CUSTOMER LOYALTY

HAMZA TAQI, MCIM

AFTER ATTENDING THIS PROGRAM PARTICIPANTS

WILL BE ABLE TO:
OBTAIN AN UNDERSTANDING OF LOYALTY MARKETING AND ITS IMPACT ON YOUR BRAND, REFERRALS AND
NICHE
UNDERSTAND THE POWER OF LOYALTY MARKETING AND THE PROCEDURES INVOLVED
ACQUIRE THE ABILITY TO IMPLEMENT PRUDENT MARKETING WITHIN A LOYALTY MARKETING FRAMEWORK
RECOGNIZE THE IMPORTANCE OF DIGITAL MARKETING AND ITS IMPACT ON LOYALTY MARKETING
MASTER THE USE OF SOCIAL MEDIA
GAIN MORE FROM CURRENT CLIENTS BY IMPROVING THEIR LIFETIME VALUE
DISCOVER THE TOOLS TO ENABLE AN IMPROVEMENT IN THE MARKETING RETURN ON INVESTMENT (ROI)

QUESTION
PUT YOU HANDS UP IF YOU HAVE A LOYALTY CARD IN YOUR
WALLET OR PHONE? MOST OF YOU
HOW MANY SAY THAT THIS CARD INFLUENCES OUR BEHAVIOR IN
SOMEWAY WERE YOU SHOP?
HOW MANY SAYS THAT THIS LOYALTY CARD MAKE YOU LOYAL TO
THE BRAND?

GERARD DU TOIT,
A PARTNER IN BAIN'S FINANCIAL SERVICES PRACTICE

RESEARCH FINDINGS
ONE-THIRD OF BANKING CUSTOMERS HAVE RECENTLY PURCHASED
A NEW PRODUCT FROM A BANK THAT'S NOT THEIR PRIMARY BANK.
THE NEW PRODUCT IS OFTEN HIGH MARGIN SERVICE.
WE DO OUR BEST TO PLEASE A CUSTOMER WHEN THEY DECIDE TO
CLOSE THEIR CURRENT ACCOUNT.
EXPLAINS HOW THIS "HIDDEN DEFECTION" PROBLEM IS MAKING
CUSTOMER LOYALTY MORE IMPORTANT THAN EVER.

ROB MARKEY

INTRODUCING THE NET PROMOTER SYSTEM

RESEARCH FINDINGS
THE NET PROMOTER SYSTEM IS ABOUT CREATING A CULTURE IN WHICH
COMPANIES MAKE BETTER DECISIONS ON BEHALF OF THEIR CUSTOMERS.
THE ONLY WAY TO DO THAT IS TO GET RELIABLE FEEDBACK FROM CUSTOMERS.
COMPANIES GAINED A RADICALLY SIMPLE WAY TO GAUGE CUSTOMER SENTIMENT.
BUT THE SCORE SOON EVOLVED AS COMPANIES DEVELOPED PROCESSES TO ACT
ON THE FEEDBACK THEY COLLECTED AND IMPROVE THE CUSTOMER EXPERIENCE.
THE NET PROMOTER SYSTEM IS NOW A MANAGEMENT PHILOSOPHY THAT
COMPANIES AROUND THE WORLD USE TO EARN THE PASSIONATE LOYALTY OF
CUSTOMERS AND EMPLOYEES.

BUILDING CUSTOMER LOYALTY

1. THE SHAPE SHIFTER

LAWRENCE OF ARABIA DIDNT ALWAYS RIDE A CAMEL!

YOUR CUSTOMERS WILL CONSTANTLY SURPRISE YOU
CUSTOMER KNOWLEDGE IS COMPETITIVE ADVANTAGE

LEVERAGING CUSTOMER KNOWLEDGE

NOTES:

Scoring and segmentation,

propensity models, churn
analysis, satisfaction scores,
lifetime value metrics,
Store scoring, market basket,
exceptions

THERES A LOAD OF ANALYTICAL APPROACHES

BEYOND RFM FOR RETAILERS WISHING TO
LEVERAGE CUSTOMER KNOWLEDGE. NOT ALL
OF THESE APPEAR TO BE EASY TO ADOPT AND
MARKETERS IGNORE ANALYTICS MORE OUT OF
A LACK OF UNDERSTANDING OF WHAT IT CAN
DO FOR THEM. GET THE EXPERTS IN, LISTEN TO
THEM YOULL FIND THAT THERES ROI IN IT
FOR YOU.

2. THE PAINTER

CUSTOMER FLIGHT IS INEVITABLE UNLESS YOU CAN

PAINT YOURSELF INTO THEIR PICTURE
BUILD FENCES, INCREASE THEIR SWITCHING COST
BOTTOMLINE: GET YOUR CONCEPT RIGHT

GETTING THE CONCEPT RIGHT

Objectives, metrics,
software, membership, tiers,
rules & processes, earnburn, rewards, benefits,
communication, helpdesk,
partners, ROI, budgets

NOTES
BUILDING A LOYALTY PROGRAM CONCEPT REQUIRES
NOT JUST SOUND STRATEGIC THINKING, BUT LOADS
OF RIGOR. THE SUCCESS LIES IN BEING ABLE TO
DETAIL OUT SOLUTIONS TO OVER 100 DECISION
POINTS THAT A LOYALTY PROGRAM CONCEPT NEEDS
TO COVER. YOU CANNOT BE REACTING TO
SITUATIONS AS THEY HAPPEN!

3. THE CARD MAGICIAN

ITS MORE THAN A CARD TRICK
LOYALTY PROGRAMS ARE A PROVEN WAY TO
CAPTURE CUSTOMER DATA AND PREVENT
CUSTOMER FLIGHT
ITS ABOUT BUILDING RELATIONSHIPS AND
INCREASING LTV, NOT JUST LAUNCHING A CARD

THE LOYALTY CARD

NOTES

Smart card, RFID, Mag

stripe, bar code card,
affinity cards, card
variants, co-branded
cards, card readers,
mobile app, carding

THE LOYALTY CARD IS THE MOST FAMILIAR FACE OF

A LOYALTY PROGRAM. THERE ARE MANY OPTIONS
HERE AS WELL, BUT THE KEY POINT IS THAT
LAUNCHING A CARD DOES NOT MAKE A LOYALTY
PROGRAM. THIS SPACE IS LITTERED WITH FAILED
PROGRAMS THAT WERE LAUNCHED AS A CARD AND
LITTLE ELSE.

4. THE NEUROMANCER

IF MARKETING AND IT DONT SHAKE HANDS, YOU

MIGHT AS WELL HANG UP YOUR LOYALTY BOOTS
TECHNOLOGY INTEGRATION IS CRUCIAL TO
SUCCESS

IT AND THE PRORGAM

Loyalty software, CRM
software, analytical CRM
software, marketing
database, POS integration,
liability tracking, points
banking, campaign mgmt

NOTES
THE SOFTWARE ON WHICH YOUR PROGRAM DEPENDS
NEEDS TO BE DESIGNED CAREFULLY, AND SHOULD
HANDLE ALL ASPECTS OF YOUR PROGRAM. RETAIL POS
SOLUTIONS OFTEN OFFER A BASIC LOYALTY MODULE
THESE ARE USUALLY INADEQUATE! THE POINT: DONT
DESIGN YOUR PROGRAM TO FIT THE SOFTWARE.

5. THE BAND
YOU NEED SUPERHEROES SKILLED IN
MARKETING, TECHNOLOGY, AND ANALYTICS
IT TAKES TEAMS THAT ARE NURTURED
IT TAKES PATIENCE AND TOP MANAGEMENT
BUY IN

THE LOYALTY MANAGER

NOTES

Loyalty manager, loyalty

agency, CRM consultant, IT
team, Software developer,
events & promotions team,
rewards team, creative
agency...

THE TEAM THAT DRIVES THE PROGRAM INTERNALLY

NEEDS TO BE COMPOSED OF SKILLS THAT ARE
DIFFICULT TO FIND IN ANY MARKET. DIRECT
MARKETING, CRM AND LOYALTY SKILLS NEED TO BE
NURTURED AND THE TEAM NEEDS TOP
MANAGEMENT SUPPORT. IMPORTANTLY, YOU WILL
NEED TO RELY ON THE RIGHT PARTNERS TO COME IN
WITH SPECIFIC SKILLS.

6. THE CAMPAIGNER
LOYALTY PROGRAMS THROW UP A WEALTH
OF DATA DRIVEN CAMPAIGNS
GOOD CAMPAIGN MANAGEMENT ALLOWS
YOU TO HANDLE HUNDREDS OF SEGMENTS
AND COMMUNICATIONS SIMULTANEOUSLY

CAMPAIGN MANAGEMENT
NOTES

Campaign calendar, welcome

kit, statements, coupons, daypart based, cross sell,
activation, churn prevention,
win-back, relationship
building

CAMPAIGN MANAGEMENT PRACTICES ARE BETTER

ESTABLISHED AMONGST THE BANKS THAN
RETAILERS, BUT HERE IS WHERE THE REAL PAY-OFF
IS. LEVERAGE CAMPAIGN MANAGEMENT TOOLS
AS THEY WILL ALLOW YOU TO RUN HUNDREDS OF
TARGETED CAMPAIGNS WHICH REALLY DO PAY
OFF, AS COMPARED TO A FEW FESTIVAL OFFERS
AND GENERIC PROMOTIONS.

