More from the “Tips for 2012” Series
I was watching TV last week and a commercial came on for a credit card issuer. It was pretty much the same as most credit card commercials right now – how their points program was better than points programs from other issuers – and I got to wondering how we got to the point of points being a key differentiator in credit card marketing competition and whether or not that was working (he said pointedly).
This line of thinking led me to a question: if I were the CEO of a card issuer, what would I be thinking about regarding my loyalty program? After all, margins are shrinking, regulation is imposing on the space, and it’s a tough time to be in the card business. A loyalty program is a major expense item, and if it isn’t delivering a return well in excess of the expense, then maybe some re-thinking should be done.
So, here are the 12 questions that I would be asking about loyalty if I were the CEO of a card issuer:
1) Why do we have a loyalty program? Is it because we now assume that its “table stakes,” and we’ll lose market share without it? Has it just always been there, and we’ve been focusing on other things, or is it a strategic asset that makes a significant contribution to the value of our enterprise?
2) What does the program really cost? Are all the costs being factored into the equation, or are we just looking at program administration, marketing expense, and point liability? Are we also looking:
– consulting fees
– redemption management expense
– statementing cost
– customer service and call center costs
– training of front line staff and others in the organization not directly connected with the program (like branch staff)
– direct and indirect IT cost
– website development and maintenance
What about the opportunity cost of focusing so much resource on the loyalty program instead of working on other ways to improve the value proposition and competitive position of the business? And then, there’s the cost of business that we would have gotten from the customer anyway, even if there wasn’t a loyalty program in place.
3) What can we reasonably expect a loyalty program to do for the business? Aside from improving profitability, should we expect anything else? Is it really creating loyal customers, or is it just habituating them to our product over others, and is that necessarily the best way to create a “sticky” customer?
4) What is it actually doing for the business? Is the program generating incremental revenue and profitability well in excess of the total program costs? Is it enhancing the brand with our most valued customers? Is it creating franchise value for the enterprise and creating shareholder value?
5) Are there other investments that we could make that would deliver more value to the business? Do we need to commit to a status quo level of spending against the loyalty program forever, or could some funding be diverted into other areas that have the potential to do more for the enterprise long term?
6) Why should our customers choose us over a competitor? Is it reasonable to assume that a loyalty program creates enough differentiable value to attract customers or keep customers from leaving? How much value does the loyalty program deliver within our value proposition? Any at all?
7) How does the loyalty program fit in the overall product mix? Is it one of several offerings with variable benefits, or is it core to every card offering? Is it the foundation of an enterprise level program designed to create customer value in areas beyond cards? How does it impact the company’s product offering, negatively or positively?
8) Are we using the data that the loyalty program creates? Is the data being integrated into the broader vision of the customer in the CIF? How does customer behavior in the loyalty program impact other aspects of the customer’s relationship with the organization? What can we learn that will help us improve the customer experience and shareholder value? If we’re not learning anything from the data that we’re collecting, then why are we collecting it?
9) How does the loyalty program affect the customer experience? Is it positively changing customer’s perception of the company, or is it an add-on that effectively complicates things from a product delivery and purchase decision point of view?
10) What do customers really think of the program? Do they see it as a valuable component of the product offering, or do they see it as a giveaway that they are entitled to because every issuer offers a points program? Is the program meeting their needs in terms of rewarding them appropriately when they exhibit the right behavior, or are reward thresholds too high to be meaningful?
11) If we shut down the program tomorrow, what would happen? Would any negative economic impact be offset by the expense savings from not having to operate the program? How long would the negative impact last? What would happen to the customer mix, would the customers who deliver the most value to the business be significantly impacted?
12) What do we mean by loyalty? Finally, are we actually creating loyal customers, or are we deluding ourselves? Are there other, better ways to create loyalty to the business and “sticky” customers that would have a more beneficial and lasting impact?
It seems that every area of the payments industry is being challenged right now and for good reason. There are real opportunities to change and enhance the business model and real risks if the model isn’t changed. Evaluation of the loyalty effort needs to be factored into the mix; it’s too big an expense in both time and resources not to be critically evaluated. Every leader of a payments business with a loyalty program should find the tough questions that need to be answered in their organization and then reshape their loyalty effort to deliver a result that contributes to the bottom line, the brand, and shareholder value.
Thad Peterson is a Managing Director at Market Platform Dynamics. Thad has a proven track record in payments and financial services, identifying and developing new opportunities and technologies. Prior to joining the firm, Thad was Managing Director of Maritz Real-Time Rewards, leading the company’s mission to build a new industry standard at the nexus of transactional marketing and consumer engagement. Read More