Crossing Channels With Reward Programs

  Financial institutions are attempting to link rewards programs across their product offerings, but it's easier said than done.
  Points, miles and cash back are all currency in the credit card rewards game.
  Airlines in the mid-1980s invented the forerunners of today's card-linked loyalty programs with their popular frequent-flier cards. Previously loyalty programs consisted of coupon books and punch cards. And financial institutions often would give customers who opened new accounts inspiring gifts such as toasters. Nowadays, most consumers won't think about applying for a credit card without some type of rewards program.
  Like those airlines that first partnered with credit card issuers, financial-services companies may once again be in a position to innovate with rewards programs by expanding them beyond the credit card relationship into the other products and services they offer.
  The idea goes by many names. Some call it relationship marketing, others equity-based loyalty and still others call it cross-platform loyalty. But the message in every program is the same: offer customers compensation across all the lines of business they have with an institution.
  "Reward the customer for everything they do, be it credit, deposit or loans," says Gail Sneed, marketing development manager at Fenton, Mo.-based Maritz Loyalty Marketing.
  While the subject of lengthy and heated discussion, thus far the implementation of cross-platform loyalty programs has been relatively small. One financial institution that is doing such a program is St. Joseph, Mich.-based First Resource Federal Credit Union, which allows its platinum Visa credit and Visa check card holders to accrue points across credit and debit card accounts, according to Marie Williamson, vice president of operations.
  First Resource also is offering 5,000 points for taking out a car loan at First Resource, Williamson says. The credit union has 1,700 platinum cardholders and 23,500 debit cardholders.
  First Resource in November 2002 introduced its debit card rewards platform that gives consumers one point for every $2 spent via a signed transaction, Williamson says. The debit card program has been especially attractive to the institution's younger consumers. "Our young members tend to use the check card to pay for gasoline and food," she says.
  'Getting Closer'
  Points can be redeemed for gift and restaurant cards at select merchants, vacation packages, car rentals and other products or services. The credit union markets the program through statement inserts and radio commercials.
  Atlanta-based ESC Loyalty, a subsidiary of processor Total System Services Inc. (TSYS), provides the program to First Resource and three other institutions, says Lars Holmquist, executive vice president of business development and consulting.
  "Brokerage companies have been toying with this and the same concept holds for branch banks," Holmquist says. "We're getting closer to rewarding customers for what they mean to institutions."
  The process of implementing such a program isn't always easy, Maritz's Sneed says.
  "Everybody wants to own the customer, be it the credit card or banking side, and they don't necessarily like to share that information," she says. "It is changing the way (financial institutions) are doing business internally. They have to take a holistic approach and look at the entire relationship."
  Another difficulty with this type of program is figuring out the value of a customer and rewarding him or her properly, Sneed says. Some financial institutions dole out reward points based on a customer's total monthly portfolio balance, which doesn't necessarily mean the customer is profitable.
  "The (institution) has to understand what makes a customer profitable," she says. "A $3,000 car loan isn't the same as a $3,000 money-market account."
  While First Resource FCU's program is set across credit cards, debit cards and automobile loans, there is potential to include more accounts and more rewards, says consultant Frances Dale, president of Sterling, Va.-based Entandem.
  "The credit card drives the program," Dale says. "Some programs use points. The ones we work with have dollar rebates and you can apply those rebates to other banking products such as check ordering, towards the closing cost of a mortgage, buying down interest rates on loans or increasing interest rates on interest-bearing accounts."
  Up-Front Analysis
  Before launching a cross-platform loyalty program, an institution needs to figure out the type of behavior it wants to encourage from the consumer. "Do we want to encourage everyday transactions?" Sneed asks. "Or do we want to encourage the large transactions? It's important to do some analysis up front."
  With the competition for consumers increasing among financial institutions, many are examining these programs for ways to lure more business from existing customers as well as attract new business.