COLLINSON GROUP REPORT REWARDING AND RECOGNISING MASS AFFLUENT CONSUMERS IN RETAIL BANKING JANUARY 2016
TURNING CUSTOMER APATHY INTO ACTIVE CUSTOMER LOYALTY Recent research has reinforced that over half of mass affluent consumers are relatively apathetic and unengaged in their relationship with their financial services provider. A Collinson Group survey of 4,400 affluent middle class consumers (within the top 10-15% income bracket), in Brazil, China, India, Italy, Singapore, the United Arab Emirates, the UK and USA revealed that only 48% of respondents are positively satisfied with their banks. This means that 52% are not happy with or at least apathetic about their financial services provider. Of the 52% of consumers, 15% are completely apathetic and neither happy nor unhappy with their main financial services provider, 24% have switched banks in the past two years with the most significant factor being incentives. Service issues are usually the main triggers for all consumers to change their bank. Research from the Financial Conduct Authority in the UK concluded that pull factors, such as the incentives offered by other banks, seem to play a secondary role in influencing consumer behaviour to switch financial services provider. 48 % 6 % I have been with my bank for more than two years and I am happy with their service Mass affluent satisfaction with their main financial services provider I have been with my bank for more than two years and am neither happy or unhappy I have been with my bank for more than two years and I often think about switching 7 % I have switched banks in the last two years for another reason 7 % 8 % 15 % 9 % I have been with my bank for more than two years because it is too much effort to change I have switched banks in the last two years to one with better customer service I have switched banks in the last two years because I was incentivized to do so 2
Our research also explored why mass affluent consumers did not feel loyal towards their main financial services provider. The primary reason was because they felt they are not being rewarded or recognised by their bank and this was the case for 35% of the consumers we surveyed. Further exploration determined that 70% of our mass affluent sample expected to be rewarded for staying with their bank. Other reasons for their dissatisfaction related to being charged unnecessary fees (31%) and poor customer service (25%). The remaining 13% of apathetic mass affluent consumers were those that thought about switching or believed it was too much effort to change. Many initiatives have been put in place to give customers confidence that switching financial service providers is not as difficult as it once was. Many banks in the U.S. now offer switch kits designed to reduce the hassle and perceived risk of moving accounts, including direct deposits and automatic payments from one bank to another. In the UK, the Payments Council is upholding participating banks to an account-switch guarantee which stipulated the appropriate timeframes and specific actions banks need to take to ensure consistent, reliable switches. Similarly, the European Commission has published a proposal that aims, in part, to establish formal procedures that would aid consumers in switching their bank accounts quickly and easily. The World Retail Banking Report 2015 1 suggests there has been a jump in the number of customers worldwide planning to change their bank from 2014 (5%) to 2015 (11%) and the overall trend is that attrition rates have increased since 2011. So whilst today the percentage of customers switching their current accounts is low, it is rising. Looking specifically at the profitable mass affluent customer segment, the opportunity for retail banks today is to find ways of rewarding and recognising them as individuals and drive more active commitment to their brand. The process and approach will create a more positive and engaged relationship that delivers value back to the mass affluent consumer. Therefore encouraging those existing customers to be willingly loyal and advocate to their peers and inspiring others to consider changing their banking relationships. 1 www.worldretailbankingreport.com/ download In this report we ll look at some proven reward and recognition strategies and their associated considerations to deliver more engaged, loyal and profitable customer relationships. 3
A CHALLENGING ENVIRONMENT In recent years the financial services landscape has been exposed to a number of factors that have had an impact on the way providers now need to operate, think and act. To explore these issues and their implications, Collinson Group commissioned an international research study with 300 board members and senior managers within financial services organisations in the UK, UAE and Singapore. Standard challenges of acquiring new customers, driving customer engagement and spend, retaining customers, driving cross-product holdings and legacy IT problems continue to keep senior bank executives awake at night, in addition to the continually changing market conditions. 