The Voice of Canadian Credit Unions
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Loyalty in their wallets

Canadians love collecting rewards. Some innovative CUs are getting with the program

Points, rebates, fake currency, coffee cards and more. Every day, Canadians decide where to shop based – at least in part – on collecting these incentives. Peek inside a person’s purse or wallet and most times you’ll find an Air Miles card, a Shoppers Drug Mart Optimum card and a variety of others that earn points or travel miles. Look at their smartphones and you’ll also find rewards apps tied to the stores and financial institutions they frequent.

It’s all about companies trying to gain our loyalty, and if it seems that we have a lot of inducements to get with the program – any program – your impression is accurate. The 2013 Maritz Loyalty Report: Canadian Edition, produced by a company that provides loyalty services to Fortune 500 brands, found that Canadians are among world leaders in the number of loyalty programs we belong to. We averaged 7.3 cards per person last year, up 14 per cent from 2012. In fact, an amazing 90 per cent of Canadians are members of at least one loyalty program.

Financial institutions offer them, too, of course, and in the U.S., the sector has become the biggest operator of loyalty programs, boasting nearly 550 million memberships in 2013. That represents a jump of nearly 28 per cent since 2011, according to Colloquy, a company that specializes in loyalty intelligence – and while figures aren’t readily available for Canada, our financial services institutions typically follow American trends. That raises several questions. Which – if any – loyalty programs reflect the cooperative movement’s values? Which Canadian credit unions are using them now – and how advantageous are they? And if they do work, how can credit unions get in on the action?

A long tradition of rewards

First, a little history. While the loyalty apps and cards are relatively new, Canadians have a long tradition of collecting rewards. Canadian Tire money was introduced in 1958 and for decades, gasoline stations offered sets of glasses, dishes or silverware to keep customers returning. In the 1960s, Shirriff Puddings came with hockey coins – but in the minds of many young boys, who pestered their mother for the coins and ate the dessert under duress, it was the other way around. Any cottage or yard sale will turn up samples of early loyalty program artifacts and collectors rooting around to add those relics to their stashes.

It’s easy to understand why these programs exist. Merchants are trying to keep customers coming back instead of straying to a competitor. Yet in the past, there was little hard evidence that the programs work. Some researchers who studied the issue found that the people most likely to use loyalty programs are the same ones who would probably keep using their favourite product or service without any program.

In fact, according to Grahame R. Dowling and Mark Uncles, who wrote a seminal academic paper on the topic in 1997 for the MIT/Sloan Management Journal, the loyalty programs they investigated actually cost businesses money with little return on investment. True, they provided benefits to customers, but to no apparent advantage for the issuing companies. “The program is unlikely to significantly increase the relative proportion of loyal customers or profitability,” they wrote.

That assessment was supported by a 2007 study in the International Journal of Research in Marketing. It found that “Self-selecting members are already loyal to the store, and enrolling in the loyalty program allows them to reap saving and discount rewards without becoming more loyal.”

The changing rewards landscape

Since then, however, the landscape has changed. Programs are no longer simply about rewarding people for their ongoing patronage. For purveyors, loyalty programs are also about generating market information. Leading retailers, for example, including many grocery chains, customize offers to individual shoppers based on reward data derived from their past purchases. And from the consumer standpoint, many sophisticated plans now go way beyond offering points for money spent or for simple evidence of a commitment.

In 2011, Gallup Consulting – an offshoot of the polling company – reported that companies with fully engaged and activated customers do see a decent return on their investment in rewards programs, whether in the form of market research or repeat business. Its study defined “activated” participants as “those who say they are ‘much more likely’ to shop or use [a] given brand because of their membership with the brand’s loyalty or rewards program.” In other words, companies need to carefully monitor their programs to ensure their customers are actually motivated to stay; otherwise firms offering rewards are wasting money.

The original ‘loyalty program’

As for credit unions, keep in mind that the credit union concept itself is a loyalty program. All credit unions share benefits with their members in some way and the “reward programs” they use are just alternative mechanisms for delivering on the credit union promise. Do these alternative mechanisms successfully appeal to new participants? Based on one small study, the answer appears to be “yes.” A report by Filene Research called Patronage, Loyalty and Credit Unions’ Shared Surplus examined how six credit unions in Canada and the U.S. use a wide variety of loyalty programs to attract members and grab more of their business. The report, by Daniel Côté, a professor at L’École des Hautes Études Commerciales in Montreal, explored the various ways these credit unions used their profits to reward and retain members. It looked at every method – from paying basic patronage dividends and rebates, to cuttingedge, multi-level member-reward programs, to simply reinvesting the money into making the credit union more attractive to targeted and potential members.

Different strokes for different folks

Loyalty programs helped members and their credit unions, Côté found, no matter what form of rewards were in play. Among those he studied were Sydney Credit Union in Nova Scotia ($140 million in assets, 13,000 members), which pays members a cash patronage reward and Crosstown Civic Credit Union in Winnipeg ($1.82 billion in assets, 30,000 members), which pays part of its dividend in equity shares that can be transferred to a member’s retirement fund. Peter Enns, CEO of Crosstown, says that the 2013 “distributions will bring the total returned to members under this program to $42.5 million, with over $24 million of this paid in cash.”

Another credit union that Côté studied was BlueShore Financial, ($2.4 billion assets, 40,000 members). Rather than returning money directly to members, BlueShore spends it on branches to reinforce loyalty by providing exceptional service and a spalike experience that reflects its new brand promise – Be Richly Valued.