7. THE TIMEKEEPER
BUILDING LOYALTY TAKES MONEY, TIME AND PATIENCE
ASSUME IT WILL TAKE YOU 2-3 YEARS TO TRULY REAP
BENEFITS
YOURE IN IT FOR THE LONG RUN, ARENT YOU?

A MATTER OF PATIENCE
NOTES

Points liability, breakage, ROI,

enrolment, member base,
activity levels, satisfaction
scores, incremental revenues,
wallet share, referrals

SET EXPECTATIONS RIGHT. TO LAUNCH A

PROGRAM AND EXPECT A JUMP IN SALES WITHIN
6 MONTHS IS PUSHING IT. BUILDING UP A
QUALITY MEMBER BASE (NO MASS ENROLMENTS),
SETTING UP THE BACK END, CAMPAIGN
MANAGEMENT THESE ALL TAKE TIME AND
EFFORT, AND THE METRICS TO MEASURE SUCCESS
TAKE TIME TO SHOW THE RETURNS.

TO SUMMARIZE
1.

CUSTOMERS SHAPE-SHIFT

2.

YOU NEED TO PAINT YOURSELF INTO THEIR WORLD WITH A GOOD

CONCEPT

3.

LOYALTY PROGRAMS ARE MORE THAN CARD MAGIC

4.

YOU NEED TO GET MARKETING AND IT IN SYNC

5.

THE TEAM NEEDS TOP MANAGEMENT BUY IN

6.

THE PAY OFF IS IN THE DATA LED CAMPAIGNS

7.

THE PAY OFF COMES WITH PATIENCE

WHAT IS THE PAY OFF?

DAY TWO

WHAT IT TAKES TO MAKE LOYALTY PAY OFF

HOW EXACTLY DOES CUSTOMER LOYALTY TRANSLATE INTO BETTER FINANCIAL RESULTS FOR A RETAIL
BANK?
HOW MUCH VALUE IS AT STAKE?
FOR MANY BANKERS, THE LINK BETWEEN LOYALTY AND FINANCIAL RESULTS IS SOMEWHAT UNCLEAR.
BASED ON BAINS PROPRIETARY RESEARCH WITH 190,200 CONSUMERS IN 27 COUNTRIES, SHEDS LIGHT
ON HOW BANKS ARE USING (OR FAILING TO USE) LOYALTY TO IMPROVE THE ECONOMICS OF THE
BUSINESS.
THE RESEARCH WAS CONDUCTED ONLINE IN JULY AND AUGUST 2013 THROUGH MARKET RESEARCH
FIRMS RESEARCH NOW AND GMI.
IN SOME COUNTRIES, BANKS MADE PROGRESS IN EARNING CUSTOMERS LOYALTY DURING 2013, AS
INDICATED BY A RISING NET PROMOTER SCORE (NPS).
BAIN ANALYSIS SHOWS THAT THEY ARE FAR FROM EXPLOITING THE FULL POTENTIAL OF THAT LOYALTY.

WITH NEW CUSTOMERS MORE SCARCE, LOYALTY IS

HALF THE BATTLE
IN ALL 27 COUNTRIES SURVEYED, BANKS FORMED NEW RELATIONSHIPSCUSTOMERS SWITCHING THEIR
PRIMARY BANK PLUS CUSTOMERS ALTOGETHER NEW TO BANKINGAT AN AVERAGE RATE OF ABOUT 3% IN
DEVELOPED MARKETS AND 6% IN DEVELOPING ONES OVER THE PAST YEAR.
EARNING HIGH LEVELS OF CUSTOMER LOYALTY DEFINITELY HELPS THE CAUSE: ON AVERAGE, A BANKS RELATIVE
NPS EXPLAINS ROUGHLY HALF OF THE VARIATION IN ITS RELATIVE WIN RATE
A METRIC THAT SHOWS WHETHER A BANK IS WINNING MORE OR LESS THAN ITS FAIR SHARE OF CUSTOMERS.
RELATIVELY STRONG NPS AMONG EXISTING CUSTOMERS THUS ALLOWS BANKS SUCH AS DKB IN GERMANY AND
BANKINTER IN SPAIN TO WIN MORE THAN THEIR FAIR SHARE OF NEW CUSTOMERS.
OTHER FACTORS THAT INFLUENCE WIN RATE VARY BY MARKET, BUT THE FACTORS THAT CUSTOMERS CITE MOST
OFTEN INCLUDE THE LEVEL OF FEES, THE CONVENIENCE OF THE BRANCH NETWORK AND THE EASE OF OPENING
AN ACCOUNT.
WINNING NEW RELATIONSHIPS PROVIDES A LIFETIME OF OPPORTUNITY TO SELL PEOPLE MORE BANKING
PRODUCTS AND EARN THEIR ADVOCACY.
GIVEN THE LOW RATE OF NEW RELATIONSHIP FORMATION, HOWEVER, THIS ROUTE ALONE WILL NOT BE
SUFFICIENT AS A GROWTH STRATEGY.

THE MISSING PAYOFF FROM EXISTING CUSTOMERS

MOST BANKS CURRENTLY MISS A SIGNIFICANT OPPORTUNITY FOR CROSS-SELLING TO THEIR
EXISTING CUSTOMER BASE.
THE STEADY EXPANSION OF THE MIDDLE CLASS IN EMERGING MARKETS, COMBINED WITH DIGITAL
CHANNELS MAKING IT EASIER TO PURCHASE PRODUCTS, HAS CREATED A HUGE OPPORTUNITY TO
CROSS-SELL, BUT IT HAS ALSO BECOME EASIER TO BUY FROM A BANK OTHER THAN YOUR PRIMARY.
ABOUT HALF OF CUSTOMERS IN DEVELOPED COUNTRIES AND 84% IN EMERGING COUNTRIES
OPENED A NEW BANKING PRODUCT OVER THE PAST YEAR.
CUSTOMERS PURCHASED FULLY ONE-THIRD OF THOSE PRODUCTS, ON AVERAGE, FROM A BANK
OTHER THAN THE CUSTOMERS PRIMARY BANK.
LOYALTY MATTERS IN CROSS-SELLING: FOR ALMOST EVERY PRODUCT AND IN EVERY COUNTRY,
CUSTOMERS WHO GAVE THEIR PRIMARY BANK A HIGH NPS BOTH OWN AND PURCHASE MORE
PRODUCTS FROM THAT BANK THAN CUSTOMERS WHO GAVE A LOW NPS.

INTERRUPTION- THE SQUIRREL

IN THE COMPETITIVE HONG KONG MARKET, FOR INSTANCE, 77% OF CUSTOMERS
TOOK A NEW PRODUCT, BUT ONLY 52% CHOSE THEIR PRIMARY BANK.
ITS A DIFFERENT STORY IN DENMARK, WHICH HAS A HIGHLY-CONCENTRATED
BANKING SECTOR. THERE, 38% OF CUSTOMERS TOOK A NEW PRODUCT, AND
FULLY 81% STAYED WITH THEIR PRIMARY BANK.
COMPETITIVE FORCES LIKELY WILL INCREASE OVER TIME, GIVING CUSTOMERS
EVEN MORE BANK OPTIONS.

PRODUCT WIN RATES

PRODUCT WIN RATESTHE SHARE OF PRODUCTS BOUGHT BY RESPONDENTS AT
THEIR PRIMARY BANKVARY EVEN MORE BY BANK THAN BY COUNTRY.
IN THE US, THE RATES RANGE FROM 38% TO 63%, WITH HUNTINGTON NATIONAL
BANK LEADING OVERALL.
SEVERAL YEARS AGO, HUNTINGTON (WHICH HAD HIGH NPS TO BEGIN WITH) BEGAN
TO CONSOLIDATE CUSTOMER DATA AND BUILD A UNIFIED VIEW ACROSS ALL
LOCATIONS AND BUSINESS UNITS.
IT REPLACED ITS MANUAL SALES PROCESS WITH AN AUTOMATED ONE THAT MADE IT
EASIER FOR EMPLOYEES TO MANAGE CROSS-SELLING AND UPSELLING
OPPORTUNITIES.
HUNTINGTON HAS GRADUALLY GROWN THE NUMBER OF PRODUCTS HELD BY
CUSTOMERS.

LOYALTY PLAYS A KEY ROLE

THE DIFFERENCE IN PRODUCT TAKE-UP BETWEEN CUSTOMERS WHO
ARE PROMOTERS OF THEIR PRIMARY BANK (THOSE WHO GIVE AN
NPS OF 9 OR 10)
CUSTOMERS WHO ARE DETRACTORS (THOSE GIVING AN NPS OF
ZERO TO 6)
IS A HEALTHY 14 PERCENTAGE POINTS ON AVERAGE FOR DEVELOPED
COUNTRIES AND 10 POINTS IN DEVELOPING COUNTRIES.

THE WINNING MODEL:

LOYALTY PLUS FIVE CAPABILITIES
RESEARCH AND CLIENT WORK SHOW THAT LOYALTY NEEDS TO
JOIN UP WITH FIVE SPECIFIC CAPABILITIES IN ORDER TO SPUR
EXISTING CUSTOMERS TO BUY MORE FROM THEIR PRIMARY BANK,
ATTRACT NEW CUSTOMERS AND REDUCE COSTS WITHOUT
DAMAGING CUSTOMER RELATIONSHIPS.

