Bank Loyalty / Travel Programs

Bank Loyalty / Travel Programs EXECUTIVE OVERVIEW OF RESE ARCH FINDINGS

The following white paper outlines findings about loyalty/ travel programs at financial institutions across the United States. This research seeks to provide program managers with metrics they can use to determine the effectiveness of such programs.

Funded by:

Contents

1.

Key Research Findings

2.

Introduction

3.

Vocabulary Used

4.

Profit

5.

Metrics

6.

Member Benefits

7.

Program Start-Up

8.

Measuring Customer Acquisition and Retention

9.

Budgeting

10.

Staffing

11.

Management Support

12.

Size and Scope of Financial Institutions

13.

Loyalty Program Structure and Travel Offerings

14.

Demographics and Program Size

15.

Competitive Analysis

16.

The Value of Loyalty

17.

Summary of Findings

1.

Key Research Findings Key Research Questions Profitability: How profitable are these programs, and how can profit be measured?

Recruitment: How can financial institutions recruit new customers through these programs?

Loyalty: Can loyalty be measured? What is the value of having a loyalty/travel program?

Key Findings 39% (26 of 66) of all loyalty/travel programs are self-funded “We are a cost recovery program - I price the trip to cover all cost but mailings and marketing tools we are included on - I would say some items are taken from Public Relations.”

68% (41 of 60) of bank managers keep track of the net worth of their loyalty/travel program members, and other key metrics for determining profitability. “...our club represents 40% of our total bank deposits.”

90% (51 of 57) of respondents agree that their program results in new customer acquisition “It provides proven, tangible results from word of mouth advertising, attracting new and retaining current depositors.”

88% (49 of 56) of respondents agree that loyalty/travel programs retain existing customers “Our member numbers have grown considerably. We track growth through number of members and amount of their deposits and both are up far from expectations.”

73% (41 of 56) say other banks in their market have a travel club “It sets us apart from the competition. All banks have a checking, savings and CDs. We have an exciting program of group tours, parties, seminars and special events in addition to the standard bank products.”

Members of loyalty/travel programs • Contribute largely to the bank’s profitability (63% agree or strongly agree) • Tend to have a higher net worth (70% agree or strongly agree) • Are some of the most loyal customers (74% agree or strongly agree)

1.

2.

Introduction This Document is designed for Financial Institutions that...

• Would like to measure an existing travel program’s success and profit more accurately • Would like a benchmark to initiate a travel/loyalty program • Are eliciting approval from upper management or boards • Would like to see the club/program be successful

The Problem Financial institution customer loyalty programs are often perceived as a luxury and an additional service to customers. Although customer loyalty and new customer acquisition appear to be successful for banks with these programs, many program managers and marketing departments are unsure how to measure this success. “ Those [with] accounting backgrounds don’t see it as an asset as those who have the marketing, sales and PR mindset [do].”

The Purpose of this Paper This research is aimed at providing financial institutions with the best metrics for determining the success of loyalty/travel programs, as well as easy steps to implement and run a successful program.

The Opportunity Loyalty/travel programs can attain higher profits overall, recruit new and valuable customers, retain existing deposits and reach unparalleled levels of customer loyalty.

“I have been told by many customers, Bank X is paying more in interest but I’m staying with you because I like to go on the trips.”

Research Background The Tannery, an integrated marketing communications firm at Kent State University, conducted this research in 2012. The research team surveyed 59 bank managers across the United States who work directly with these loyalty/travel programs. They also conducted personal interviews with bank managers to learn more about their experience using loyalty program services.

2.

Response Rate We invited representatives from various bank loyalty/travel programs across the United States to participate in this research. While 454 people agreed to participate in this research, a response came in from 123 people with contact information. That list was narrowed down to 85 after screening for repeated e-mail addresses representing the same bank. Finally, 59 respondents completed the survey, giving the results you see in this document.

Respondents were chosen based on a snowball sampling method, meaning that existing volunteers for this study referred others to the survey to grow the list of respondents. No other criteria were used to identify or select respondents. This sample of respondents reflects the opinions and data collected by representatives from a diverse group of banks, as outlined later in the research document.