Loyalty programs helped members and their credit unions, one study found, no matter what form of rewards were in play.

Regardless of their approach, however, Côté writes, all six credit unions found that their programs discouraged members from leaving, increased the issuing institution’s share of wallet and generated more wordof- mouth recommendations. He adds that programs are most likely to succeed with rewards that are direct and innovative. In the best ones, “members benefit from an increased value proposition, while the credit unions improve their competitive position and create incentives that are good enough to change the behaviour of their members without eroding their profit margins.”

George De La Rosa, CEO of Ontario’s Luminus Financial, ($78 million in assets, 4,500 members) says member rebates are a key differentiator for his credit union. In a crowded, competitive market, where most services and products are commodities, the ability to provide rebates helps Luminus stand out. The rebates are usually one per cent of interest paid on loans, which can be substantial on larger mortgages. “We discuss the rebates every year in our strategic planning session with the board and [we] always want to keep it because it fits with our cooperative values,” De La Rosa says.

De La Rosa adds that Luminus is taking part in the Credit Unions of Ontario awareness program that seeks to prove to people the ways in which credit unions are economically viable and socially meaningful alternatives to banks. That’s why Luminus uses the term “cooperative banking,” distinguishing it from its just-for-profit counterparts. The Maritz report findings appear to substantiate this approach. It confirmed “a tight link between member satisfaction and the extent to which a program’s values are aligned with a member’s personal values.”

For the first time, Luminus is also surveying members on a variety of issues, including how valuable the member rebate is to them. “We want to see whether or not the rebates are important to the most profitable members. If they aren’t, we’ll reassess the rebates,” De La Rosa explains. In early May, Luminus learned that its members were very interested in receiving $500 for referring mortgage business to the credit union. It had great success with a plan to spend up to $20,000 on rebates for members who referred a new member to the credit union. “We decided we’d rather pay the money to our members instead of to mortgage brokers, who don’t bank with us,” he says.

Comtech Credit Unionof Toronto ($206 million in assets, 12,000 members) takes a different spin. Focusing on increasing member participation, it has developed a Five Star Rewards program designed to encourage members to make Comtech their main financial institution. Members are automatically included in the rewards program if they maintain a minimum monthly balance of $1,000 or have any kind of loan, line of credit, equity line or mortgage. The program has bronze, silver, gold and platinum tiers that provide more and more benefits as members do more business with Comtech. Moving up to the next level is as easy as bringing in a term deposit or signing up for a line of credit.

In Kelowna, B.C., Interior Savings Credit Union, ($2.1 billion in assets, 72,000 members) highlights its member rewards program, which paid out $3 million in profits for 2013 and more than $48 million since 2002. Last year, the average qualifying member received $113 just for banking at Interior Savings. Eligibility is based on members’ funds under administration – that is, the sum of all their deposits, loans, and nonregistered mutual funds as well as the number of products they have.

Promotion is key

Innovative programs can only go so far. To be successful, a credit union’s loyalty program needs to be promoted, using every vehicle and platform possible. According to research by FIS Global, a provider of banking and payment technologies, 80 per cent of users access rewards information from a computer, although tablet and smartphone access are definitely on the rise.

Recent experience at Loblaw bears this out. The grocery giant is heavily promoting its PC Plus™ loyalty card program with a series of TV commercials demonstrating how its smartphone app can provide special deals tailored to a shopper’s past purchases. The program, introduced last year, already has more than four million members, CEO Galen Weston says.

That suggests credit unions must also maximize all available channels to promote their loyalty offerings with good user interfaces and quick-click accessibility. FIS, a financial services consultancy, surveyed the websites of 300 financial institutions to assess content and to learn how easy it was to find information on rewards programs. It found that 16 per cent had no loyalty information at all. If details about rewards can’t be found on a website’s home page, clearly, there’s room for improvement.

Tangible rewards a must

As well, successful programs demand truly tangible and achievable rewards. A report by Environics Research Group that compared various loyalty programs concluded that: “The number of points an individual can earn matters very little and will not keep a consumer engaged in a program if there is no reward in sight. What likely matters more to an individual is that whatever their chosen loyalty program, it will get them to their desired reward in the least amount of time.”

What does it all mean? When it comes to rewards programs, credit unions should consider the following four categories of loyalty clients that Gallup Consulting identified:

  • Fully engaged customers, who are emotionally attached and rationally loyal; they are your most valuable customers
  • Engaged customers, who are beginning to feel the stirrings of emotional engagement
  • Disengaged customers, who are emotionally and rationally neutral
  • Actively disengaged customers, who are emotionally detached and actively antagonistic

A credit union’s goal is to ensure its program is cultivating members in the top two categories. If there is a sense members are neutral to the offerings or – perish the thought – antagonistic, a credit union would do well to rethink its program.

“The number of points an individual can earn matters very little and will not keep a consumer engaged in a program if there is no reward in sight”

—Environics Research Group

Theo Muller, managing director of MMResearch, a marketing company based in New Zealand, says that customer satisfaction should not be confused with customer loyalty. He argues satisfied customers may be lured away by a better offer from a competitor, or driven away by a single bad service experience. By contrast, loyal customers are emotionally attached to your brand and will remain committed despite a competitor’s come-on.

“A loyal customer is certainly a satisfied customer, but a satisfied customer is not necessarily a loyal customer,” Muller says.

Using well-targeted techniques, successful programs can help keep people loyal by ensuring that they are engaged. And that engagement is a reward in itself. ◊