must continue to show their appreciation of long standing customers even when their profitability quotient takes a dip. One way of doing that
is to reward every aspect of the relationship right from savings account transactions to online banking usage to card purchases. Another is to reward the relationship with a group or community in totality – for example as a family – so that individual customers
don’t feel the impact of reduced rewards. Last but not least, since the goal of the program is to build stickiness, it should recognise longevity with higher rewards, regardless of net relationship value.
· Include everyone
Since loyalty programs are currently designed to favour the already loyal, they are somewhat self-defeating. On top, they end up alienating small-value customers who are thirsting for recognition. By bringing such customers into the rewards net or launching
a separate, more accessible program, exclusively for them, a bank can bind their loyalty for life.
· Recognise right behaviour
When most are using the service charges “stick” to discourage practices such as in-branch banking, an innovative bank can do exactly the opposite – for example reward online usage – to promote desirable banking behaviour.
Competitive Advantage from Innovative Management Strategies
Strategy 1: Incremental Innovation, big bang advantage!
Strategy No. 2: Channel innovation - your hidden weapon.