Loyalty and CMR

Ralph Harrison, managing director of The Harrison Company, whose business is providing industry-specific proprietary advertising and marketing products and services to the community banking industry, thinks most banks are going about loyalty marketing all wrong:

Frequent Buying Programs by definition reward a customer for frequent buying. But in banking, customers do not frequently buy a bank’s most important products and services; i.e., a home loan every five years, an auto loan every three years, and a CD perhaps every two years, etc. And when the concept is not frequently used by the customer, its perceived value is frequently forgotten. These programs commonly favor the more affluent customer who spends more and earns more rewards in the process. The less monied customer may never be motivated to participate and be recognized for his valued lifetime contributions to the bank.

In 1992 working with the handicap of very limited supporting software and data processing technology, Harrison developed a pilot loyalty project for a community bank that helped the bank to increase banking relationships per customer from 3.62 to 5.51 and increased the bank’s return on assets from 1.17 percent to 1.40 percent. The concept, based on a customer-managed methodology, recognized the banking industry as “marketing handicapped and deficient.” Harrison decided to reverse an age-old marketing concept and instead “teach the customers to buy” by rewarding them for their behavior. Harrison’s theories were sound, but the limited technology in 1992 prevented Harrison from rolling out the program on a broader scale.

Now Harrison says he is ready to take advantage of the enhanced support of a new, patented Web-enabled software system and is about to launch a Loyalty Banking system based on CMR. He believes the new program will allow banks to grow and retain the financial services relationship portfolio of every customer—for a lifetime— by focusing on customer need rather than bank need. Harrison’s loyalty banking is based on the customer-driven marketing principles that have been employed for frequent flyer programs. The loyalty card has now come to represent a customer profile, which the customer controls through marketing incentives provided by the bank.

All of this suggests that, although loyalty cards still have value as an incentive for the customer, thus assuring data capture, they, as Brian Woolf said, are not a replacement for any of the basic loyalty drivers but are a supplement to them.

CMR does not suggest the end of traditional loyalty marketing. Loyalty cards will continue to have great value as one element in the mix that encourages customers to volunteer information. Customers showing their cards with every purchase will still enable complete data capture. Bonus points will still offer valuable opportunities for firms to reward customers while avoiding deep discounts, and will be helpful for targeting departments, categories, or items for limited time promotions. Because loyalty programs provide such a rich, effective mechanism for allowing companies to reach beyond their own products and services to create compelling added value for their customers, they will survive and prosper.

The differentiator that makes the customer’s relationship with your firm more valuable than your competitor’s loyalty card will be your empowerment of her through your CMR initiative—your ability not just to give her conditional discounts but also to make her life easier. The innovation that will answer Richard Forsyth’s question—“what’s in it for the customer”—will be the enrichment of customers’ lives as you turn more power for managing the relationship over to them.

All said and done, the primary role of a loyalty card is to enable a company to gather customer data. For CRM that customer information allowed companies to drive repeat business by rewarding customers for frequent buying. They also provided opportunities for businesses to target individual customers and customer segments for special offers to cross-sell and up-sell—all company-centric activities.

The customer information is just as critical for CMR, but firms must use it to develop innovative ways that empower customers and make their lives easier, creating emotional loyalty to the business relationship as opposed to reward loyalty to the card.

Use of Customer Information from Loyalty Cards

CRM	CMR
Recognize customers’ spending	Recognize customers’ needs
Target individual customers for products and services the individual customers want	Find products and services company wants to sell
Increase customers’ purchases	Make customers’ lives easier
Reward customers for purchases	Provide customers with a relationship experience
Develop loyalty to the card	Develop loyalty to the business