As competitive intensity, costs and
complexity increase, serving customers with the right loyalty
solution is a significant challenge. Michelle
, Global Solutions leader, MasterCard Advisors,
argues that, as customers seek to maximise the value they receive,
cards rewards programmes will continue to grow.

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

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

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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.

Rewards vs non-rewards: cardholder average monthly spend, 2006

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.

Rewards vs non-rewards: cardholder advocacy 2006

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

• One-to-one loyalty – data modelling, segmentation and advanced

• Merchant funding and coalition – engaging merchants in the
loyalty programme; and

• Mobile commerce and technology – loyalty promotions and
content delivered via mobile phones.

Relationship rewards


Relationship rewards

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

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

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.