Follow-Up Research We conducted phone interviews and sent a follow-up survey to participants in this study. Phone calls were made only to those who provided their contact information and opted to participate in this portion of the study. Participants to be called were selected at random.

The follow-up survey was sent via e-mail to the same contacts who participated in the first part of the study. Then, 77 respondents began the survey without finishing. A total of 67 people completed the follow-up survey. Respondents were not required to answer every question. Participants were not selected for this research in any way, other than the fact that they are associated with loyalty/travel programs at banks across the United States.

3.

3.

Vocabulary Used Throughout this white paper, we will refer to the financial institutions loyalty and travel initiatives simply as bank loyalty/travel programs, with the understanding that each bank has a different name for its program. Customers may refer to these programs by a different name, and in many cases refer to the program as a club.

What term do customers typically use when referring to your loyalty/travel program?

60

52.63%

48 36 26.32%

24

19.3%

12 0

1.75% TRAVEL CLUB

TRAVEL PROGRAM

LOYALTY

CLUB

0.00% LOYALTY PROGRAM

OTHER

While 45 out of 61 respondents said customers use the term “travel club” or “travel program,” only one respondent said customers call it the “loyalty program” or “loyalty club.” Customers may refer to it as either a club or a program, but the term “loyalty” is not in their vocabulary. They typically use the word “travel” instead. The term of loyalty is utilized in most part by the financial institutions themselves as an internal reference that indicates the purpose that the program plays for the bank.

4.

Profit

4.

Trips 54% (31 of 57) make a profit directly on the trips themselves 33% (19 of 57) expect no direct trip profit, however realize a measurable profit from the loyalty program overall Only 12% (7 of 57) see no measureable profit from the trips or as a result of the program

Overall 47% (27 of 57) agree or strongly agree that their financial institutions are more profitable because of their loyalty/travel programs, while 39% (22 of 57) neither agree nor disagree.

63% (36 of 57) agree or strongly agree that loyalty/travel program members contribute largely to the bank’s profitability.

50

STRONGLY DISAGREE 40.35%

40

DISAGREE NEITHER AGREE NOR DISAGREE

30

AGREE

20

15.79%

22.81%

19.30%

STRONGLY AGREE

10 0

1.75% THEIR BUSINESS CONTRIBUTES LARGELY TO OUR BANK’S PROFITABILITY

However, profitability is not always easy to measure.

43% (24 of 56) report profitability difficult to measure 43% (24 of 56) of banks report profitability easy to measure 14% (8 of 56) of banks are neutral about the subject.

Profitability

14.29%

VERY DIFFICULT

10.71%

DIFFICULT

12.50%

14.29%

SOMEWHAT DIFFICULT NEUTRAL SOMEWHAT EASY

16.07%

5.

14.29%

17.86%

EASY VERY EASY

5.

Metrics Metrics used to assess the value of Loyalty/Travel Programs:

62.50%

Net worth of Travel Members

55.36%

Number of trips taken by members Number of members per trip

58.93%

Number of members per year

50.00%

Profitability of each trip

51.79%

Please describe other metrics used

17.86% 0%

10%

20%

30%

40%

50%

60%

70%

Respondents were able to select multiple metrics to answer this question. Other metrics used include total balance of member accounts, number of accounts per household, size of base deposit among members, satisfied travelers and positive feedback.

One example of metrics used: “Average balances per household and [break down of totals in] deposits, loans, Brokerage and Trust.�

Known Metrics: Many program managers surveyed have access to financial, participation and travel information.

We asked respondents which information they track. Here are the results: 88% (53 out of 60) keep track of the number of guests and non-members present on trips and at events.

68% (41 out of 60) retain data of total deposits or assets of all loyalty/travel program members.

43% (26 out of 60) know how many new members joined the loyalty/travel program after traveling or attending events as a guest or non-member.

56% of (35 out of 63) give customers questionnaires on trips or events.

However, only 17% (11 out of 63) solicit written feedback from customers about the loyalty/travel program in general.