1. DECIDE WHERE YOU MUST WIN AND WHERE

YOURE WILLING TO LOSE
BANKS IN MANY COUNTRIES HAVE A LONG HISTORY OF EQUAL TREATMENT OF
CUSTOMERS, REGARDLESS OF HOW MUCH THEIR MARKETERS SEGMENT THE
CUSTOMER BASE.
CATERING TO THE AVERAGE MEANS CATERING TO NO ONE IN PARTICULAR.
EACH CUSTOMER SEGMENT HAS DIFFERENT PRIORITIES, EXPECTATIONS AND LIFETIME
VALUE FOR A BANK.
A US SURVEY FINDS, FOR INSTANCE, THAT OLDER CUSTOMERS CARE MORE ABOUT
BRANCH LOCATION AND QUALITY OF BRANCH STAFF, WHILE YOUNGER CUSTOMERS
PLACE GREATER VALUE ON MOBILE DEVICE INTERACTIONS AND RELY HEAVILY ON
RECOMMENDATIONS FROM FAMILY, FRIENDS AND COLLEAGUES.

2. DESIGN PRODUCTS THAT POP

RETAIL BANKS FIND IT DIFFICULT TO KEEP THEIR PRODUCTS DISTINCTIVE, AS
PRODUCT FEATURES GET COPIED QUICKLY.
AT A MINIMUM, BANKS MUST AT LEAST KEEP UP WITH THE LATEST FEATURES
THAT CUSTOMERS VALUE.
BANKS ALSO CAN DIFFERENTIATE PRODUCTS AT THE MARGIN THROUGH
INNOVATIVE PRICING OR BY BUNDLING SEVERAL PRODUCTS TOGETHER IN
APPEALING WAYS.
CUSTOMERS OBVIOUSLY CARE ABOUT PRODUCT FEATURES LIKE INTEREST RATES
AND FEES, REWARDS, EASE OF TRANSACTION AND, FOR MORE COMPLEX
PRODUCTS LIKE WEALTH MANAGEMENT, THE QUALITY OF ADVICE.

3. ACCELERATE THE DIGITAL TRANSFORMATION

AS DIGITAL BANKING SPREADS, BANKS INCREASINGLY HAVE OPPORTUNITIES TO EXCEL AT MOMENTS OF
TRUTH IN THE CUSTOMER EXPERIENCE, SUCH AS RESOLVING FRAUDULENT ACCOUNT ACTIVITY OR GIVING
EXPERT ADVICE.
THEY CAN ALSO USE TECHNOLOGIES TO DELIGHT CUSTOMERS THROUGH TRANSACTIONS SUCH AS
REMOTE DEPOSIT CAPTURE. CONVERSELY, SLOW OR CONFUSING DIGITAL INTERFACES WILL QUICKLY
ANNOY CUSTOMERS.
BANKS HAVE MADE SIGNIFICANT PROGRESS IN THE SHIFT FROM A MOSTLY ANALOG WORLD TO AN
OMNICHANNEL WORLD, WHERE CUSTOMERS EXPECT TO BE ABLE TO USE THE CHANNEL OF THEIR CHOICE
WHEN AND WHERE IT SUITS THEM. YET WERE STILL IN EARLY DAYS WITH A LONG WAY TO GO.
MORE THAN HALF OF CUSTOMERS INTERACTIONS ON AVERAGE TOOK PLACE THROUGH ONLINE OR
MOBILE CHANNELS, RANGING FROM 75% IN NORWAY TO 38% IN MEXICO.
MANY BANKS COULD MAKE MORE OF THE TECHNOLOGY OR STEER CUSTOMERS TO ADOPT IT.

4. LOYALTY GIVES YOU THE RIGHT TO WIN MORE

BUSINESSBUT YOU DO HAVE TO ASK FOR THE SALE
BANKS WITH STRONG CUSTOMER LOYALTY HAVE AN OPEN DOOR TO WIN MORE OF THEIR
CUSTOMERS BUSINESS.
FOR EVERY FINANCIAL PRODUCT AND IN EVERY COUNTRY MARKET WE HAVE ANALYZED, WE FIND THAT
PROMOTERS BUY MORE PRODUCTS WITH THEIR PRIMARY BANK THAN DETRACTORS.
THAT DOESNT MEAN THE BUSINESS COMES EFFORTLESSLYBANKS HAVE TO ASK FOR IT. FOR EXAMPLE,
ABOUT ONE-THIRD OF BANKING PRODUCTS IN THE US ARE SOLD, NOT BOUGHT.
CUSTOMERS DID NOT PLAN TO BUY A PARTICULAR PRODUCT, BUT THEY RECEIVED AN OFFER AND THEN
DECIDED TO GET IT.
MAYBANK IN MALAYSIA, HAS CHOSEN TO BUNDLE PRODUCTS IN A WAY THAT MAKE IT EASY TO SELL
THEM.
CUSTOMERS APPLY ONCE FOR ALL PRODUCTS AND PROVIDE ALL NECESSARY INFORMATION AT THAT
TIME; THEY THEN CAN ACTIVATE AND ACCESS PRODUCTS AS NEEDED, THROUGH THE CHANNEL OF THEIR
CHOICE.

5. BUILD BRANDING THAT DELIVERS MORE TRUST,

LESS BUZZ
THE BRAND INTERACTS WITH THE OTHER ELEMENTS DISCUSSED HERE AND EITHER ENHANCES OR
DEGRADES EACH ONE. IN FACT, A BANKS NPS TENDS TO BE HIGHLY CORRELATED WITH ITS BRAND
STRENGTH.
BANKS STANDING AMONG REGULATORS, LEGISLATORS AND THE BROAD PUBLIC TOOK A HIT IN THE
YEARS FOLLOWING THE FINANCIAL CRISIS. IN RESPONSE, MANY BANKS HAVE INCREASED THEIR
ADVERTISING AND OTHER FORMS OF EXPLICIT MARKETING OVER THE PAST FEW YEARS, WITH THE
HOPE OF RESTORING THEIR IMAGE.
ALTHOUGH BUILDING AWARENESS CAN BE USEFUL, A NEW BRAND CAMPAIGN BY ITSELF MERELY
APPLIES A FRESH COAT OF PAINT ON A RUSTY SHIP, RATHER THAN REPAIRING THE ENGINE AND HULL.
REBUILDING TRUST INVOLVES A SLOW, STEADY PROCESS.
CREDIBILITY COMES BY TELLING THE STORY OF WHAT A BANK HAS TO OFFER, NOT WHAT IT WISHES
TO BE. AND THAT STORY ALSO GETS SHAPED BY THE DAILY INTERACTIONS WITH CUSTOMERS.

DIGITAL INTERACTIONS IN DEPTH: THE WHO, WHAT,

WHERE AND WOW
MOBILE BANKING VIA SMARTPHONE OR TABLET IS COMING ON STRONG IN MANY COUNTRIES. IN THE US,
MOBILE USAGE JUMPED TO 32% OF CUSTOMERS FROM 21% IN 2011.
MOBILE BANKING IS MORE LIKELY TO INCREASE A US CUSTOMERS LIKELIHOOD OF RECOMMENDING THE BANK
THAN ANY OTHER CHANNEL INTERACTION. US CUSTOMERS ESPECIALLY LOVE SOPHISTICATED FEATURES SUCH AS
REMOTE DEPOSIT CAPTURE (A DIGITAL IMAGE OF AN ENDORSED CHECK), AND THEY VALUE THE CONVENIENCE
OF MOBILE DEVICES FOR STRAIGHTFORWARD TASKS SUCH AS CHECKING A BALANCE.
IN MOST EUROPEAN AND ASIAN COUNTRIES, CUSTOMERS CITE ONLINE TOOLS AND TRANSACTIONS AS HAVING
THE STRONGEST INFLUENCE ON THEIR RECOMMENDING A BANK.
THE 25- TO 35-YEAR-OLD AGE GROUP ARE THE HEAVIEST MOBILE USERS IN MOST COUNTRIES. THE BIGGEST
GAINERS IN US MOBILE USAGE, THOUGH, WERE CUSTOMERS AGED 36 TO 45.
DIGITAL CHANNELS DONT JUST CREATE WOW EXPERIENCES THAT MAKE ROUTINE TRANSACTIONS FAST AND
EASY. THEY ALSO CAN DIVERT VOLUMES FROM HIGHER-COST BRICK-AND-MORTAR CHANNELS IF DONE
CORRECTLY.

WINNING THE ELUSIVE HEARTS AND MINDS OF

AFFLUENT CUSTOMERS
WEALTHIER CUSTOMERS SURVEYED IN THE US AND MOST EUROPEAN COUNTRIES GIVE LOWER
LOYALTY SCORES THAN PEOPLE OF MODEST MEANS. US NATIONAL BANKS FARED PARTICULARLY
POORLY AMONG THE AFFLUENT.
THE PICTURE IS DIFFERENT IN ASIA AND DEVELOPING MARKETS LIKE MEXICO, WHERE MANY BANKS
HAVE DEVELOPED DIFFERENTIATED MODES OF TARGETING AND SERVING THE AFFLUENT,
COMBINING PRIMARY BANKING SERVICES WITH WEALTH MANAGEMENT. HERE, THE AFFLUENT TEND
TO GIVE HIGHER LOYALTY SCORES.
AFFLUENT CUSTOMERS GENERALLY INSIST ON PREMIUM SERVICE AND TAILORED, EXPERT ADVICE.
THEY WANT PERSONAL BANKING RELATIONSHIPS, NOT JUST THE CONVENIENCE OF DIGITAL
CHANNELS.
MOVING AFFLUENT OR MASS-AFFLUENT CUSTOMERS FROM BEING DETRACTORS OR PASSIVES TO
BEING PROMOTERS IS WORTH ROUGHLY FIVE TIMES THE ECONOMIC VALUE OF TURNING MASSMARKET CUSTOMERS INTO PROMOTERS.

