By Ray Birch
FENTON, Mo.—A lot of credit card rewards programs were designed by Baby Boomers for Baby Boomers, and are further suffering from misconceptions around what it is people really want, according to one analyst.
Barry Kirk, VP of loyalty strategy at Maritz Loyalty, told CUToday.info data the company has recently released reveals three things: consumers connect with loyalty programs emotionally as much as they do financially; consumers are points savers more than they are spenders, and cardholders want an excellent service experience with their loyalty program as much as they do financial benefits.
Kirk said those findings indicate it’s time for many financial institutions to re-examine their loyalty offerings and their loyalty program communications.
“The predominant format for loyalty programs today was set in the ’80s,” said Kirk. “Boomers created the offerings for Boomers. This is not a knock on Boomers, but you would not buy a car today that was designed in the ’80s.”
An Incorrect Assumption
Kirk said behind most loyalty programs is the assumption that consumers are driven by one thing—the desire to maximize their financial benefit.
“Most loyalty programs have a very simple construct—we give you enough points to get you to use our card more,” he explained. “But there has been a great deal of research that reveals consumers make mostly emotional decisions, including when they interact with a bank or credit union. It’s not always about a logical financially driven decision.”
That means a loyalty program should connect with a cardholder at least as much emotionally as it does “transactionally,” said Kirk.
“You want to be focused as much on the relationship as you do on what level of bribe you want to offer your customer to get them to interact with your card product,” he told CUToday.info.
Points Hoarders
But what really stood out to Kirk from the company’s study is that 73% of respondents said they are more focused on saving their rewards points than they are spending them.
“That is an important finding, as there is this thinking in the financial services space that if the customer is not redeeming points the customer is not engaged—therefore the customer must not love the financial institution,” he said. “But that thinking is flawed, as data show there are more consumers interested in holding onto their points to use at a later time than spending them immediately.”
Issuers, then, need to balance their communication messages between redeeming points and saving them, Kirk insisted. “They should talk about building up points as much as they talk about ways consumers can spend them.”
While the financial benefits of rewards programs are important to consumers, the Maritz study shows that 60% of respondents are driven to use a rewards program as much by the level of service they receive.
An ‘Important Finding’
“The customer is saying, ‘Yes, it’s important your card’s interest rate is great, the points are great, what we redeem for is great,’ but they are also very focused on the quality of service they are getting from the financial institution—like when they call the call center with an issue with their card,” Kirk said. “I think this is an important finding for credit unions since they offer a more personalized experience for their members and cardholders.”
Kirk said what consumers are saying is that driving “true loyalty” and not “mercenary loyalty”—bought by card points and perks—is key to cementing that credit card relationship.
“So focus as much on the rewards program experience as the financial benefits,” he said. “Take Starbucks as an example. Starbucks customers don’t show up because they want the least expensive cup of coffee. They don’t care about the price, which is high. They show up because they like the Starbuck’s experience.”
What Consumers Really Want
Kirk noted that a recent industry report finds that the average U.S. household is involved in more than 30 loyalty programs.
“Card issuers must realize their customers are not just looking at their offering in isolation, and not just comparing their offering to those from other banks. Issuers’ customers are looking at a lot of loyalty programs, and they are evaluating loyalty programs against those from Target, Starbucks, Marriott…” he said.
Kirk added that credit unions need to do a better job of using their member data to tailor rewards communications and offerings to the individual needs of their members and not use a one-size-fits-all communication strategy.
“We have data that show that consumers are saying they pay more attention to communications you send if they are loyalty related,” Kirk said. “Our study shows that 71% of consumers are more likely to read a communication from you if it appears to be about the loyalty program.”