In this blog, Capco’s Katharina Teynor shares her view on why traditional loyalty programmes may require a re-think.
What most banks refer to today as customer loyalty is no more than repeat purchase, a much weaker relationship. Many retail banks (and non-FIs) are still missing out on the opportunity to build a truly meaningful relationship with customers, increase share of mind and equity as well as basket size. All the while, they are seeing large customer segments silently defect to fintech insurgents for high-margin services whilst retaining their primary account with traditional banks, at significant cost to those incumbents. Traditional loyalty programmes rarely create loyalty; they help brands and companies fight a battle for attention – not love.
As loyalty programmes change, what opportunity does this present for retail banks?
The problem with loyalty programmes today
Loyalty programmes traditionally offer incentives in exchange for repeat business: stamp cards in our wallets remind us to buy at a particular shop for freebies or discounts, credit card companies offer rewards like air miles. But they can be about so much more. Loyalty is defined as an affective bond leading to actions as strong as advocacy. Repeat purchase has many drivers that can even be largely unrelated – such as sheer convenience. However, it generates revenue, so why question it?
Recently, the Covid-19 pandemic has been accelerating trends that are changing the core of customers’ needs and wants. This is impacting customer loyalty in two ways.
Firstly, a growing number of choices and an all-encompassing shift to digital makes today’s demanding customer less likely to stay with a particular brand or provider than ever.
Secondly, customers are looking for shared values and meaning that goes beyond a traditional buyer-seller relationship, as proven by the spectacular rise of ESG and increased focus on CSR. All customer segments – but particularly younger segments - now pick who they will buy from based, at least in part, on their ethical bona fides. In a B2B environment, enabling the customer-facing end to drive their business is the name of the game. Data-rich FIs like acquirers strive to be seen to proactively help develop their clients’ businesses and even support their ESG ambitions with data and tools.
Why loyalty programmes must change
- Loyalty programmes need to be radically reimagined in a way that subtly enhances the customer experience and offers value in real-time rather than operating separately to the product or service being delivered.
- Many offerings only scratch the surface of the vast potential that lies in the effective use of existing customer data, according to a customers’ characteristics and behaviour – a still surprisingly uncommon practice in times where contextual banking and hyper-personalisation are on the rise.
- As industry boundaries become more fluid and fintech and bigtech is growing explosively, employing the right technology can help break down the barriers between single brands and services to pave the way towards fully embedded finance, including open-loyalty ecosystems that benefit customers and providers alike.
- Companies can take the opportunity to showcase their ESG credentials and allow customer interactions to contribute toward a good cause, strengthening the brand image and obtain emotional involvement.
The opportunity ahead for banks
Loyalty programmes now have the chance to become what they have been designed to be all along: a tool to meaningfully bond with customers. In the recent past, Capco designed and implemented a loyalty programme for a leading UK bank, turning a dormant customer base into frequent spenders with the help of a compelling value proposition.
Now, to succeed in the face of changing expectations, Capco can help you leverage data and AI to establish a holistic single-customer view, draw on its vast product design expertise to build a customer-centric offering and shape a strategy that empowers you to foster a strong long-term relationship with your client base.
This blog is the opinion of the author only. For more information about our Banking & Payments practice, please contact Ian Hooper, Partner, Capco UK.