THE FUTURE IS HERE AND ITS NAME IS

OMNICHANNEL
IF BANKS CAN TAKE OUT COSTS IN THE PROCESSES THAT HANDLE ROUTINE TRANSACTIONS, THEY WILL BE
ABLE TO SERVE MASS SEGMENTS MORE PROFITABLY AND INVEST DISPROPORTIONATELY IN HIGH-MARGIN
SERVICES FOR THE AFFLUENT.
THE WAY IS THROUGH AN OMNICHANNEL APPROACHINTEGRATING DISPARATE DIGITAL AND PHYSICAL
CHANNELS INTO A SINGLE, SEAMLESS EXPERIENCETAILORED TO ADDRESS THE PRIORITIES OF EACH
CUSTOMER SEGMENT.
CHANNEL INNOVATIONS ARE PROLIFERATING. FOR INSTANCE, BANKS IN ASIA AND THE US HAVE
LAUNCHED VIDEO TELLER MACHINES THAT CONNECT CUSTOMERS VIA VIDEO CHAT WITH SERVICE
SPECIALISTS AT A CENTRAL LOCATION. REPLACING BRANCH TELLERS WITH VIDEO HAS REDUCED COSTS
FOR BANKS AND EXPANDED HOURS FOR CUSTOMERS.
IN THE OMNICHANNEL WORLD, BRANCHES PLAY A DIFFERENT ROLE: MORE AS PRODUCT SHOWROOMS,
SALES CENTERS AND VENUES FOR EXPERT FINANCIAL ADVICE ON COMPLEX MATTERS, AND LESS AS
TRANSACTION MILLS.
LIGHT BUT STURDY BRANCHES INCLUDE MORE SELF-SERVICE TERMINALS FOR ROUTINE TASKS OR PRODUCT
APPLICATION FORMS AND INTERACTIVE TUTORIALS.

MAKING LOYALTY PAY OFF WITH BETTER

ECONOMICS
BANKS ARE STRUGGLING TO TRANSLATE GREATER LOYALTY SCORES
INTO BETTER FINANCIALS, IN PART BECAUSE THEY TAKE AN EQUAL
APPROACH TO CUSTOMERS.

Research suggests a set of critical next steps

GET RUTHLESSLY EFFICIENT IN SERVING LOW-VALUE

CUSTOMER SEGMENTS IN ORDER TO FUND
DIFFERENTIATION FOR HIGH- VALUE CUSTOMERS
BANKS MUST REDUCE THE COST TO SERVE MASS CUSTOMERS, WHILE STILL
PROVIDING SERVICE THAT IS QUICK, EASY AND FEE-FREE.
THE FIRST STEP IS TO UNDERSTAND THE ECONOMICS OF LOYALTY.
AT MANY BANKS, A FULL ACCOUNTING OF COST TO SERVE OFTEN REVEALS THAT
THE BANK SPENDS MORE TO SERVE ITS LOWEST-VALUE CUSTOMERS, THOSE WHO
FREQUENT BRANCHES FOR ROUTINE BUT TIME-CONSUMING TELLER
TRANSACTIONS.
TO MEASURE COST TO SERVE AND NPS FOR DIFFERENT CUSTOMER SEGMENTS.

GET RUTHLESSLY EFFICIENT IN SERVING LOW-VALUE

CUSTOMER SEGMENTS IN ORDER TO FUND
DIFFERENTIATION FOR HIGH-VALUE CUSTOMERS
UNDERSTANDING THE LOYALTY PROFILE FOR AFFLUENT CUSTOMERSSPECIFICALLY, WHAT ASPECTS OF
THEIR BANKING EXPERIENCE HAVE THE GREATEST INFLUENCE ON LOYALTYCAN BE TRANSLATED INTO A
NET PRESENT VALUE CALCULATION THAT CAN INFORM SUBSEQUENT OMNICHANNEL INITIATIVES.
BANKS HAVE TO KNOW THEIR CUSTOMER WELL ENOUGH, AND HAVE THE INFORMATION READILY AT
HAND BY MINING VARIOUS DATABASES, TO PRESENT THE RIGHT PRODUCT TO THE RIGHT PERSON AT THE
RIGHT TIME.
BANKS ARE FINDING THAT A SHARP FOCUS ON A NARROWER SET OF SEGMENTS ALLOWS THEM TO
BETTER ADDRESS THEIR CUSTOMERS PRIORITIES.
M&T BANK, A REGIONAL US BANK BASED IN THE STATE OF NEW YORK, HAS CHOSEN TO COMPETE
MAINLY IN SECOND-TIER CITIES AND SUPPORTED SMALL BUSINESSES IN THESE COMMUNITIES DURING THE
FINANCIAL CRISIS AND RECENT RECESSION.
GIVING LOCAL BRANCH MANAGERS STRONG DECISION RIGHTS HAS HELPED M&T TO MAINTAIN
RELATIVELY HIGH LOYALTY SCORES.

CRAFT OFFERINGS AND CHANNELS TO SERVE

HIGH-VALUE SEGMENTS EFFECTIVELY
KNOWING THE ECONOMICS OF LOYALTY, BY SEGMENT, ALLOWS YOU TO
FORM A CLEAR IDEA OF WHAT WILL YIELD THE HIGHEST RETURNS ON
INVESTMENT.
THATS WHY LOYALTY LEADERS TODAY TAKE A DISTINCTLY DIFFERENTIATED
METHOD.
THEY ARE IMPROVING OFFERINGS FOR HIGH-VALUE CUSTOMERS AND
WRAPPING A TERRIFIC EXPERIENCE AROUND THOSE PRODUCTS.
EARLY EFFORTS TO BOOST LOYALTY WERE HARDLY DIFFERENTIATED AT ALL.
BANKS MAINTAINED A BIG, EXPENSIVE FOOTPRINT, CUT FEES FOR EVERYONE
AND OFFERED FREE CANDY AT THE COUNTER.

CRAFT OFFERINGS AND CHANNELS TO SERVE

HIGH-VALUE SEGMENTS EFFECTIVELY
THEY GREW DEPOSITS AT THE EXPENSE OF MARGIN AND NEGLECTED DEVELOPMENT
OF HIGH-MARGIN PRODUCTS AND CROSS-SELLING CAPABILITIES.
LOYALTY LEADERS TODAY TAKE A DISTINCTLY DIFFERENTIATED TACK.
FEATURES CAN INCLUDE KNOWLEDGEABLE RELATIONSHIP
EXPEDITED SERVICE.

MANAGERS AND

CITIS BANAMEX IN MEXICO, FOR INSTANCE, OFFERS SEGMENT-AWARE TAKE A

NUMBER ROUTING FOR CUSTOMERS WHO COME INTO A BRANCH, SO THAT HIGHVALUE CUSTOMERS DISCREETLY MOVE TO THE HEAD OF THE LINE.
AFFLUENT CUSTOMERS MAY ALSO REQUIRE ADVANCED VIDEO CHAT CONNECTIONS
WITH THEIR RELATIONSHIP MANAGERS OR A SEPARATE ONLINE PLATFORM THAT
CONTAINS PREMIUM TOOLS.

START CHANNEL REDESIGN NOW TO SERVE THE MASS

MARKET PROFITABLYBEFORE OUTSIDE DISRUPTORS DO
WAITING TO ACT ON BRANCH REDESIGN UNTIL THE
BRANCHES ARE DRAINED OF ALL TRANSACTIONS WILL
BE TOO LATE.

MOVE BEYOND LOYALTY SCORES TO BUILD A

COMPLETE LOYALTY SYSTEM
A RELIABLE METRIC SUCH AS NET PROMOTER , WHICH SORTS
CUSTOMERS INTO PROMOTERS, PASSIVES AND DETRACTORS, HELPS
A BANK UNDERSTAND HOW IT STACKS UP AGAINST COMPETITORS.

BUT THE REAL VALUE OF THE NET PROMOTER SYSTEM FLOWS FROM
CUSTOMER FEEDBACK TO FRONTLINE EMPLOYEES AND MANAGERS,
WHOSE CREATIVE ENERGY CAN BE HARNESSED TO MAKE PROCESS
IMPROVEMENTS LARGE AND SMALL.

MAKING LOYALTY PAY OFF WITH BETTER

ECONOMICS
RETAIL BANKS AROUND THE WORLD HAVE EMBARKED ON MEASURING CUSTOMER LOYALTY AND USING
CUSTOMER FEEDBACK TO IMPROVE THEIR LOYALTY SCORES.
YET MANY BANKS REMAIN FRUSTRATED ON A COUPLE OF FRONTS. MOST NET PROMOTER AND OTHER
LOYALTY PROGRAMS HAVE MADE MORE GAINS BY REDUCING DETRACTORS, WHICH IS RELATIVELY EASY,
THAN BY CREATING NEW PROMOTERS, WHICH IS HARDER.
MANY BANKS HAVE NOT YET MANAGED TO TRANSLATE GREATER LOYALTY SCORES INTO BETTER
FINANCIALS.
THEY MAY BE NICER TO CUSTOMERS AND GET HAPPIER RESPONSES, BUT THEYRE NOT SELLING ONE IOTA
MORE OF THEIR PRODUCTS, CAPTURING A GREATER SHARE OF WALLET OR SUBSTANTIALLY REDUCING
THEIR COST TO SERVE.
PART OF THE PROBLEM LIES IN BANKS EGALITARIAN APPROACH TO CUSTOMERS.