2 1 3 Competition from unexpected quarters The big financial services companies face competition from new disruptive players such as PayPal and TransferWise who do not have all the same legacy technology issues as traditional banks. There is also the impending risk of disintermediation for the more traditional players where, digital and mobile payment providers are starting to interrupt the direct relationship they have enjoyed with their customers. Brands such as Zopa and Fidor are also recognised as disruptors in the financial services sector. Collinson Group research found that over 75% of board members and senior managers regarded competition from unexpected quarters as the most important challenge facing their businesses. Astute consumers can choose a range of financial service providers. Reduction in interchange fees Another area where regulators are having a tangible impact on bank and credit card revenues is through a reduction in interchange fees which is particularly prevalent in the EU as in other markets this is not currently an issue. These fees, charged on all payment card transactions are now being pushed down from anywhere between 0.8%-2.0% of a transaction s value, to just 0.3-0.2%. This means that financial service providers need to find innovative ways to replace the potential loss of revenue so that they can continue to deliver the same valued proposition to their customers and minimise compromises that would negatively impact customers and their perceptions. Compliance and data security Financial institutions hold huge amounts of highly valuable data on their customers and their spending patterns. However many are now struggling to modernise the systems housing this data, particularly with the increasing pressure on security, which ultimately can limit the commercial value of what they have access to. Astute customers Customers are becoming more discerning and more knowledgeable. They are increasingly looking to differentiated propositions, to evaluate and quantify how they will benefit and make comparisons between providers to ensure it is relevant and represents value for them. They are technologically savvy, embracing digital and mobile channels to interact and engage with providers. Smartphone adoption is a key enabler for this and with rising smartphone penetration rates across the world, being able to meet consumer expectations about their digital experience is increasingly important to secure their custom and commitment. 4
UNDERSTANDING THE PRIZED MASS AFFLUENT CONSUMER Our research was commissioned to understand more about the mass affluent customers and gain new insights into how this profitable group could be further engaged, rewarded and recognised. The results identified common traits which cut across age, gender and international boundaries. MATURE AND AFFLUENT 36% being under 44 with an average age being 50. A third of the total respondents earn over $150,000 a year. REGULAR AND DISCERNING TRAVELLERS Mass affluent consumers take an average of 5 business and leisure trips per year but in India this leaps up to 9.9. Nearly three quarters (68%) stay in 4-5 star hotels on business and leisure. THINKING LONG TERM 9 out of 10 mass affluent consumers place the most importance on spending time with family, providing for family and saving for the future. A profile of the mass affluent consumer IMPORTANCE OF NEW EXPERIENCES Whilst branded goods are popular in China and the United Arab Emirates, seeking new experiences and experiencing new cultures are key for the majority. HIGH EXPECTATIONS AND SUSPICIOUS They expect their banks to be ethical and rewarding. Also banks are trusted with personal data but less so when it comes to acting in their best interest. BEING REWARDED IS IMPORTANT The main reason that they are not loyal to their banks is that they are not being rewarded/recognised. Beyond this global profile, further analysis revealed four tribes with distinct motivations but still retained a collective focus on enriching experiences, on spending time with and providing for families and caring for others, rather than products and short-term satisfaction. They also commonly regard the highest drivers of loyalty to be significantly related to trust, value for money, quality products and services and being easy to do business with. Whilst this is no surprise and often applies across any industry sector, it highlights that the foundations of relationships between customers and brands have to be solid before the opportunity of driving greater loyalty through rewarding and recognising them as individual customers comes into its own to increase profitability. The following pages show the individual tribes within the mass affluent segment. 5
STYLISH SPENDERS Over half are under 35 years of age with 32% earning over $190,000 a year and this group is particularly prominent in China and the United Arab Emirates. Despite their spending power, this group is the most loyal to brands they trust, participating in an average of five loyalty or reward programmes and feeling loyal to up to eight companies. EXPERIENTIALISTS This group tends to be in the mid to top income bands. 64% are in the $60 -$150,000 income bracket. They are less likely to have children. Experientialists want unique, money can t buy experiences and exclusivity rather than standard products and services. This group is most likely to enjoy experiencing different cultures and use travel as a way of keeping in touch with friends and family and is prominent in China and the United Arab Emirates. Experiences such as spending on holidays, dining out and luxury foods are also a priority. What would increase the loyalty of Stylish Spenders? Rewards that are easier to understand, access and obtain More personalised experiences, services and rewards Relevant luxury rewards with luxury branded partners Rewards that can be accessed and delivered digitally What would increase the loyalty of the Experientialists? The ability to redeem their loyalty points for travel and lifestyle benefits Travel rewards without restrictions and that do not expire Personalised communications and relevant promotions Rewards that are more relevant to them 6