6.

6.

Member Benefits Why do customers go on trips?

• Ease of Travel: someone else does the planning • Reputation: trips to destinations with friendly atmosphere • Safety: feeling of security and comfort in group atmosphere • Camaraderie: ease of making new friends or inclusion of friends and family • Reward: achieve lifelong travel dreams and goals • Affordability: group rates and special discounts passed on to program members

Why do customers join the loyalty/travel program?

• Word of mouth: friends or family tell them how great it is • Inclusion: they were invited on a trip and they want to go again • Involvement: participated in daytime event and decided to extend involvement to travel • Relationship: desire for a personal connection to the bank via loyalty/travel program • Security: trust in the bank and its mission

“It is a wonderful way to travel and make new friends, they have the time, more assets, no more house payments, no more college age children, more discretionary money to spend on travel and they love the idea they do not have to do anything but show up to travel.”

“It keeps customers happy and loyal to our bank.”

“Just last week a couple joined us on a day trip as guests, they opened an account with us, applied for overdraft protection and ordered two Visa Debit cards. All from one outing with us.”

7.

7.

Program Start-up 40% (23 of 57) agree that loyalty/travel programs can be developed with relative ease 45%

STRONGLY DISAGREE

40%

35.09%

35%

DISAGREE NEITHER AGREE NOR DISAGREE

29.82%

30% 25%

AGREE

22.81%

20%

STRONGLY AGREE

15% 10% 5%

7.02%

5.26%

0% IT IS EASY TO IMPLEMENT BANK TRAVEL PROGRAMS

Requirements for Membership Many financial institutions – 76% (50 out of 66) – set minimum age and deposit requirements for membership in these programs. This often entices older customers with a higher net worth to keep their money in the bank. By setting these guidelines from the beginning, bank managers can predict and quantify the value of each club membership.

Examples of Requirements: • Age 50+ • Must open an account with a minimum $5,000 deposit • Minimum deposit of $10,000 or $15,000 • Combination of age and deposit requirements • Choice of minimum deposit amount based on account type 76.9% (30 out of 39) respondents say they have minimum age requirements (typically 50+).

One respondent described the age requirements as “50 years old or better.”

8.

“When my bank was bought out... a new and specific type of account was required for membership. One Loyalty Club member moved over 2 million dollars to the required account.”

8.

Measuring Customer Acquisition and Retention “...our club represents 40% of our total bank deposits.”

50

STRONGLY DISAGREE DISAGREE

40 43.86%

48.21%

45.61%

39.29%

30

AGREE STRONGLY AGREE

20

10 0

NEITHER AGREE NOR DISAGREE

8.93%

8.77% 0.00%

1.75%

BANK TRAVEL PROGRAMS HELP US ACQUIRE NEW CUSTOMERS

0.00%

3.57%

BANK TRAVEL PROGRAMS HELP US KEEP THE CUSTOMERS WE HAVE

Customer Acquisition 89.5% (51 of 57) agree that their program results in new customer acquisition “It is actually very common to have someone come in to open a new account with us because a friend talked them into becoming a member so they could travel together.”

“It provides proven, tangible results from word of mouth advertising, attracting new and retaining current depositors.”

Customer Retention 87.5% (49 of 56) agree that loyalty/travel programs retain existing customers “I had one gentleman close his CD because he could get better interest at another location. His wife marched him right back in and made him redeposit the money into a new CD with us because she didn’t want to lose her status of being a club member and [receiving] travel privileges!”

“Our member numbers have grown considerably. We track growth through number of members and amount of their deposits and both are up far from expectations.”

9.

9.

Budgeting 39% (26 of 66) of all loyalty/travel programs are self-funded Loyalty/travel program managers were asked to select only one category to represent the majority of their program budget. Those who said “other” indicated that they use a combination of the options listed.  #

%

1.

Marketing

Answer

Response 18

27%

2.

Business Development

1

2%

3.

Self-Funded

26

39%

4.

Line Items within the Overall Bank Budget

16

24%

5.