MAKING LOYALTY PAY OFF WITH BETTER

ECONOMICS
TO MONETIZE LOYALTY REQUIRES THAT BANKS FOCUS DISPROPORTIONATELY ON SERVICE AND
PRODUCT IMPROVEMENTS FIRST FOR THE MOST VALUABLE CUSTOMERS.
MOREOVER, ALTHOUGH THIS REPORT HAS ANALYZED HOW BANKING INTERACTIONS AND
CHANNELS INFLUENCE LOYALTY, OTHER ELEMENTS OF THE BUSINESS MODEL COME INTO PLAY.
THESE INCLUDE EFFECTIVE TARGETING OF SEGMENTS; DEVELOPING THE RIGHT PRODUCT
PROPOSITION FOR EACH SEGMENT; MAKING IMPROVEMENTS TO THE CUSTOMER EXPERIENCE
THAT CAN REINFORCE THE BANKS BRAND PROMISE; AND ENSURING THAT SALES AND
DISTRIBUTION PROCESSES ARE STRUCTURED TO PROMOTE CROSS-SELLING AND GREATER SHARE
OF WALLET.
EFFECTING SUCH CHANGES THROUGHOUT AN ORGANIZATION IS, OF COURSE, AN ENORMOUS
CHALLENGE FOR SENIOR MANAGEMENT.
TO HELP EXECUTIVES CONNECT LOYALTY WITH BANK ECONOMICS, WE WOULD EMPHASIZE A
SMALL SET OF CRITICAL NEXT STEPS.

BRAND

WHAT IS A BRANS?
A NAME, SYMBOL, DESIGN, OR SOME COMBINATION WHICH IDENTIFIES THE
PRODUCT OF A PARTICULAR ORGANIZATION AS HAVING A SUBSTANTIAL,
DIFFERENTIATED ADVANTAGE (ROONEY, 1995, P.48).
A BRAND IS A DISTINGUISHED NAME AND/OR SYMBOL (SUCH AS A LOGO,
TRADEMARK, OR PACKAGE DESIGN) INTENDED TO IDENTIFY THE GOODS OR SERVICES
OF EITHER ONE SELLER OR A GROUP OF SELLERS, AND TO DIFFERENTIATE THOSE
GOODS OR SERVICES FROM THOSE OF COMPETITORS (MARCONI, 2000, P.33).
DESPITE THE FORMAL DEFINITIONS, THE PURPOSE OF BRANDING IS ESSENTIAL TO
BUILD A PRODUCTS IMAGE.
THIS IMAGE WILL INFLUENCE THE PERCEIVED VALUE OF THE PRODUCT AND WILL
INCREASE THE BRANDS VALUE TO THE CUSTOMER, LEADING TO BRAND LOYALTY.
is (ROONEY, 1995)

BRAND USAGE
ORGANIZATIONS USE BRANDS AS A WAY TO ATTRACT AND KEEP
CUSTOMERS BY PROMOTING VALUE, IMAGE, PRESTIGE, OR
LIFESTYLE.
FURTHERMORE, BRANDING IS A TECHNIQUE TO BUILD A
SUSTAINABLE, DIFFERENTIAL ADVANTAGE BY PLAYING ON THE
NATURE OF HUMAN BEINGS.
THIS SINCE ONLY HUMANS CAN ATTACH MEANING AND FEELINGS
TO INANIMATE OBJECTS.
(Rooney 1995)

BRAND MANAGEMENT
THE MANIPULATION OF THE FOUR PS (PRODUCT, PLACE, PRICE AND
PROMOTION) AND THE IMPLEMENTATION OF STRATEGIES THAT FOLLOWS.
THE PRECISE FOCUS VARIES FROM ONE ORGANIZATION TO THE NEXT, BUT IN
GENERAL THE EMPHASIS TENDS TO BE PLACED ON PROMOTION, AND ITS
CORE COMPONENT ADVERTISING.
WITHIN BRAND MANAGEMENT THERE IS A DEVELOPMENT OF THE USE OF
BRAND EQUITY AND BRAND VALUE MEASURES AS A GUIDE TO CORPORATE
STRATEGY DEVELOPMENT.

(Logman, 2004)

BRAND EQUITY
HAS MULTIPLE MEANINGS AND ACCOUNTANTS OFTEN TEND DO DEFINE
BRAND EQUITY DIFFERENTLY FROM MARKETERS.
THE DIFFERENCE LIES IN THE CONCEPT BEING DEFINED BOTH IN THE TERMS OF
THE RELATIONSHIP BETWEEN THE CUSTOMER AND THE BRAND OR AS
SOMETHING THAT ACCRUES TO THE BRAND OWNER.
TO SIMPLIFY THESE APPROACHES A CLASSIFICATION OF THE DIFFERENT
MEANINGS OF BRAND EQUITY HAS BEEN PROVIDED.

Wood (2000)

THE BRAND
Brand value
the total value of a
brand as a
separable asset

Brand image
a description of
the associations
and beliefs the
consumer has
about the brand.

Brand strength
a measure of the
strength of
consumers
attachments to a
brand.

BRAND EQUITY
THE CORE OF BRAND EQUITY IS BRAND LOYALTY AND THE ASSETS OF
BRAND EQUITY ALL IMPACT ON BRAND LOYALTY.
ACCORDING TO RESEARCHERS IN THE 1970 S DISCOVERED THAT SUPPLIERS
WHO FORM CLOSE WORKING RELATIONSHIPS WITH THEIR CUSTOMERS TEND
TO HAVE BETTER CUSTOMERS.
THESE CLOSE RELATIONSHIPS MAKE THE CUSTOMER MORE LOYAL TO THE
SUPPLIERS AND THE CUSTOMERS OFTEN GIVE THE SUPPLIERS A GREATER
SHARE OF THEIR BUSINESS.

Aperia and Back (2004) Dowling & Uncles (1997)

LOYALTY MARKETING
BUILDING CUSTOMER LOYALTY THROUGH LOYALTY MARKETING IS A BUSINESS STRATEGY NOT JUST A
MARKETING PROGRAM, ALL BUSINESSES SHOULD SEEK TO INCREASE AND MAXIMIZE THE SHARE OF
CUSTOMERS.
THE PURSUIT OF CUSTOMER LOYALTY IS CONTINUOUS AND IT IS MORE OF A JOURNEY THAN A
DESTINATION. (DUFFY, 1998)
AAKER (1996) STATES THAT FOCUS ON LOYALTY SEGMENTATION PROVIDE STRATEGIC AND TACTICAL
INSIGHTS THAT WILL ASSIST IN BUILDING STRONG BRANDS.
THE MARKET IS DIVIDED INTO SEVERAL DIFFERENT SEGMENTS THAT CONSIST OF GROUPS OF PEOPLE
WITH SIMILAR PREFERENCES WITHIN THE GROUPS RATHER THAN BETWEEN THE GROUPS (SODERLUND,
1997).
IF A COMPANY PRACTICE LOYALTY MARKETING, THEY MUST FIRST KNOW WHO THEIR LOYAL CUSTOMERS
ARE, WHICH IS A LOT EASIER FOR MANY BUSINESS-TO-BUSINESS MARKETERS THAN FOR MOST
CONSUMER GOODS MARKETERS (DOWLING & UNCLES, 1997).

FALSE LOYALTY
FALSE LOYALTY OCCURS WHEN THE CUSTOMERS HAVE A LIMITED
CHOICE OF PRODUCTS.
CUSTOMERS APPEAR TO BE LOYAL BECAUSE THEY CONTINUE TO
BUY FROM A SINGLE SELLER BUT THEIR APPARENT LOYALTY IS DUE
TO A LACK OF GOOD SUBSTITUTES AND THEY ARE ACTUALLY
UNHAPPY WITH THE PRODUCT.

(Burgeson, 1998)

CONSUMERS BRAND LOYALTY

RIEZEBOS (2003) CONSUMERS BRAND LOYALTY HAS DECREASED OVER THE PAST DECADE.
ABOUT TWENTY TO THIRTY YEARS AGO CONSUMERS WOULD CONSISTENTLY BUY THE SAME
PRODUCT FROM A PRODUCT CLASS.
TODAY PEOPLE ARE SWITCHING FROM TWO TO FOUR DIFFERENT BRANDS. SCHRIVER (1997) THIS
HAS ARISEN FROM THE GROWING SELECTION OF SERVICES, PRODUCTS, STYLES AND ACCESSORIES.
IF THE FIELD OF CHOICES GROWS TOO LARGE VALUE CAN BLUR, DISTINCTIONS CAN BE LOST AND
PEOPLE CAN GROW DISTRACTED.
DUE TO THE INCREASING AVAILABILITY OF CONSUMER PUBLICATIONS, BROCHURES, AND THE
INTERNET, PRODUCT INFORMATION IS MADE MORE AVAILABLE. T
HE CONSUMERS CAN MORE EASILY GATHER INFORMATION AND THIS EMPOWERS THE CONSUMERS
AND RAISES THEIR EXPECTATIONS. (SCHRIVER)

DECISION MAKING
WHEN CONSUMERS CHOOSE BETWEEN DIFFERENT PRODUCTS AND SERVICES
THEY BEGIN BY IDENTIFYING AND SELECTING A SET OF ACCEPTABLE
ALTERNATIVES FROM WHAT IS AVAILABLE AND LIMIT THEIR PURCHASE TO THESE
ALTERNATIVES.
THIS SET OF POSSIBLE CHOICES IS KNOWN AS EVOKED SET OR
CONSIDERATION SET.
THE LIMITATION OF ALTERNATIVES TO A MANAGEABLE LEVEL ENABLES
CONSUMERS TO MAKE A RATIONAL CHOICE.

