Is your business strategy driving your rewards strategy?

Credit unions create rewards programs for a variety of reasons, from attracting and retaining customers to driving debit and credit card use to simply checking a box.  While most have very specific goals in mind with such a program, the overall program design tends to be both tactical and narrow in focus. These programs very often fail to achieve their full potential.

Reasons for failure can vary.  Some customers report lack of effective marketing.  Others believe the programs can be too hard to use or that they do not deliver enough value to participants.  We believe the real root causes are much more fundamental than that and start much earlier than choosing a vendor or approach.  

1. Many credit unions lack a rigorous customer and product engagement strategy; and

2. Too often there is only a cursory understanding of Incentives and Behavior Change Theory.

Further, the industry’s foray into merchant funded rewards programs was largely a failure.  Why? These institutions were unwilling or unable to invest in a program or system. With a real understanding of the strategy and profitability, institutions can justify spending money to make money.  Without that? Well … you get what you pay for.

Community financial institutions that can articulate their customers and segmentation have a clear advantage, but all too often they lack a good analytical or market-based conception of who their retail customer and what behavior they want to drive.

The reality is nearly ALL business is about incentives. Credit unions that understand this look at the world in a very different way from those that don’t.  Want to drive low cost deposits? Want to engage millennials? Want to drive improve retention of your most profitable accounts? Want to increase the number of products purchased in your target segments?

The difference we see between tactical and strategic thinking in this process are stark:

• Tactical Thinking: We are sometimes told by institutions that their primary goal for a rewards program is to drive interchange fee lift and to do it at the lowest possible cost.  We know these programs too often will fail – not because programs cannot drive those economic goals, but because the basic goal articulation betrays the lack of rigor behind the project.  You cannot simply check a box and nothing (including driving interchange) is ever free.
• Strategic Thinking: Consider a different institution that has assessed its market and competitive placement; determined which customers, products, and activities are profitable; and thoughtfully developed approaches to each that utilize incentives to drive behavior.   These programs are better integrated, create better results, and often establish a platform for long term growth and capabilities for the instituting. We see these institutions drive substantially better results in the short and long run.

Credit unions that start with business strategy and that build a discipline and understanding of incentives can see a step change in performance.  Too many today choose programs tactically, deploy them tactically, and never see the programs achieve their full potential. The key to achieving more strategic and game-changing results from these programs is to be more fundamentally strategic and to better understand how incentives drive behavior.