Other (please specify)

5

8%

Total

66

100%

39% (26 out of 66), the highest percentage of respondents, reported their programs as self-funded.

“We are a cost recovery program - I price the trip to cover all cost but mailings and marketing tools we are included on - I would say some items are taken from Public Relations.”

27% (18 of 66) of loyalty/travel programs are budgeted out of Marketing 24% (16 of 66) of loyalty/travel programs are stand-alone line items within the financial institution’s budget Only 2% (1 of 66) are considered Business Development

10.

10.

Staffing Number of staff members dedicated to Loyalty/Travel Programs?

52% (29 of 56) of loyalty/travel programs have one dedicated employee

4 (1.79%)

5 (1.79%)

3 (5.36%)

More than 5 (10.71%) 1 (51.79%)

2 (28.57%)

80% (35 of 56) of loyalty/travel programs operate with 1 or 2 employees 13% (7 of 56) of loyalty/travel programs operate with 5 or more employees

Work Responsibility by Percentage 76-99% (19.40%)

Less thank 25% (11.94%)

25-50% (14.93%) 100% (all) of my time is dedicated 51-75% (14.93%)

38% (26 of 67) of loyalty/travel program directors list it as 100% of job responsibility 34% (23 of 67)of loyalty/travel program directors list it as 51% -99% of job responsibility Only 12% (8 of 67) list it as less than 25% of job responsibility Loyalty/travel program managers spending less than 100% of their time on the program report inclusion in reception work, customer relations, marketing, community outreach, human resources, and managerial roles.

11.

11.

Management Support “Upper management feels the travel club is an asset to the bank.”

– 88% (50 out of 57) say yes 100

87.72%

80 60 40 12.28%

20 0

Yes

No

77% (43 out of 56) say upper management supports the travel programs at their respective financial institutions.

50

44.64%

DISAGREE

40 32.14%

30

NEITHER AGREE NOR DISAGREE AGREE STRONGLY AGREE

20

14.29%

10 0

STRONGLY DISAGREE

7.14% 1.79%

“They [members of management] realize the great public relations that our program affords the bank. They appreciate the many new accounts opened for the opportunity to travel with us.”

“Board of Directors, Shareholders and Upper Management fully support the program and are up to date and aware of program offerings and results. Club members frequently express appreciation and satisfaction to upper management and [Board of Directors] through written and verbal communication.”

12.

12.

Size and Scope of Financial Institutions Financial Institutions with Loyalty/Travel Programs

by Number of Branch Offices 53% (30 of 57) operate 1 - 10 branch offices 37% (21 of 57) operate 11-25 branch offices 9% (5 of 57) operate 26+ branch offices

1-5 (28.07%)

0 (1.75%)

More than 25 (8.77%)

5-10 (24.56%)

11-25 (38.84%)

Loyalty/Travel Programs by Years in Existence 73% (41 of 56) of respondents say their program has existed for more than 10 years

More than 10 years (73.21%) 1-5 years (12.50%)

6-10 years (14.29%)

“Our program is 39 years old. It is such a part of who we are. Our president realizes it is a source of loyalty and since it is self sustaining not an expense to the bank.�

13.

Loyalty/Travel Programs by Competing Banks 73% (41 of 56) say other banks in their market have a travel club. “In our city there are multiple banks offering the travel program, and many of the customers travel with all banks, to be able to choose which trip they want to go on.�

Number of competing banks in those markets with a loyalty/travel program: 70

60

59.52%

50

40 28.57%

30 20

11.90%

10

0 1- 2

14.

3- 5

MORE THAN 5

13.

Loyalty Program and Structure Offerings Travel Club as part of a Loyalty Program “Is your travel program part of a larger loyalty program within your bank?”

– 51% (29) yes, 49% (28) no

Yes (29)

No (28)

Travel Offerings 89% (51 of 57) of loyalty/travel programs offer both domestic and international travel 100% (57 of 57) of respondents say their bank offers day trips and outings

100

89.47%

80 60 40 20 0

8.77%

Domestic

1.75%

International

Both

“We find that we have new customers join us every time we offer an amazing ‘long’ trip. We charge a non-member fee and so people will bring money in to avoid the fee and will travel with us repeatedly once they start.”