PRUDENT PLANNER Prudent Planners are motivated primarily by family and altruistic goals. Three quarters of this tribe cite spending time with family as their top indulgence. As the largest proportion within the affluent middle class, this group will represent around 2 billion consumers by 2030 and is well-represented in the USA, UK and Italy. They are valuable customers but are less motivated by material products. MID-LIFE MODERNIST Mid-Life Modernists stand out for their enthusiastic use of technology, with 90% spending more than five hours a week using their smartphone and 45% spending over 20 hours a week of their leisure time online via a computer. As a result, digital experience has a significant influence on this group and businesses which invest in this area can create powerful advocates amongst this tribe. This tribe is most prevalent in India and Singapore. What would increase the loyalty of the Prudent Planners? Access to travel rewards that do not expire, and practical items and physical rewards Loyalty points that can be used by family members and rewards that can be redeemed for the benefit of the family The ability to redeem loyalty points for discounts and experiences What would increase the loyalty of the Mid-Life Modernists? They want the ability to access and redeem rewards in real-time Access to manage their loyalty programme online with a supporting mobile app They want to be rewarded and recognised for staying with a company Being rewarded for sharing and advocating about brands to influence others Personalised service and communications Personalised service and communications 7
USING REWARD AND RECOGNITION STRATEGIES TO DRIVE LOYALTY The implications for the changing market environment combined with ever increasing consumer expectations, particularly those of the mass affluent customer, means that banks need to do more than get the fundamentals right to drive loyalty. They need to be able to reward and recognise their customers to help drive positive engagement and commitment. Reward programmes giving points for spend and added value accounts offering benefits are common approaches used by credit card providers and retail banks respectively to encourage loyalty. Our mass affluent consumer research revealed the effect of loyalty programmes on reducing apathy and switching intentions is reasonably strong. Non member of loyalty programme Our research showed that members of a bank loyalty programme were 10% happier with the service provided by their bank as compared to non-members. The results demonstrate how a rewards programme can be very effective in driving the loyalty and satisfaction of mass affluent consumers by making them feel valued. Other reward and recognition strategies include providing a selection of personalised offers and promotions tailored to a customer s individual preferences and interests and widening the appeal and value of loyalty points by enabling their redemption for a variety of products and services from flights to hotels, electronic gadgets to family experiences and donations to charities. This is very much the case in the travel sector where frequent flyer programmes (FFPs) are extremely mature and globally relevant to regular travellers. Statement: I have been with my bank for more than two years and I am happy with their service Member of loyalty programme 43% 53% Agree with statement Frequent flyer programmes have been proven to influence a member s choice of airline and the strength of these programmes has continued to grow to a point where in some cases, the FFP is now as commercially valuable as the airline itself. However whilst the offer of free flights were the original and very attractive reward, this is no longer the case with the amount of taxes, charges and fees applied and redemption seats hard to secure. As a result, a number of these reward programmes have evolved and now provide complementary ways of engaging their members including other reward options to motivate loyal behaviour. While Retail banks and credit card providers have done well in using cobranded cards to leverage the attractive reward proposition of the FFP and airline, caution needs to be applied to this given that miles are expensive to offer to customers in exchange for their card spend and, if the miles are simply tipped into a customer s FFP account, the primary brand association made by the customer is with the airline rather than the financial services provider. Even without a direct link to an airline FFP, banks could do well to apply learnings from the evolution of airline rewards programmes, such as the increased personalised communication, use of data and insight to provide tailored offers and experiences as well as richer redemption content. 8
Our significant experience with frequent flyer programmes has demonstrated that the use of data to deliver personalised offers, promotions, regular member communications and richer redemption content increases engagement and loyalty and these strategies are just as applicable in the financial services industry. Our expertise and understanding points to proven strategies and the key considerations for increasing engagement with mass affluent consumers: 1. Create a differentiated customer value proposition Businesses in all industry sectors offering loyalty programmes and customer rewards are increasingly benchmarking their propositions against the competition. With customers evaluating what they can get from one provider over another, having a strong differentiated proposition helps create a stand out proposition and will help acquire, engage and retain customers. Financial services providers such as American Express have looked to create points of differentiation in their offering by using the ability to enable customers to pay their utility bills with their points or even in the case of Capital One Bank, make charity donations. Our own mass affluent research points out that it is important for customers to be able to share their gains with their family, access enriching experiences and also behave more altruistically. But despite all of this, differentiation not only has to work in terms of increasing the customers perception of the value of your offering, it has to work at a commercial level and deliver results back to the business and ultimately improve performance and increase key metrics. Prudent Planners appreciate rewards which they can share, which offer longer term gain and which can also be extended to their family. The younger generation in particular display emotional motivations that are altruistic and believe that brands should take action to show wider social responsibility. Offering charitable redemption offers appeal to this audience. 