10 Things to Consider Before Adding a Card Rewards Program
Rewards programs have emerged as one of the single most effective ways to reach consumers and influence their payment choices and purchase behaviors. For generations, consumers have been able to save box tops and other proofs of purchases and exchange them for tangible rewards. Rewards programs operate much the same today, though requiring much less effort than collecting box tops or soup labels. Today they have the benefit of communicating through convenient electronic mediums to the masses and can expect high levels of participation along with cost effective results. It sounds simple. But before you add a rewards program to any of your programs or service offers, there are a several basic considerations you must review. 1. Program Purpose: When deciding on a rewards program, you always have to look at the needs and expectations of members, directors, staff and potential vendor partners. The main reason a credit union adds such a program is to bring focus to a product, create enhanced activity levels, retain loyal members and to reward them for that loyalty. For the card business this means you want to acquire more cards, increase the number of transactions, raise balances and generate more revenue without having to add staff or increase net expenditures. 2. Market Analysis: Once you've decided you want to consider adding a rewards program, you should take a look at the community and field of membership you serve. What do your competitors offer, if anything? Is it a merchandise rewards program or a travel program or both? What's the consumer equation, "What do I have to do, to earn what, over what period of time ?" 3. Financial Responsibility: If you've decided to move forward, the most important thing to remember about a rewards program is that it must be financially responsible. That's easily defined as living within the funding that the business earns. What do you earn from the lift you get and does it pay the bills, that's the question. This is achieved primarily in three ways: * Float (the time between when the desired purchase or account activity happens and that point in time when you have to pay for the award earned): You can expect participants to set goals and upgrade for better awards. Goals are set and as they are attained, higher goals are set. It is not unusual to see only a small percentage of points earned the first year to be redeemed that year. As the program grows to a maturity level you will have the benefit of having expensed the cost of future redemptions but still have the funds available for your own purposes. * Breakage (the percentage of potential redemption never realized, points earned but never redeemed): A well-structured rewards program makes redemption readily available, but is not structured to encourage and focus on redemption. Your offer must be appealing and even compelling to the member, but you can outstrip you funding by going overboard in communicating redemption opportunities. To encourage redemption can significantly increase program costs. A program should allow members to place gift orders via mail and on a secured Web site. But, you should not accept phone, fax or e-mail orders. Travel should mirror a travel reservation experience and use toll-free phone orders. * Cost Per Point (the cost to the financial institution per point redeemed): A responsible program manages to a fixed cost per point. This assists in managing and understanding potential expense liability. This is a most critical area. History shows that a high cost per point redeemed can reduce your return significantly. It's also important to note that programs with a very low cost per point redeemed are doomed to failure. Stay away from vendor programs that are heavily loaded with promotional opportunities for your members to buy the vendor's goods and services. 4. Ease of Administration: A strong rewards program should run without the need for additional staff. When a credit union enrolls your vendor should send you material that explains every aspect of the program and how the scoring software system works. It should contain a section on frequently asked questions, contact numbers and a full report section. Then, each month, you should receive in-depth reports on everything from member activity to your expense liability. 5. Awards Mix: A full range of gift selections should be offered. This assortment is especially critical to controlling the program costs as merchandise items should redeem at total delivered costs of less than 100 basis points. Travel costs are significantly higher. The mix between merchandise and travel awards determines the final cost per redeemed point. Awards should be top-quality, brand name merchandise and travel; have guaranteed pricing in place for at least a year at a time; and come with a guarantee. 6. Point Expiration Options: Defined as rolling off or canceling unused points after a defined period on a first-in, first-out basis, aging is an important cost containment program feature. The program should allow the credit union to choose among a set of time periods that best meet your goals. Those expiration choices should at least include choices to expire points after 24, 36, 48, 60 or 72 months. 7. Program Rules: A rewards program should be built on program guidelines that are designed to maximize results, minimize costs and limit liability and exposure. A set of program rules should be published for all cardholder accounts via insert, Web site and redemption forms. They should clearly state the terms and conditions of cardholder participation and protect against misuse or abuse by members. 8. Marketing and Promotions: Your rewards program should be promoted to each member through statement messages, inserts, lobby posters, table tents and other promotional items. Members should receive a catalog of awards at least once a year with clear communication of points expiration dates provided. Many rewards programs are moving toward restricted-access Web sites that members can access, and which allow program administrators to add, delete or update reward program items at will. 9. Member Service: When you or your members have questions about the rewards program or want to redeem points for awards, it is important to have trained operators standing by to answer toll-free telephone numbers during normal business hours. Also, it is a benefit to have a rewards web site with shopping cart capabilities. 10. Proven Results: Last, but certainly not least, the rewards program that you select should have a proven track record. Look at the life of the program, the people responsible for managing it and the company they represent. Look at the average redemption rate, cost per point redeemed and how wide an assortment of awards is available. Ask peers what their results were. Ask your vendor partner for the names of their successes and the less than optimum programs.