Rewarding Experiences: The New Twist on Loyalty Programs

Companies often treat loyalty programs like a business exchange. Customers rack up points redeemable for plane tickets or meals at Olive Garden by swiping credit cards, taking out auto loans and recommending a bank's services to their Great-Aunt Dee.

But a new way of wooing customers is gaining momentum among banks and other companies. Rather than going tit for tat, these companies are rewarding customers for participating in activities that have no direct benefit to the bottom line. By encouraging community involvement and other positive behavior, companies hope to bond with customers over things they truly care about. The intent is to foster loyalty, attract new customers and add some luster to the brand in the bargain.

Zions Bancorp. has been dabbling in tactics like these since before the nascent trend. One example is its Pays for A's program, which launched in 2003.

The Salt Lake City company gives junior high and high school students one dollar for every "A" earned on their report cards. To sweeten the pot, Zions also enrolls all the participating students in drawings held four times each academic year for cash prizes of up to $1,000.

"We have students who started bringing in their report cards in seventh grade and have continued through their high school years," says Rob Brough, Zions' executive vice president of corporate marketing and communications. "Hopefully it's building loyalty among them — and also with their moms and dads."

The strategy certainly is attracting new customers. Last year 10.5% of Pays for A's participants said that they had joined Zions because of the program.

Other banks also are experimenting with the idea of giving rewards to customers who volunteer their time at fundraising events, run in marathons or make charitable donations, according to Al Karim Somji, CEO of the relationship banking software provider Zafin.

Some use online registration to track people who participate in these types of activities, so they can be sure to dole out the rewards accurately, Somji says. "It can be through mobile phones, the bank's website, or social media," he says. "It operates on the honor system; if someone says, 'I'm going to volunteer 20 hours with a charity,' it's too cumbersome for banks right now to monitor them."

The activities that earn rewards are sometimes — but not necessarily — tied to an event that the bank sponsors.

One unusual model rewards customers who bring their children into bank branches for book-reading events.

"The other interesting part is that the banks are welcoming non-account holders to participate in events, so that's a way for them to be able to acquire or engage potentially new customers," Somji says. Current customers could receive redeemable loyalty points, while noncustomers would be able to snag special offers and digital coupons provided by local merchants who are bank customers.

While these newfangled approaches to customer loyalty may seem offbeat, Somji predicts that they'll become more common soon. One financial institution that works with Zafin plans to launch a customer loyalty program incorporating many of these tactics in the fourth quarter of this year. (The institution asked not to be named because its program is still in the planning stage.)

"Most of those kinds of programs are coming from community banks," Somji says. "Community banks rely on neighborhoods and local merchants for their business," so a rewards program that capitalizes on these ties have a better chance of paying off in the long term.

But alternative customer rewards models can work for large firms too, as demonstrated by North Face. The outdoor clothing and equipment retailer launched a loyalty program called VIPeak in 2012. Customers earn points the traditional way — by purchasing water bottles and fleece jackets at North Face stores — or through atypical means like participating in company-sponsored trail runs.

This type of approach is a way for companies to forge a connection with customers that goes beyond a basic business transaction. By encouraging a healthy lifestyle, North Face positions itself as a supportive partner. And by aligning rewards with activities that are meaningful to the customer — rather than just the company's bottom line — North Face can trigger an emotional response that creates a sense of bonding over a shared interest.

Derek Martin, who heads the consumer product management division for the $27 billion-asset BOK Financial in Tulsa, sees the value in a rewards program like the one at North Face.

"It makes you like the firm that much more," he says. "You're more inclined to go online and buy your next pair of thermal gloves or what have you."

But he says that banks, BOK included, tend to err on the side of caution. They're most comfortable with rewards tied to a product and to the balance sheet.

"If banks were to do this, it would be a brand play to improve their image," Martin says. "But it still might be a bit of a stretch."

Gerard du Toit, a partner at the consulting firm Bain & Co. who specializes in customer loyalty programs, agrees. "The words 'unusual,' 'weird' and 'bank' don't often go into the same sentence," du Toit says. "Banks don't want to be too far out there."

Nonetheless, banks can toss customers sweeteners without straying too far from their comfort zones, if Zions is any indication.

Zions tries to maximize the impact of its many sponsorships by offering perks that encourage customers to get involved in those events. Runners who look forward to Salt Lake City's hugely popular Ogden Marathon each May can go through Zions to reserve a spot at the starting line, bypassing the lottery system that allows only some applicants to participate. Theater buffs benefit from Zions' ties to Broadway Across America, with the chance to snap up advance tickets to local performances of "Les Miserables" and "Wicked" before the shows sell out.

Its tactics echo those of credit card issuers, which often make exclusive offers to cardholders like allowing them to buy tickets to an event before the general public can. Zions' motivations are similar as well.

"We try to identify elements within the sponsorship that provide benefit to our clients," says Brough. "We're not losing any revenue as a result of it, and they see it as a tremendous value."

Brough points out that not only do programs like these bolster the company's image, they also benefit the community, which is equally important. He recommends banks seek out more opportunities to reward customers for getting involved in local activities.

"Banks play such a vital role in the community," he says. "In most markets, they're viewed as key players."

Besides, the bottom line stands to benefit too, even if there is no simple way to show a direct connection, Brough says. "Rewarding customers for their engagement in the community builds loyalty and creates additional value in their minds for being clients."

Sara Todd is the editor of American Banker's BankThink blog and opinion site.