(Wirtz & Mattila, 2003)

CONSUMER DECISION-MAKING
FIRST DEFINING THE ALTERNATIVES, THEN REVIEWING RELEVANT INFORMATION IN
MEMORY AND FINALLY APPLYING A DECISION RULE.
THE DIFFERENT ALTERNATIVES ARE REFERRED TO AS AN EVOKED SET OR
CONSIDERATION SET.
MOST EVIDENCE SUGGESTS THAT WHILE CONSUMERS HAVE KNOWLEDGE OF A
LARGE NUMBER OF BRANDS IN A PRODUCT CLASS THEY MAY ONLY CONSIDER A
FEW OF THESE FOR PURCHASE.
THE COMPOSITION OF AN EVOKED SET IS IMPORTANT FOR THE SUBSEQUENT
PROBABILITIES OF A BRAND TO BE CHOSEN BECAUSE A BRAND THAT IS NOT
CONSIDERED CANNOT BE CHOSEN.
three stages according to Baker, Hutchinson, Burke and Nedungadi (1986),

DISCUSSION
HOW CAN THE STRATEGIES USED IN MAINTAINING CUSTOMER
LOYALTY BE DESCRIBED?
HOW CAN THE BENEFITS OF KEEPING CUSTOMERS LOYAL BE
DESCRIBED?

STRATEGIES USED TO MAINTAIN CUSTOMER LOYALTY

EXTENSIVE LITERATURE SUGGESTS THAT BOTH MARKET SHARE AND CUSTOMER
SATISFACTION LEADS TO PROFITABILITY BUT IT IS NOT CERTAIN THAT MARKET
SHARE AND CUSTOMER SATISFACTION HAVE A POSITIVE CONNECTION.
STATES THAT LOYAL CUSTOMERS ARE NOT NECESSARILY SATISFIED
CUSTOMERS, BUT SATISFIED CUSTOMERS TEND TO BE LOYAL CUSTOMERS.

According to Fornell (1992)

DEFENSIVE AND OFFENSIVE STRATEGIES

COMPANIES RELATIONSHIP TO THEIR CUSTOMERS CAN BE DIVIDED INTO TWO
SEPARATE BUSINESS STRATEGIES, OFFENSIVE AND DEFENSIVE.
THE OFFENSIVE STRATEGY DEALS WITH ATTRACTING NEW CUSTOMERS
AND THE DEFENSIVE WITH TRYING TO KEEP ALREADY EXISTING CUSTOMERS, THIS IS
SHOWN IN FIGURE 1.

(Fornell, 1992)

BUILDING AND SUSTAINING PROFITABLE

CUSTOMER LOYALTY

THE MAIN GOAL OF EVERY BANK IS PROFITABILITY AND ONE METHOD TO ACHIEVE THIS IS TO GAIN AND MAINTAIN LOYAL CUSTOMERS.

IF A BANK INVESTS RESOURCES TO BUILD CUSTOMER LOYALTY WITHOUT FOCUSING ON PROFITABILITY IT MAY LEAD TO FAILURE IN THE LONG RUN.

THERE ARE TWO TYPES OF LOYALTY; BEHAVIORAL AND ATTITUDINAL LOYALTY.

CUSTOMER LOYALTY BECOMES IMPORTANT TO A COMPANY WHEN IT RESULTS IN PURCHASE BEHAVIOR.

THIS GENERATES FOR A COMPANY IN DIRECT AND TANGIBLE RETURNS WHICH ATTITUDINAL LOYALTY DOES NOT.

BEHAVIORAL LOYALTY IS IMPORTANT FOR A COMPANY IN ORDER TO GENERATE PROFITABILITY,

ATTITUDINAL LOYALTY ON THE OTHER HAND IS IMPORTANT FOR A COMPANY, B ECAUSE IT HELPS THE COMPANY TO B UILD UP AN EXI T BARRI ER FOR
THEIR CUSTOMERS.

THIS IS ESPECIALLY TRUE IN NON-CONTRACTUAL SITUATIONS WHERE THERE ARE LOW SWITCHING COSTS.

ATTITUDINAL LOYALTY CAN BE A COMMITMENT OR TRUST TO A COMPANY, WHICH DO NOT HAVE TO RESULT IN ANY PURCHASE.

THIS BECAUSE, EVEN THOUGH THE CUSTOMER HAS A POSITIVE ATTI TUDE TOWARDS A COMPANY OR A BRAND, THEY MIGHT HAVE AN EVEN MORE
POSITIVE ATTITUDE TOWARDS ANOTHER COMPANY OR ANOTHER BRAND.

THE ATTITUDES THAT CUSTOMERS HAVE ARE B EST MEASURED THROUGH SURVEYS, OTHER TYP ES OF METHODS TO OB TAIN DATA A RE FOCUS GROUP S
AND FEEDBACK FROM THE CUSTOMERS.

According to Kumar and Shah (2004)

CUSTOMER LOYALTY PROGRAMS

THE ADAPTATION OF CUSTOMER LOYALTY PROGRAMS AMONG COMPANIES HAS INCREASED OVER
THE LAST COUPLE OF YEARS, AND THE CUSTOMERS HAVE BECOME THE FOCUS OF ATTENTION.
CUSTOMER LOYALTY PROGRAMS OFFER FINANCIAL AND RELATIONSHIP REWARDS TO CUSTOMERS
WITH THE PURPOSE OF MAKING THE CUSTOMERS BRAND LOYAL.
TWO AIMS OF CUSTOMER LOYALTY PROGRAMS, THE FIRST IS INCREASED SALES OF REVENUES
THROUGH INCREASING PURCHASES.
THE SECOND AIM IS TO BUILD BONDS BETWEEN THE BRAND AND THE EXISTING CUSTOMERS TO
MAINTAIN THE EXISTING CUSTOMER BASE.
LOYALTY PROGRAMS ARE DEVELOPED TO REWARD LOYAL CUSTOMERS, GENERATE INFORMATION
ABOUT THE CUSTOMERS AND MANIPULATE THEIR BEHAVIOR.

(Uncles Dowling & Hammond, 2003) (O Malley (1998)

WHY LOYALTY PROGRAM?

TO BUILD CUSTOMER LOYALTY THROUGH A REWARD SCHEME.
TO ESTABLISH A HIGH LEVEL OF CUSTOMER RETENTION BY PROVIDING
SATISFACTION AND VALUE TO CERTAIN CUSTOMERS.
THESE PROGRAMS CAN ALSO INCREASE BRAND LOYALTY BY CREATING
SWITCHING COSTS AND PROFITS BY AVOIDING PRICE COMPETITION.
THE CUSTOMERS VALUE PERCEPTION IS A NECESSARY CONDITION FOR THE
DEVELOPING OF BRAND LOYALTY THROUGH LOYALTY PROGRAMS.
THE LOYALTY PROGRAM HAS TO BE PERCEIVED AS VALUABLE FOR THE
CUSTOMER, AS WELL AS CONVENIENT AND GENERATE IN CASH VALUE TO BE
ABLE TO ENTICE THE CUSTOMERS INTO THE PROGRAM.

A PSYCHOLOGICAL BENEFIT
A PSYCHOLOGICAL BENEFIT OF BELONGING TO A PROGRAM AND THE
ACCUMULATION OF POINTS.
THE ACCUMULATED POINTS AND BEING QUALIFIED FOR A REWARD COULD BE
REGARDED AS PSYCHOLOGICAL REWARDS IN LOYALTY PROGRAMS.
THIS VALUE PERCEPTION MIGHT ALSO BE RELATED TO THE DIFFERENT TYPE OF
REWARDS, CUSTOMERS PREFER LUXURIES AS REWARDS AND VALUE THEM
MORE THAN NECESSITY REWARDS.

Dowling and Uncles (1997)

Yi and Jeon (2003)

EMOTIONAL RELATIONSHIP
THE PRIMARY AIM OF LOYALTY PROGRAMS IS TO BUILD UP EMOTIONAL
RELATIONSHIPS THAT GENERATE BENEFITS.
THE BENEFITS NEED TO BE VALUABLE AND CAPABLE OF CREATING AN
EMOTIONAL CONNECTION BETWEEN THE CUSTOMERS AND THE COMPANY.
THE CONCEPT OF BENEFITS RELIES ON THE IDEA THAT THE CUSTOMERS SELECT
BRAND ON THE BASIS OF THEIR DESIRE.