15.

14.

Demographics and Program Size Demographics of Loyalty/Travel Program Members by Age The majority of bank customers who use travel/loyalty programs are 65+

100

73.800

80 60 40

23.029

20 0

0.157

Younger than 30

1.200

30-39

40-65

Older than 65

84% (48 of 57) of respondents are using the loyalty/travel program to find new Boomers. About 23% of their current members, on average as reported by program directors, represent this worthy demographic.

Although only 1.4% of loyalty/travel program members are under the age of 40 as reported by survey respondents, the majority of programs set minimum age requirement for membership. New members must often be “age 50 or better.”

How to Recruit New Boomers 60% (38 out of 63) of programs build relationships with boomers’ parents or other family members.

57% (36 out of 63) send marketing materials, such as newsletters, to prospective new members.

According to bank managers, these customers • Contribute largely to the bank’s profitability (36 of 57 agree or strongly agree) • Tend to have a higher net worth (40 of 57 agree or strongly agree) • Are some of the most loyal customers (42 of 57 agree or strongly agree)

16.

STRONGLY DISAGREE

DISAGREE

NEITHER AGREE NOR DISAGREE

AGREE

49.12%

50 40.35%

40

30

36.84% 36.84%

22.81%

21.05%

19.30%

20

15.79%

14.04% 14.04% 10.53%

10 0

STRONGLY AGREE

1.75%

1.75%

1.75%

THEIR BUSINESS CONTRIBUTES LARGELY TO OUR BANK’S PROFITABILITY

14.04%

THEY ARE MORE LOYAL THAN CUSTOMERS WHO DON’T USE OUR TRAVEL PROGRAMS

THEY HAVE A HIGHER NET WORTH THAN CUSTOMERS WHO DON’T USE OUR TRAVEL PROGRAMS

Size of Loyalty/Travel Programs by Membership Numbers 35% (20 of 57) of loyalty/travel programs have 2,500 or more members 33% (19 of 57) of loyalty/travel programs have 1,001-2,500 members

2,501- 5,000 (21.05%)

Less than 500 (12.8%)

501- 1,000 (19.30%) 1,001- 2,500 (33.33%)

More than 5,000 (14.04%)

17.

“Loyalty/travel programs are a good fit for our brand.”

- 92% (51 of 56) agree

STRONGLY DISAGREE

DISAGREE

NEITHER AGREE NOR DISAGREE

AGREE

70 62.50%

60

50

40 28.57%

30 20 8.93%

10

0

0.00%

0.00%

BANK TRAVEL PROGRAMS ARE A GOOD FIT FOR OUR BRAND

18.

STRONGLY AGREE

15.

Competitive Analysis Do other banks in your market have a loyalty program with travel offerings?

- 73% (41 of 56) say yes If yes, how many? #

Answer

Response

%

1.

1- 2

25

60%

2.

3- 5

12

29%

3.

More than 5

5

12%

Total

42

100%

How long has your travel/loyalty program been in existence for? #

Answer

Response

%

1.

1- 5 years

7

13%

2.

6- 10 years

8

14%

3.

More than 10 years

41

73%

Total

56

100%

The majority of loyalty/travel programs have existed for more than 10 years. One program manager explained that when a loyalty/travel program disbands, the aftermath affects not only that bank, but the others in its market as well. Customers who were members of the loyalty program often switch to a different bank to continue receiving travel benefits. It is also common for the program manger to get several job offers from other banks planning to implement these programs. Opportunities arise for banks looking to implement the new program, while the bank that’s disbanding its program takes its losses.

19.

16.

The Value of Loyalty The research uncovered metrics that can quantify the success of an existing program, as well as be utilized as benchmarks for those financial institutions interested in development of a new loyalty/ travel program.

However, loyalty can be difficult to measure. Financial institutions with loyalty/travel programs can utilize various metrics to gauge return-on-investment, but many rely on a more gut level feeling to measure the value received through customer loyalty.

