NEW YORK-Pricing schemes receive little attention when financial institutions consider ways to preserve the loyalty of their members, but a recent report shows they can be far more effective than traditional rewards programs.
The Simon-Kucher report states rewards programs "have failed to develop true customer loyalty in retail financial services" because they are perceived to be unfair, have confusing rules, inappropriate benefits and focus too much on the discount offered.
Switching to a loyalty pricing plan, the report's authors suggest, increases profit and loyalty at the same time because the programs reward members when they use more products, increase volume, attract new members and stay at the institution for a long period of time. FIs can choose to use up to four different models when putting together such a plan including multi-product pricing/bundling, multi-dimensional pricing, multi-person pricing and time-based price differentiation. Putting multiple products together as one price, offering "family pricing" on certain products and rewarding individuals who stay at the institution for long periods of time with lower fees and better prices help to not only foster good will but also differentiate the institution with members so they look at the whole picture instead of simply shopping around to get the best rewards plan.
"The basic idea is to create incentives that influence customers' behavior which, in turn, intensify the business relationship," the report concludes. "The customer wins because he gets concrete rewards and the (financial institution) wins because customers buy more of its products and stays longer."