Butscher (2002)

Liang and Wang (2004)

BENEFITS OF MAINTAINING CUSTOMER LOYALTY

IT IS DIFFICULT TO BUILD AND SUSTAIN CUSTOMER LOYALTY.
IT IS MORE ECONOMICAL FOR A BANK TO KEEP CUSTOMERS LOYAL THAN TO
HAVE TO REPLACE THEM.
A BANK THAT GAINS LOYAL CUSTOMERS RECEIVES DIFFERENT TYPES OF
BENEFITS, THE MOST KNOWN ARE:
LESS PRICE SENSITIVE.
SPEND MORE TIME WITH THE COMPANY.

POSITIVE FEELING ABOUT THE BANK OR THE BRAND TO OTHERS.

Kumar and Shah (2004)

(Marken, 2001)

ECONOMICAL AND NON-ECONOMICAL BENEFITS

THE END GOAL OF BANKS MARKETING EFFORTS IS TO GENERATE PROFIT.
FROM THE RELATIONSHIP MARKETINGS PERSPECTIVE, A SUCCESSFUL BANK IS A
BANK WHICH MANAGE TO TURN THEIR CUSTOMERS INTO CLIENTS AND FROM
PROSPECTS INTO PARTNERS .
THE MOST COMMON ARGUMENT FOR CUSTOMER RETENTION IS THAT IT IS LESS
COSTLY TO RETAIN CUSTOMERS THAN TO ACQUIRE NEW CUSTOMERS.
THERE ARE BOTH ECONOMICAL AND NON-ECONOMICAL BENEFITS OF RETAINING
CUSTOMERS.
SIX ECONOMIC BENEFITS OF RETAINING CUSTOMERS SHOWN IN TABLE 3:
according to Ahmad and Buttle (2001)

ECONOMIC BENEFITS OF RETAINING CUSTOMERS

SAVINGS ON CUSTOMERS ACQUISITION OR REPLACEMENT COSTS.
GUARANTEES OF BASE PROFITS AS EXISTING CUSTOMERS ARE LIKELY TO HAVE A MINIMUM SPEND
PER PERIOD.
GROWTH IN PER-CUSTOMERS REVENUE AS, OVER A PERIOD OF TIME, EXISTING CUSTOMERS ARE
LIKELY TO EARN MORE, HAVE MORE VARIED NEEDS AND SPEND MORE.
A REDUCTION ON RELATIVE OPERATING COSTS AS THE FIRM CAN SPREAD THE COST OVER MANY
MORE CUSTOMERS AND OVER A LONGER PERIOD OF TIME.
FREE OF CHARGE REFERRALS OF NEW CUSTOMERS FROM EXISTING CUSTOMERS, WHICH WOULD
OTHERWISE BE COSTLY IN TERMS OF COMMISSIONS OR INTRODUCTORY FEES.
PRICE PREMIUMS AS EXISTING CUSTOMERS DO NOT USUALLY WAIT FOR PROMOTION OR PRICE
REDUCTION BEFORE DECIDING TO PURCHASE.

RELATIONAL BENEFITS FOR THE CUSTOMER

TO BE ABLE TO MAINTAIN A RELATIONSHIP, PROMISES MUST BE KEPT IN ORDER TO EXPAND THE
RELATIONSHIP AND NEW PROMISES MUST BE ESTABLISHED AS LONG AS THE PREVIOUS HAS BEEN KEPT.
THE BENEFITS OF A STABLE RELATIONSHIP THAT A CUSTOMER CAN OBTAIN ARE FOR EXAMPLE AN
INCREASE IN CONFIDENCE, REDUCTION OF RISK, ECONOMIC ADVANTAGES, INCREASE AND
SIMPLIFICATION OF EFFICIENCY IN THE DECISION PROCESS.
THESE BENEFITS ARE DETERMINED BY THE ESTABLISHED RELATIONSHIP AND CAN BE DIVIDED INTO TWO
PRIMARY CATEGORIES; FUNCTIONAL BENEFITS AND SOCIAL BENEFITS.
THE FUNCTIONAL BENEFITS INCLUDE TIME SAVING, CONVENIENCE, MAKING THE BEST PURCHASE
DECISION ETC., AND THE SOCIAL BENEFITS INCLUDE HOW PLEASANT AND COMFORTABLE THE
RELATIONSHIP MIGHT BE.
THE AUTHORS FURTHER STATES THAT BY ESTABLISHING STABLE RELATIONSHIPS, CUSTOMERS THEMSELVES
WILL REDUCE THE PROBLEMS ASSOCIATED WITH THE PURCHASE CHOICE AND THEREBY IMPROVE THE
EFFICIENCY OF THE DECISION-MAKING PROCESS. (IBID)
Marzo-Navarro, Pedraja-Iglesias and Riviera-Torres (2004)

RELATIONAL BENEFITS FOR THE COMPANY

THE BUSINESS STRATEGY OF RETAINING CUSTOMERS BY MAKING THEM BRAND
LOYAL IS DONE BECAUSE IT IS MORE PROFITABLE TO RETAIN EXISTING
CUSTOMERS THAN TO ATTRACT NEW CUSTOMERS.
CUSTOMER LOYALTY LEADS TO IMPROVED BUSINESS DUE TO THE EFFECT OF
THE LOYAL CUSTOMERS.
THE LOYAL CUSTOMERS PROVIDE A COMMUNICATION
STRENGTHEN THE BRAND IMAGE, MAKES IF

ROUTE

FOR

BENEFITS OF CUSTOMER LOYALTY PROGRAMS

LOYALTY PROGRAMS CAN INCREASE THE BRAND LOYALTY THROUGH A DECREASE IN PRICE
SENSITIVITY AND DECREASE IN CUSTOMERS DESIRE TO CONSIDER OTHER BRAND ALTERNATIVES.
IT IS SHOWN THAT CUSTOMER LOYALTY PROGRAMS GENERATE IN HIGHER PROFITS SINCE LOYAL
CUSTOMERS BUY MORE FREQUENTLY AND BUY MORE PRODUCTS.
THIS IS A HIGHLY SIGNIFICANT FACTOR FOR BANKS SINCE MOST COMPANIES ARE PROFIT-SEEKING.
LOYALTY PROGRAMS CAN ALSO ENCOURAGE A POSITIVE WORD OF MOUTH, ATTRACT MORE
CUSTOMERS AND INCREASE THE NUMBER OF PURCHASES.
LOYALTY PROGRAMS ARE PROFITABLE BECAUSE THE COST OF SERVING EXISTING CUSTOMERS IS
LESS THAN ATTRACTING NEW ONES.
LOYAL CUSTOMERS ARE LESS PRICE SENSITIVE AND USUALLY SPEND MORE MONEY WITH THE
COMPANY.
Uncles, Dowling and Hammond (2003) According to Yi and Jeon (2003

BENEFITS OF BRAND LOYALTY

KEEPING CUSTOMERS BRAND LOYAL IS EASIER AND MORE PROFITABLE THAN ATTRACTING NEW ONES.
THE INCREASING PROFITS ARE DUE TO THE INCREASE IN PURCHASE THAT FOLLOWS FROM CUSTOMERS
BEING BRAND LOYAL (UNCLES, DOWLING & HAMMOND, (2003).
ANOTHER BENEFIT ARISEN FROM BRAND LOYALTY IS THE SPREAD OF A POSITIVE WORD OF MOUTH, WHICH
INCREASES THE REPUTATION AND IMAGE OF THE BRAND AND ALSO ENTICES MORE AND NEW CUSTOMERS
(KUMAR & SHAH, 2004).
THE AUTHORS CONTINUE BY CLAIMING THAT KEEPING CUSTOMERS BRAND LOYAL BUILDS EXIT BARRIERS
AND SWITCHING COSTS FOR THE CUSTOMER TO PREVENT THE CUSTOMERS FROM SWITCHING BRAND.
COMPANIES CREATE INCENTIVES FOR THE CUSTOMERS IN ORDER TO CREATE BRAND LOYALTY AND NOT
JUST RETENTION. THROUGH BRAND LOYALTY THE COMPANIES GAIN A CUSTOMER BASE WITH HIGH
RETENTION AND ACCORDING TO AAKER (1996)
THE MARKETING COSTS FOR EXISTING CUSTOMERS ARE LOWER THAN FOR NEW CUSTOMERS. THIS SINCE
THE COMPANY DOES NOT HAVE TO BUILD UP THE EXISTING CUSTOMERS AWARENESS OF THE COMPANY.
THE EXISTING CUSTOMERS ALREADY HAVE KNOWLEDGE OF THE COMPANY AND THE QUALITY OF THE
COMPANY. (IBID)
Aaker (1996) and Burgeson (1998)

DEFENSIVE STRATEGIES
KEEP EXISTING CUSTOMERS
SWITCHING BARRIERS
CUSTOMER SATISFACTION

CUSTOMER LOYALTY PROGRAMS

TWO AIMS INCREASED PROFITS AND BUILDING BONDS
GOAL BUILD EMOTIONAL RELATIONSHIPS
REWARD LOYAL CUSTOMERS FINANCIAL AND RELATIONSHIP
REWARDS BUILD CUSTOMER LOYALTY
GENERATE BENEFITS AND VALUE

CUSTOMER SATISFACTIO
NO CUSTOMER CAN BE MADE BRAND LOYAL UNLESS THEY ARE SATISFIED
CUSTOMERS THIS CREATES INCENTIVES FOR BANKS TO WORK TOWARDS
GAINING SATISFIED CUSTOMERS.
TO BE ABLE TO MAINTAIN AND EXPAND A PERSONAL RELATIONSHIP WITH THE
CUSTOMERS PROMISES MUST BE KEPT, AND AS LONG AS PROMISES ARE KEPT,
NEW ONES MUST BE ESTABLISHED.
WE CHOSE TO CONCEPTUALIZE THESE THEORIES SINCE THEY ARE RECENT AND
COVER THE MAJOR ISSUES OTHER THEORIES IN OUR LITERATURE REVIEW
BRINGS UP.
Marzo-Navarro et al., (2004)

BENEFITS FOR THE BANK

LESS COSTLY TO RETAIN CUSTOMERS
THAN
TO
CUSTOMERS.

