For European card issuers this is a really an exciting time, particularly when it comes to loyalty, because there is so much untapped potential and so much to be learned that can really help drive activity to cards. MasterCard research indicates that, with the right approach, there are huge potential profits for many card issuers to realise over time by encouraging cardholders to use their cards and rewarding them for their most profitable behaviour. The research also shows that there are discernable trends that maximise cardholder value underpinning the ongoing development of loyalty programmes.
Loyalty can be measured in two different ways: attitudinal, ie, what people say they do; and behavioural, ie, what people actually end up doing, and the two things are not always the same. It’s important that you understand and anticipate cardholder behaviour – what they’re actually going to do versus what they say they’re going to do – and that you devise loyalty programmes accordingly.
Research from MasterCard shows that 30 percent of consumers will pay twice as much for the brand they are most loyal to. The point of this is that loyalty is not just a function of price – it represents a complex combination of both attitudes and behaviours, where a customer feels connected and personally attached to a product, brand or service. Loyalty is therefore not just about handing out rewards, it’s about rewarding your customer for profitable behaviour and this is something we should strive for in the card industry.
In the US, it has already reached a point where consumers expect reward programmes with their card. A recent study by US cards and payments consultancy Aite Group reports that by 2010, about 90 percent of cards will have associated reward programmes. So will Europe reach that point? That’s the question we need to consider when developing card loyalty strategies.
Loyalty programmes deliver results
MasterCard research in the US shows that cardholders who have cards associated with reward programmes spend twice as much as those whose cards are not associated with a rewards programme (see Figure 1). That’s what we are seeing across the board and we’re seeing that not only in our US programmes, but also in the programmes that we run in Europe and in Latin America.
Our research also indicates that reward cardholders become dormant and churn a lot less frequently than those portfolios that do not have rewards associated with them (see Figure 2). The average churn is somewhere between 5 percent and 10 percent on a rewards portfolio, versus somewhere between 18 percent and 20 percent on a non-rewards portfolio.
Furthermore, those cardholders that are in reward programmes are more likely to be advocates than those that are not, so they’re most likely to promote your product by talking about it to friends and family, and that word-of-mouth advocacy is something that we really want to achieve (see Figure 3).
The key trends in loyalty programmes that MasterCard has identified are:
• Relationship rewards – individuals rewarded for multiple relationships;
• One-to-one loyalty – data modelling, segmentation and advanced analytics;
• Merchant funding and coalition – engaging merchants in the loyalty programme; and
• Mobile commerce and technology – loyalty promotions and content delivered via mobile phones.
A particular trend we are seeing across the board is relationship rewards. Relationship rewards is a very simple concept; it’s about rewarding your customer, not only for their card activity but for all of the business they have with you as a financial institution. It also represents a way to cross- and up-sell different products across your product line.
The relationship rewards programme can be designed to provide rewards based on optimising customer behaviour (for example, using the card at POS rather than for cash withdrawal at the ATM for payment purposes), or on the number, profitability and longevity of product relationships (see Figure 4).
Current examples in the US include the ThankYou network from financial services group Citi, which has been running for the last couple of years. The ThankYou network claims that the customer earns points “for just doing what you already do” (ie, banking, shopping, travelling) but using the card for payment. Citi’s website promotes ThankYou as “the only rewards program you need. It lets you earn points from a growing network of places and keeps them all in one place – our program”. Another example is US bank National City’s points programme, which allows the customer to link points from both personal and small business accounts. Their website claims: “If you own a small business, you’ll receive points based on your complete relationship with National City.”
Bank of America has its World Points programme and Wachovia is also in the process of launching a relationships reward programme.
In Europe, Société Générale in France has a similar programme, and in Italy, Banco Popular has published results that show that cardholders who are part of their Premier programme generate four times more revenue than customers who are not part of it. So that’s a really interesting statistic that we’re seeing. We’re seeing a lot of good news come our way regarding these programmes.
One potential trend is for a group of individuals to pool their points or their equity to redeem rewards. The individuals could be spouses, children or grandparents, and it could include business as well as personal expenses.
One-to-one loyalty programmes
Another trend we are seeing is one-to-one loyalty programmes. By that I mean personalisation – using the data and using the information that you have about your cardholders to be able to market to them very specifically and get the right message across in order to change their behaviour.
At MasterCard, based on our transactional data, we have come up with 34 distinct purchase clusters, and we can take those clusters and combine the transactional data with demographic and attitudinal data, so that it becomes extremely powerful, as it provides the ability to communicate the right message to the right customer, at the right time, using the right channel.
Merchant funding and coalitions
Merchant funding and coalitions is another developing trend. This is about engaging the merchant in the loyalty programme.
MasterCard designed a multi-merchant programme for the National Bank of Greece called Go National. In Turkey, Garanti Bank is running a programme that’s successful in driving results for them. So we’re seeing a lot of activity around the multi-merchant space and we’re being asked to design programmes particularly in the Eastern European markets for a lot of our clients.
This is one way to get the merchants involved, and the reason why this is important to card issuers is that when you run a traditional loyalty programme, about 85 percent of your costs are actually in the costs of the rewards themselves. Coalitions with merchants is one way to fund the costs of those rewards, and you can work to drive transactions and revenue to your card, but also to the merchants, so they can shift certain products off their shelves.
We’re also seeing a lot of activity around real-time engagement at the point of integration, at the point of sale. Customers like immediacy; they want to be understood in their interactions with suppliers and they want to communicate through their chosen channels. That could be at the checkout counter, it could be through mobile phones, it could be through the internet, but consumers are becoming increasingly savvy – they want results now, they want instant gratification. So we are seeing a trend towards moving rewards to the POS where people can get instant rewards when they shop with certain merchants.