2. Make it easy to understand Over the years, loyalty programme operators have often made it difficult for the customer to work out the value that they associate with being a member of the programme. Typically with a traditional loyalty programme, customers know that if they make purchases, they can earn points and at some point that will be worth something to them. Customers today are more savvy, they are far more aware of the value exchange that comes from brands wanting them to be their customers but they want to be able to calculate what they are getting for being a customer of one brand over another. Often the calculation of that value exchange is often complicated and a bit of a headache for the customer as it is not made as simple as $1 equates to 1 point for example. This is complicated further when trying to establish the monetary value of those points and whether that reflects good value if they were to redeem their hard earned points for that item. One great example of a brand from outside the financial services industry who make it extremely easy for their customers to understand their rewards programme and its value to individual customers is the chemist, Boots in the UK. Their points proposition is very clear and simple earn 4 points for every 1 spent, and they make it very visible and explicit to their members how many points they have earned and the financial value of those points that they have to spend. 9
Previously brands and in some cases their commercial models, meant that it was often better for the business if the customer did not engage or redeem as they benefitted from the breakage of customers not using benefits or redeeming their points. Today delivering a great customer experience that customers will advocate and tell their friends and families about is king, and the financial rules about points liability reinforces the importance of making it easy for the member to participate in the programme and extract value out of that. Giving customers greater flexibility in how they access rewards will enhance the experience and differentiation of a programme. For example, enabling consumers to pay with cash, points or a combination of both and offering mobile wallet style services allows for accessible and convenient redemption. Many financial services brands do not have a platform which enables this degree of flexibility and rethinking systems to offer this approach can greatly improve engagement and loyalty. A seamless experience across digital channels is important for Mid-Life Modernists, the most active users of smartphones, tablets, smart TVs and apps. In the US, 90% of consumers use their mobile phone for ten hours or more per week; and our research indicates a growing trend among consumers who use mobile applications for banking services (this is highest in India at 59%). This tribe is interested in modern, sophisticated digital design and a seamless handover as they move between these different channels. 3. Drive engagement with loyal customers Despite significant investment from banks in digital and customer systems, 83% of UK consumers still feel that their bank does not know or understand them and less than a third feel they receive a high level of personal service. Personalised and consistent communications, rewards and service regardless of how customers choose to interact with a bank is important for the affluent middle class globally. Our research found that customer engagement improves by a third amongst individuals who feel understood by their bank and a further third for those who say they receive a seamless multichannel service whether in person, by phone or via digital channels. Companies in other sectors, for example UK mobile operator, O2, offers a wide range of rewards and the option for consumers to choose what value they derive from a brand relationship. This includes a breadth of offering from concert tickets to unique, money can t buy experiences, which appeal to the changing motivations of mass affluent consumers. Tribe members of Experientialists live for the moment and expect brands to offer unique experiences to maintain their interest. 10
4. Facilitate redemption behaviour Customers want to be in greater control of how they access rewards, and are able to get them in the channel and at a time of their choosing. The Golden Moment is the increased engagement demonstrated once a member has redeemed for the first time. Our research and experience provides substantiation of the positive behaviour exhibited by a member once they have redeemed they continue to earn more than 1.5 times more points after that experience and remain more engaged in the programme. It is important to understand how you can encourage that first redemption experience to be as early as possible in their membership to amplify the positive effects on behaviour as early as possible. In addition, the process of redemption at the moment of truth needs to be as simple as possible given a key loyalty driver is being easy to do business with. The reward also needs to be available when requested and this is a situation that some frequent flyer programmes encountered where no seat availability was being shown for those wanting to book using their loyalty miles. A lack of options for redemption seats frustrated customers and damaged customer perception by not delivering on original customer value proposition. Points accrual 7,000 6,000 5,000 FIRST REDEMPTION x 1.5 4,000 3,000 2,000 1,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Months 11
