To meet evolving customer expectations and survive in an increasingly competitive landscape, financial institutions are turning to loyalty programs to retain their customers and increase sales, customer engagement and, ultimately, profitability. Loyalty incentives are no longer a perk for financial institutions — they’re a requirement. Customers expect to be rewarded for their loyalty, and financial institutions need to have the correct models in place in order to keep them. However, for a loyalty program to drive positive results, customers must actually use it — otherwise, it is pointless.
So, how can your financial institution increase customer engagement by using relationship pricing?
At EPL, Inc., we provide credit unions with the software they need to thrive and keep their members happy. We recently implemented a relationship pricing program that has significantly increased member engagement with the credit unions we serve. In order to achieve the same successes, financial institutions should ensure their loyalty program(s) has the following attributes:
- The loyalty program is based on data-driven analytics and customer segmentation. Data can be used to predict customer behavior and profitability. The right software tools can analyze each customer’s behaviors and lifestyle, providing the financial institution with the information it needs to tailor products and services. EPL’s relationship pricing program segments credit union members into three loyalty models based on age group — youth, member and senior. We have found that different generations respond to distinct product and services offerings, because they have varying needs and priorities. For example, our youth loyalty program rewards kids for financial responsibility — they are rewarded if they save $25 in a year. Conversely, our member group prioritizes optimal loan rates, so the program provides them with a lower auto loan rate if they use their debit card 10 times in one month or if they sign up for e-statements. This enables financial institutions to establish loyalty and help customers achieve their financial goals at the same time — a win-win.
- Products are bundled in an efficient way to enable cross-selling. Financial institutions should package products in a way that makes sense for their customers. If a customer utilizes one service, financial institutions can discount another service to increase engagement. For instance, if a customer takes out a loan, the financial institution can waive service fees if they add on another product.
- Tellers are educated on what products to sell and how to sell them. Tellers must be knowledgeable on what products to sell and trained to inform customers why they need a certain product and how it will benefit them specifically. Though more customers are using online banking, a significant number still go into the branch and establish relationships with their teller. Staff incentive programs can be key in motivating sales and driving participation among employees.
- Customers are rewarded for participation and incentivized to add on more products. Many loyalty programs use a points system to increase revenue. Rewarding customers with points for doing more business with the financial institution incentivizes them to learn about what products and services are offered (online banking, mobile wallet, etc.), and enables them to take advantage. Loyalty programs can also establish a stronger sense of community. At EPL, we have seen more credit union members attending their credit union’s annual meeting or participating in a fundraiser in order to get points. The key is that our program provides members with rewards that actually help them financially — new headphones are great, but a lower loan payment each month is much better.
- Performance of the program is properly analyzed. In order to ensure a loyalty program is profitable, financial institutions must constantly analyze performance, fee income and recommended product changes, among other metrics. Software can analyze revenue generated from all aspects of the loyalty program, as well as any potential losses or missed opportunities with customers.
The point is, loyalty programs can increase customer engagement if they are implemented correctly. By instituting an effective loyalty program, your financial institution can also increase customer engagement, and decrease the odds that your customers or members will take their business elsewhere.