Look Outside the CU Movement for Rewards Inspiration

Rewards programs are a go-to strategy across industries.

December 28, 2012

Rewards programs, whether based on miles, points, or some other perks, all have the same goal: Build long term loyalty among consumers.

Indeed, rewards are becoming a go-to strategy for marketing professionals across several industries. According to Market Platform Dynamics, 60% of most marketing budgets are allocated to devising and promoting loyalty schemes.

That’s because loyalty programs are popular with U.S. consumers and often play a key role in the decision-making process. According to BusinessWeek, nearly 90% of Americans participate in some type of rewards program, ranging from grocery stores and gas stations to airlines and hotels—and most are enrolled in more than one.

The most popular among consumers? Rewards offered by financial institutions.

For credit unions looking to use credit and debit card rewards as a differentiator, other industries can provide successful models to mirror. Airlines, for example, have retooled their loyalty strategies to not only attract, but also retain, the business of potentially loyal passengers.

Airline loyalty and credit union card rewards programs have some distinct differences. Card programs are entirely spend-driven. Airline loyalty programs, on the other hand, often involve rewards for multiple transactions or behaviors.

Card programs generally are structured with one level, whereas airlines typically offer several options to passengers. There’s also a significant difference in consumer interest. The airlines have 270 million consumers enrolled in their programs. Financial services providers have more than 420 million.

Yet, the two types of programs have many things in common: They both incent their members to use products by rewarding them for doing so, and they both offer promotions and bonuses to keep customers active and engaged. The two types of programs also face similar challenges, from new member acquisitions to attrition.

Suggesting that airlines provide a good model for credit union loyalty programs is not to say the airlines haven’t made mistakes along the way. To be sure, frequent flyer programs get their share of criticism.

It’s in the airlines’ response that credit unions can find a strong model for development and sustenance of a truly valuable loyalty program.

For any rewards program to be successful, it must be of real value to consumers, and this extends to credit union cardholders. Unfortunately, the perception of value isn’t always consistent between cardholders. What appeals to one person doesn’t necessary appeal to another.

By applying data analytics, both card rewards and mileage promotion programs bridge that gap, leading to a more satisfied member who values the program because it meets a specific need.

What many of today’s major airlines have learned is achieving that ever-crucial relevancy is only possible with a commitment to studying their programs and building statistical predictive models to uncover the secret recipe to achieving desired loyalty.

Credit unions can use these same tactics to gain competitive advantage over other financial service providers. Research by Maritz found 64% of people who don't currently participate in a rewards program with their main financial institution would increase their business if they were rewarded for doing so.

But using in-depth data analytics (a methodology relying on a combination of technology and human scrutiny of available data), credit unions can achieve relevancy in the card rewards program.

The benefits of data analysis have the potential to reach beyond the card portfolio. The resulting business intelligence of data analysis can also improve member service, achieve greater returns on marketing investments, reduce costs,and improve operational efficiencies.

With card rewards generating as much as a 50% increase in consumer spending, it is clear that loyalty programs have the potential to move the needle for credit unions. Yet rewards are only as successful as their appeal.

Understanding what your members value or which of them are most likely to respond positively to an introduction or a change in rewards doesn’t have to be based on a guess, an assumption, or even a gut instinct. Data analysis reveals this information.

Thanks to successful partnerships between credit union partners like The Members Group and data analysis firms like IQR Consulting, business intelligence is no longer only the domain of mega-banks and major airlines. It’s now available to credit unions looking to grow their membership with loyalty programs that truly reward their faithful members.

KARAN BHALLA is the director of IQR Consulting.