Offer a variety of redemption options and thresholds Whilst some customers will collect and save for a big ticket item, most customers do not want to wait forever to have earned sufficient points to be able to redeem and realise some value from their programme participation. Digital downloads are a good, low cost initiative that can drive early redemption behaviour to trigger the golden moment. Mid to high priced electronics and gadgets have also proved to be extremely popular redemption items. Propose flexible redemption payment options Redemption rates will also be enhanced when offering the ability to pay with a mix of points and cash rather than wholly in points. Those members with an insufficient points balance could still obtain their valued reward and choose to pay the difference in cash. Our experience in the retail sector has demonstrated that this could result in a 200% - 400% overspend based on a $10 reward voucher. The benefits are virtuous with the redemption opportunity and value increased for all consumers which in turn should increase engagement and redemption behaviour. This helps manage the commercial liability associated with the loyalty currency whilst creating the potential to drive incremental revenue from the cash payments for the business. Provide real-time engagement With customers using a range of channels to interact and purchase, in addition to wanting more instant gratification, there is an opportunity for card providers to offer real-time, tailored promotions and redemption at the moment of purchase online and in-store. This proactively provides the customer with even more choice and value, increasing the utility of the programme and further deepening the brand relationship. In return, financial services providers can track spend, understand who their best customers are, and motivate behavioural change. This can be jointly funded by merchants who benefit from increased footfall and traffic. Customers realise value from frequent use of their bank card, and the perceived value of the loyalty programme is greatly increased. Smartphones, apps and digital experiences are highly valued by Mid-Life Modernists and offering promotions and price comparisons via mobile devices, particularly those that can benefit a whole family, is an effective way to engage with them. 12
SUMMARY High levels of customer apathy are being witnessed by retail banks across the globe. This combined with rising customer expectations and increasing competition means that the fight for customers, particularly those profitable mass affluent ones, is as fierce as ever. Mass affluent customers expect to be rewarded for staying loyal to their bank and the primary reason they did not feel loyalty towards their bank was because they felt they were not being rewarded or recognised. If banks are to transform apathetic customers into active advocates, they need to enhance their approaches to recognising their most valuable customers by understanding them as individuals or groups, determining what rewards would increase their loyalty and look to apply the learnings from other industry sectors in a way that is relevant and appreciated. Our experience highlights that a proven loyalty programme with appropriate reward and redemption strategies will not only meet the needs and expectations of mass affluent customers but win their hearts and minds. At the same time managing engagement and loyalty with commercial liability and delivering commercial results need to be given key consideration. 13
ABOUT COLLINSON GROUP Collinson Group is a global leader in influencing customer behaviour to drive revenue and value for clients. The group offers a unique blend of industry and sector specialists who together provide market-leading experience in delivering products and services across four core capabilities: Loyalty, Lifestyle Benefits, Insurance and Assistance. The group provides unrivalled insight and expertise around affluent consumers and frequent travellers, creating and delivering products and services that increase engagement, loyalty and value for customers. We have 25 years experience with 26 locations, servicing over 800 clients in 170 countries, employing 1,900 staff, and managing over 20 million end customers. Our clients are market leaders from across the globe including 500 banks globally and the leading card issuers, Aviva, Cathay Pacific, British Airways, Air France KLM and InterContinental Hotels Group. We have been bringing innovation to the market since inception - launching the first independent global VIP lounge access programme, Priority Pass, being the first to sell direct travel insurance in the UK through Columbus Direct and we created the first loyalty agency of its kind in the travel sector with ICLP. Today we still invest heavily in innovation to ensure that we continue to deliver superior customer experiences. 26 locations 18 countries 20+ million end customers managed 800 clients To discuss how Collinson Group can help your business please contact your regional team: ASIA PACIFIC Chris Rogers Tel: +65 (0) 6416 6310 Email: chris.rogers@ MIDDLE EAST Luke O Reilly Tel: +44 20 3725 0288 Email: luke.o reilly@ EUROPE Anthony Borgman Tel: +44 (0) 20 3725 0226 Email: anthony.borgman@ 14