ATTRACT

NEW

GENERATES PROFITS
DECREASE IN MARKETING COSTS
POSITIVE WORD OF MOUTH

BENEFITS FOR CUSTOMERS TWO CATEGORIES

FUNCTIONAL BENEFITS
TIME SAVING
CONVENIENCE
ECONOMIC BENEFITS
RISK REDUCTION

SOCIAL BENEFITS
RELATIONSHIPS
PLEASANT
COMFORTABLE

TRUST

STRATEGIES FOR KEEPING CUSTOMERS LOYAL

THE MOST SIGNIFICANT STRATEGY TO MAINTAIN CUSTOMER LOYALTY IS THE
CREATION AND MAINTENANCE OF RELATIONSHIPS BETWEEN THE BANKS AND
THEIR CUSTOMERS.
THE MOST IMPORTANT FACTOR CONCERNING THE CREATION OF CUSTOMER
SATISFACTION IS THE COMPANIES PERSONAL SERVICE TOWARDS THE
CUSTOMERS.
BANKS HAVE TO ACHIEVE CUSTOMER SATISFACTION IN ORDER TO PREVENT
THE CUSTOMERS FROM SWITCHING BRANDS.

CONCERNING BENEFITS OF MAINTAINING

CUSTOMER LOYALTY.
IT IS LESS COSTLY FOR COMPANIES TO WORK TOWARDS KEEPING
CUSTOMERS LOYAL THAN TO ATTRACT NEW CUSTOMER.
KEEPING CUSTOMERS LOYAL GENERATES IN INCREASED PROFITS.
CUSTOMERS PRIMARY BENEFIT FOR BEING LOYAL TOWARDS A COMPANY IS
THAT THEY GAIN
ECONOMICAL ADVANTAGES IN FORM OF DISCOUNTS, PREMIUM CHECKS ETC.
A POSITIVE WORD OF MOUTH IS VERY VALUABLE FOR THE COMPANIES TO
BUILD A GOOD IMAGE AND REPUTATION.

EXAMPLES
MERCEDES BENZ LOYALTY PROGRAM

CO-CREATION PROGRAMMES
CO-CREATION IS THE PRACTICE OF PRODUCT OR SERVICE
DEVELOPMENT THAT IS COLLABORATIVELY EXECUTED BY
DEVELOPERS AND STAKEHOLDERS TOGETHER
STARBUCKS HAS RECEIVED OVER 67,500 RESPONSES FOR
THEIR CO-CREATION PROGRAMME
FOOD AND BEVERAGE IDEAS NEW PRODUCT AND
PRODUCT IMPROVEMENT
EXPERIENCE IDEAS ORDERING AND STORE ATMOSPHERE
INVOLVEMENT IDEAS
RESPONSIBILITY

COMMUNITY

AND

SOCIAL

BRAND COMMUNITIES
} GROUP OF INDIVIDUALS UNITED THROUGH
THE CONSUMPTION OF YOUR PRODUCTS
HARLEY-DAVIDSONS HOGS
CLUB MEDS GRACIOUS MEMBERS

} CHARACTERISTICS
COMMUNALITY HELP AND EXPECT HELP
FROM OTHERS
BRANDFESTS ARE USED TO SHARE HISTORY
KEEP CONSUMING TO STAY CONNECTED

BUILDING A COMMUNITY
1.

USE A NEWSLETTER TO SHARE NEWS ABOUT CUSTOMERS

2.

DEVELOP AN ONLINE FORUM FOR CUSTOMERS TO STAY IN TOUCH

3.

ORGANIZE ANNUAL EVENTS BY INVITATION FOR VIP CUSTOMERS

4.

FACILITATE PICTURE / STORY SHARING

5.

HELP CUSTOMERS HELP EACH OTHER

6.

GIVE A NAME TO THE COMMUNITY

REGULAR COMMUNICATION
WEEKLY EMAILS WITH DIFFERENT THEMES
PERSONALIZED
ROTATING OFFERS

FOUR WAYS TO TURN CRM INTO CUSTOMER LOYALTY

SATISFACTION DOES NOT EQUAL LOYALTY
IF YOU ARE THIRSTY AND I GIVE YOU A DIET PEPSI, WHILE IT MAY SATISFY YOUR THIRST, YOUR TRUE
LOYALTY MAY STILL BE TO DIET COKE

KNOW YOUR BEST CUSTOMERS

SYSTEM OF SCORING CUSTOMERS BASED ON BOTH CURRENT PROFITABILITY AND FUTURE GROWTH
POTENTIAL

TREAT DIFFERENT CUSTOMERS DIFFERENTLY

GROW THOSE WITH THE GREATEST FUTURE POTENTIAL

UNDERSTAND AND USE MARKETING ROI

FOCUS ON CLEAR, HIGHLY TARGETED AND MEASURABLE SOLUTIONS THAT CLEARLY SHOW THE
RETURNS THAT THEY PRODUCE

TESCO

TESCO
THE TESCO LOYALTY CARD IS ONE OF THE MOST EXCITING AND INTERESTING MARKETING
TALES OF THIS GENERATION. TESCOS HAVE GAINED THE REPUTATION AS SOPHISTICATED
LOYALTY SCHEME MARKETERS
IN 1995 TESCO INTRODUCED THEIR TESCO CLUB CARD
THE TESCO CLUB CARD HAS BECOME THE WORLDS MOST SUCCESSFUL RETAIL LOYALTY
SCHEME
TESCO CLUBCARD HOLDERS BENEFIT WHEN SHOPPING AT TESCO AS THEY RECEIVE 1 POINT
FOR EVERY 1 THEY SPEND, AND DOUBLE POINTS ON SPECIAL OFFERS
THESE POINTS ARE STORED AND BUILT UP AND 4 TIMES A YEAR THE HOLDER RECEIVES
VOUCHERS TO THE VALUE OF POINTS THEY HAVE SAVED
VOUCHERS CAN BE SPENT IN STORE ON SHOPPING OR USED ON CLUB CARD DEALS WHERE
THEY ARE WORTH 4 TIMES THE VALUE

TESCO
THEY ARE ALSO ENTITLED TO FREE ACCESS TO THE CLUBCARD CLUBS WHICH INCLUDE: WINE,
BABY AND TODDLER, HEALTHY FOOD, FOOD AND CHRISTMAS CLUBS
THERE ARE OVER 150 LOYALTY SCHEMES WITHIN THE UK, WHICH EQUATES TO THE
CIRCULATION OF OVER 40 MILLION CARDS
FOR TESCO THE BENEFITS THEY GIVE TO THE CUSTOMERS ENSURES THAT THEY CAN MICROSEGMENT CUSTOMERS BY LIFESTYLE HABITS, INCLUDING INDIVIDUAL PERSONALITY TRAITS FROM
ANALYSIS OF THE CONTENTS OF EACH GROCERY CART
THEY CAN THEN TARGET THEM WITH NEWSLETTERS AND OTHER PERSONALIZED INFORMATION
ALONG WITH A VARIETY OF OTHER MARKETING PROGRAMMES
THERE ARE OVER FOUR MILLION VARIATIONS OF ITS QUARTERLY CUSTOMER MAILING TO
ENSURE THAT ITS DISCOUNTS AND OFFERS ARE TAILORED SPECIFICALLY FOR THE CUSTOMER

THE FUTURE OF LOYALTY PROGRAMS

DURING THE PAST YEAR, SEVERAL MOBILE LOYALTY PROGRAMS SPRANG UP TO
ENTICE SMALL BUSINESS OWNERS WITH LIMITED RESOURCES TO CREATE LOW-COST
PROGRAMS TO REWARD FREQUENT CUSTOMERS FOR PURCHASES
THESE PROGRAMS, SUCH AS LEVELUP, PIRQ, AND BELLY, ALLOW BUSINESS OWNERS
TO TAILOR LOYALTY PROGRAMS TO THEIR SPECIFIC BUSINESS NEEDS
ALL THE BIG BRANDS THAT HAVE EXISTING REWARD PROGRAMS ARE PURCHASEDBASED OR REWARD FOR PURCHASES.
NOW THEY ARE STARTING TO RECOGNIZE THAT THEY NEED A DIGITAL LAYER THAT
SITS ON TOP OF THESE PROGRAMS TO REWARD CUSTOMERS FOR ALL OF THE
ACTIONS THAT ARE TAKING PLACE, WHETHER ITS WHEN THEYRE ON SOCIAL MEDIA
OR ON THE BRANDS SITE

???
THE BIG QUESTION WILL BE WHETHER
CONSUMERS ARE WILLING TO SIMPLY HAND
OVER THEIR IDENTITY TO EVERY BUSINESS FOR
ADDED BENEFITS AND REWARDS AND IF SO,
WHAT THIS SAYS ABOUT THE REAL STANCE AS
CONSUMERS ABOUT PERSONAL PRIVACY?

VALUE TRIAD

Customer

Value
Proposition

Thank You!