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2020 Foresight Report: Retail Bank Loyalty Programs

Timetric
Published Date » 2013-06-28
No. Of Pages » 45

Synopsis

The report provides market analysis, information and insights into retail bank loyalty programs:

  • Provides a global snapshot of loyalty programs adopted by retail banks in developing and developed economies in the banking industry
  • Analysis of retail bank loyalty programs trends and drivers and key operational opportunities and challenges faced
  • Detailed analysis of loyalty program product and marketing strategies globally
  • Analysis of loyalty program customer targeting and marketing strategies adopted by leading retail banks operating in various markets

Executive summary

Loyalty programs have emerged as one of the key marketing tools in the global retail banking industry. Retail banks offer a number of loyalty programs in developed economies, however many of these are commoditized. This has compelled banks to introduce innovative programs in order to remain both competitive and profitable. 

There is also an increased pressure on costs due to new regulatory trends in last five years. Loyalty programs are being viewed as an important revenue-driving tool and have been proven to reduce customer acquisition costs. Retail banking in emerging economies is still in its developmental stages, as illustrated by its relatively low loyalty program penetration rates. 

Traditionally, banks and other card issuers have offered reward programs based on a customer income level and demographic profile. Banks are now segmenting customers based on their lifestyle choices and purchasing behavior. The use of analytical tools to better understand consumer spending patterns and offer personalized reward programs has increased in terms of adoption rates. The approach allows card issuers to launch customized rather than blanket programs to all customers. 

This approach also helps to target and isolate the most profitable customers and phase out the programs that do not offer significant value to a bank's overall business. Moreover, analytics are enabling banks to provide location-based, real-time discounts in collaboration with merchants. The successful implementation of analytic-based reward programs has become a key differentiating factor for banks.

Scope

  • This report provides a comprehensive analysis of marketing strategies adopted by retail banks to offer loyalty programs in developed and developing economies
  • It details trends and drivers of retail bank loyalty programs
  • It details various benefits available to and challenges faced by retail banks while offering loyalty programs
  • It details the customer targeting strategies adopted by retail banks to offer their loyalty programs across the globe
  • It provides case studies on retail bank loyalty programs and marketing strategies implemented by various retail banks and their outcomes

Reasons to buy

  • Understand the dynamics of the retail bank loyalty programs landscape across the key markets worldwide
  • Assess the current and future opportunities of loyalty programs in the retail banking industry
  • Gain insights into the loyalty program marketing strategies adopted by retail banks.
  • Gain insight into various challenges faced by retail banks in offering loyalty programs and key marketing and product strategies across all the key markets

Key highlights

  • The global economic slowdown adversely affected the banking industry of key markets across the globe. To improve their financial performance, banks implemented cost-saving initiatives. As part of such initiatives, banks launched loyalty programs through low-cost channels such as mobile platforms and social media sites.
  • Since the increase in spending on loyalty programs is directly proportional to the growth of the card payments channel, banks recorded a positive growth in card usage volumes. During the review period, Australia’s card spending recorded a CAGR of 10.64% during 2008–2012. The UK, the US and France also recorded respective CAGRs of 2.89%, 3.76% and 4.05%, despite high saturation levels and a financial crisis.
  • Banking penetration in developed cities is high and competition has increased between banks and other non-banking entities such as private card issuers, non-banking financial companies (NBFC), mobile operators and retail chains. This has resulted in an enhanced focus on innovation and loyalty programs specific to a niche group of consumers. They have gone beyond a simple discount or reward schemes to more sophisticated experience-based personalized offerings.
  • Banks incur costs when offering loyalty programs. To reduce these costs, they build coalitions with merchants and retailers to collectively share the operational, branding and marketing expenses. From the customer point of view, the coalition enables them to earn and redeem reward points across a network of merchants as well as be entitled to program-specific rewards. 
  • Banks are extensively using analytical tools to record consumer buying behavior and customize their reward programs accordingly. This results in a higher return on investment on each promotional campaign.
Table of contents

