FT. LAUDERDALE, Fla.—Battling for card loyalty with expensive rewards programs may not have the long-term payoff issuers are hoping for, asserts one data expert, who says a better approach is to create “most valuable members.”
The best strategy for creating those high value members is to skip the rewards and leverage data analytics to better know the member, the same analyst suggests.
“Loyalty rewards tied to card usage do not drive loyalty. They drive top-of-wallet—but only until the next better card offer comes along. Rather than rewarding on spend, credit unions should reward “most valuable members,” said Lou Grilli, AVP of product development and thought leadership at Trellance, in remarks to the CUSO’s Immersion 19 meeting here.
“Most Valuable Member” (MVM) programs are not unlike many member loyalty programs that reward their most profitable members who use the CU most at the end of the year or on an ongoing basis.
But Grilli emphasized it’s all about the member data for MVM programs to really work. The goal, said Grilli, is to identify, engage and reward current MVMs, and convert existing members to MVMs.
The Four C’s
“Based on the premise that MVMs are your most profitable members. Who is most valuable to the credit union varies by CU based on their goals,” said Grilli, who noted that some credit unions will use the “four Cs”—credit card, checking account, car and casa, or home.
“These are the members who actively use their CU’s branded credit card, maintain a minimum balance in their checking account, have a car loan and some mortgage product with the credit union,” he said.
Grilli said not only do those programs reward high-performing members, but they begin changing their behavior among those MVMs—in fact, it changes behavior even among non-MVMs.
“Members will begin refinancing their car with the credit union, or start using the credit card which had been thrown in a drawer in order to be eligible for the big payout,” he said. “This kind of program needs to pull in data from the core, LOS, credit and debit processors, in order to track and identify. Also, processes need to be adapted to recognize MVMs. For example, when an MVM walks in to a branch to request a money order, the teller should be able to see immediately that this is an MVM and to waive the fee. That’s using data to drive a customer experience.”
Not Easily Tracked by Humans
Another example is if a member has always had direct deposit with the CU and suddenly it stops.
“That’s not something that’s easily tracked by humans, but a data analytics platform can flag cases for member representatives to call the member and ask, ‘Is everything OK?,’” said Grilli. “Maybe the member moved the direct deposit to another FI to chase better rates. That’s valuable to know who is out there stealing your members’ business. Maybe the member works for the federal government and was furloughed. The data analytics platform can look across multiple inputs so a member service rep can suggest a skip-a-pay that month if they have a revolving card balance, or discuss an auto loan which is eligible to be reset to a lower monthly payment, for example.”
Ethereal and Invisible
Grilli emphasized what the MVM delivers is not something as tangible as 2% cash back on credit card spend.
“It’s ethereal. It’s invisible—not so much things. It’s the interaction. It’s the experience—a personalized, unique experience. A positive experience,” he stressed.
Grilli pointed out that McKinsey research shows organizations that leverage customer behavior data to generate behavioral insights outperform peers by 85% in sales growth and more than 25% in gross margin.
The Proof
“Want proof? Look no further than Amazon, Netflix and Google—all of whom have built their entire respective empires around a nucleus of customer behavior data and analytics,” said Grilli. “Seventy-five percent of Netflix viewer activity is driven by recommendation. Thirty-five percent of Amazon’s sales are generated through their recommendation engine. Credit unions need to adopt this. Wells Fargo made cross-selling a bad word. But suggesting the next best product in that short window while on the phone, while at a branch, while on a chat session, is the way credit unions can do the same thing that Netflix and Amazon do.”
‘Increasingly Difficult’
In a digital world where customer-centricity, personalization, and consumer experience separate the winners from the losers, it’s no coincidence that these companies thrive, said Grilli.
“Before long, it will grow increasingly difficult to compete in any industry for those who are too slow to follow in their customer-centric, behavioral data-driven footsteps,” he said.
Grilli noted that technology is becoming more affordable every day, and that is engrained now in financial services.
“Before the digital age, we could get away with segmenting, using assumed traits based on geographic location and age—older people prefer to come in to the branch, younger people prefer the drive through or ATM, gender and so forth,” said Grilli, “We made assumptions. There is only one assumption you can make—that each member is unique and deserves to be treated as such.”