Effective Loyalty Programs – Changing Channel Usage Behavior

The first in a series around features of successful loyalty programs that have helped certain companies stand out from the rest, with program offerings that are recognized as best-in-class.

You can download PDF version of this whitepaper here.

Changing Channel Usage Behavior

One of the most often ignored methods of generating benefits from a loyalty program, best-in-class companies take certain actions or design their loyalty programs in such a way as to steer customers to more efficient / effective channels. This type of behavioral shift can help companies in not only reducing expenses, but in increasing retention.

How? Take, for example, the case of a bank that is faced with overwhelming demand in their branches, demand that not only precipitates the need for additional staffing but also drives up customer dissatisfaction. Such a bank can use their loyalty program to drive customers to use alternative channels such as ATMs or the Internet, channels which can handle almost all of the transactions that are causing such strife in the branches.

That said, the loyalty program can’t “give away the bank” in trying to change customer behavior. A careful analysis must be conducted to determine what extra benefits can be given to the customer through the program without generating more harm than good. Example:

Average cost of processing money transfer in a branch: 5 USD

Average cost of processing money transfer through Internet Banking: 2USD

Total number of money transfers processed through branches daily: 7,000

Benefit of complete shift to Internet Banking: 21,000 USD Daily

Such a case at first glance seems to gives a loyalty program a 21,000 USD leeway to change behavior on this specific topic. One would be tempted to say that the bank could give the equivalent of one extra USD’s worth of loyalty program points to motivate customers to conduct money transfers online, and, if successful with converting everyone to do so, would still save 14,000 USD daily.

The problem is that the benefits would have to be provided to everyone. So if, for example, 50,000 customers were already behaving in the desired manner and conducted their money transfers online each day, then in actuality the bank stands to pay out 57,000 USD’s worth of points in benefits (50,000 to those already conducting money transfers online, 7,000 to those who may do so).

This tactic would clearly backfire, as the 14,000 USD gained by changing undesirable behavior would be more than offset by the 50,000 USD payout to those customers who are already doing the right thing.

So what’s a loyalty program to do? Back-end tactics come into play here. Effective loyalty program teams take behind the scenes to achieve desirable results, realizing that a program left alone to generate benefits simply won’t.

In this specific case, the program should be designed with no such front-end feature that provides extra incentives for using the right channel. Rather, the loyalty program team would need to identify those customers who are engaging in costly channel usage behavior, and take actions to change them. One method here would be to isolate the 1000 or so customers who conduct the most money transfers through branches, and either through an outbound call or SMS, offer them direct incentives for committing to use online banking for conducting money transfers in the coming months.

The driving idea here is that the program should reward those customers who are engaging in the wrong behavior, not those that are already with the program. While this may sound counter-intuitive to the concept of a loyalty program, for changing undesirable behavior it isn’t.

Not to say of course that profitable / ideal / valuable customers should not be treated well and rewarded for their loyalty and business – different tactics need to be utilized with these customers. How do to so will be featured in the next of these briefs.

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