1 Executive Summary

2 Introduction to Retail Bank Loyalty Programs
2.1 Loyalty Programs Snapshot
2.2 Key Drivers of Loyalty Programs
2.3 Regulatory Trends and Challenges

3 Key Operational Challenges and Opportunities
3.1 Loyalty Program Design and Operational Frameworks
3.2 Multi-Channel Banking Experience
3.3 Localization and Product Differentiation
3.4 Merchant-Funded Loyalty Programs

4 Loyalty Program Product and Marketing Strategies
4.1 Loyalty Program Implementation Dynamics
4.1.1 Loyalty program framework
4.1.2 Revenue generation and cost reduction strategies
4.2 Loyalty Program Strategies through Emerging Channels
4.2.1 Social media strategies
4.2.2 Mobile strategies
4.3 Key Technology Trends and Impact Assessment on Loyalty Programs

5 Customer Targeting Strategies
5.1 Targeting Based on Income Level
5.1.1 Mass market
5.1.2 HNWIs
5.2 Targeting Based on Demographics
5.2.1 Students
5.2.2 Female customers
5.3 Targeting Based on Psychographics
5.3.1 Customer lifestyle
5.3.2 Professionals and entrepreneurs
5.3.3 Rewards based on purchasing behavior

6 Best Practices in Retail Bank Loyalty Programs
6.1 Best Practice
6.1.1 Using analytics to understand consumer behavior and offer customized loyalty programs
6.1.2 Expansion of reward programs across territories and new channels to cater new customers
6.1.3 Introduction of higher margin reward programs to improve profitability
6.1.4 Targeting young population through social media
6.2 Case Studies
6.2.1 Russian Standard Bank (RSB) benefited from an analytics platform
6.2.2 Citi teams up with Best Buy to launch a mobile-based loyalty program in the US
6.2.3 Union First Market’s loyalty program to scale-up business
6.2.4 Alpha Bank’s instant rewards through POS terminals
6.2.5 Barclays Bank’s reward program through low-cost banking channels

7 Appendix
7.1 Methodology
7.1 Contact Us
7.2 About Timetric
7.3 Disclaimer

List of Tables


Table 1: Loyalty Program Strategies Through Emerging Channels

List of Figures


Figure 1: Total Card Spending in Developed Economies (US$ Billion), 2008–2012
Figure 2: Total Card Spending in Emerging Economies (US$ Billion), 2008–2012
Figure 3: Key Growth Drivers of Loyalty Programs
Figure 4: Regulatory Trends and Developments in Retail Banking Loyalty Programs
Figure 5: Operational Challenges and Opportunities in Loyalty Programs
Figure 6: Snapshot of Changing Consumer Preferences
Figure 7: Loyal Program Framework in Multichannel Banking
Figure 8: Loyalty Program Design by Customer Segment
Figure 9: Merchant-Funded Loyalty Program Adoption by Country
Figure 10: The Merchant-Funded Loyalty Program Value Chain and the Role of the Service Provider
Figure 11: Loyalty Program Framework
Figure 12: Revenue Generation and Cost Reduction Strategies
Figure 13: Key Technological Trends and Impact Assessment on Loyalty Programs
Figure 14: Customer Targeting Strategies Framework
Figure 15: Challenges Faced and Best Practices Adopted by Retail Banks
Figure 16: Loyalty Program Offerings by RSB, 2011
Figure 17: Snapshot of Citi’s Loyalty Program Mobile Application
Figure 18: Loyalty Program Offerings by Citi in Collaboration with Best Buy, 2011
Figure 19: Total Relationship Banking Loyalty Program Offered by Union First Market Bank
Figure 20: Alpha Bank’s Loyalty Program Through POS
Figure 21: Barclays Bank’s Reward Program Through Low Cost Banking Channels, 2009

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