One program manager explained this intuitive “measurement” during a personal phone interview. She likened the value of loyalty programs to that of a golf outing with a client. You can’t put a price on the business relationship, but you know it’s there. That’s the issue many banks struggle with in their decision to initiate a loyalty/travel program.

Relationships, while difficult to measure, are essential to the success of community based banks. These relationships are especially important when family members are involved. As one loyalty/travel program manager explained, “many heirs keep assets with the bank becausethey feel personally connected to the company and its mission.” In this case, family members would often approach the loyalty/travel program manager at the funeral to discuss financial matters. The value of these relationships, while they can be measured in some ways, might be considered priceless.

Loyalty/travel programs provide the perfect opportunity to build lasting relationships with bank customers.

In fact, 100% of respondents to the question “which of the following do you currently do?” (63 out of 63) say they talk personally with customers on trips/at events. Program managers have the opportunity to pass their services – both in bankingand in travel – to the next generation of loyal bank customers.

Loyalty/Travel Programs help customers feel more connected to the bank.

45.61% 47.37%

50

STRONGLY DISAGREE 35.71%

40

21.43% 14.29%

20

20.

AGREE STRONGLY AGREE

5.26%

10 0

NEITHER AGREE NOR DISAGREE

26.79%

30

DISAGREE

1.75%

1.79%

0.00%

OUR CUSTOMERS FEEL MORE CONNECTED TO OUR BANK BECAUSE OF THE TRAVEL PROGRAM

CUSTOMERS HAVE TOLD US THAT THE MAIN REASON THEY BANK WITH US IS FOR THE TRAVEL PROGRAMS

Loyalty/Travel Programs keep customers from switching to a different bank –66% (37 of 56) of program managers agree

STRONGLY DISAGREE

45

DISAGREE

35.71%

40

30.36%

35

26.79%

30

NEITHER AGREE NOR DISAGREE

25

AGREE

20

STRONGLY AGREE

15

7.14%

10 5 0

0.00%

Bank travel programs keep our customers from switching to a different bank

Many program managers receive stories and “thank you” notes from customers explaining that the loyalty/ travel program is the main reason they stay at the bank. While it can be difficult to measure the value of loyalty, program coordinators get a sense of its value everyday when they go to work.

Attaining and Measuring Profit The measurement of profit seems easier to gauge for banks that derive a direct profit from the travel portion of a loyalty program. Response shows that while banks feel their loyalty programs are financially beneficial, it becomes more difficult to define as an overall marketing tool.

21.

17.

Summary of Findings Loyalty/travel programs help many financial institutions maintain and build profit, recruit new customers and retain loyal customers with a higher net worth. These benefits – profitability, new customer acquisition and customer loyalty/retention – can all be measured.

Members of loyalty/travel programs • Contribute largely to the bank’s profitability (63% agree or strongly agree) • Tend to have a higher net worth (70% agree or strongly agree) • Are some of the most loyal customers (74% agree or strongly agree)

Bank loyalty/travel programs afford added value and profit for financial institutions across the country.

The majority of respondents – 73% – reported that other banks in their market have loyalty/travel programs that customers have come to expect. These programs are not exclusive to banks of a certain size, with 14% having more than 5,000 loyalty/travel program members. These “travel clubs” create strong and lasting relationships between bank personnel and the customers they serve. Such relationships often extend to friends and family as new customers are recruited through personal connections. Limits on age, deposits and other financial factors ensure that new members bring value to the bank.

Many financial institutions have found success in these programs with no added cost. By starting and maintaining a loyalty/travel program that is self-funded or fits into existing budgets such as marketing, financial institutions can capitalize on these investments.

Loyalty/travel program managers already know the value of their loyalty/travel programs through metrics such as total member deposits and number of new members per year. The research uncovered additional opportunities for measuring success by tracking additional data and requesting feedback from program members.

Overall, this research found that program directors and members of upper management look upon loyalty/ travel programs favorably. Those who do not support loyalty/travel programs often seek numbers to validate the success of such initiatives. The research has uncovered numerous ways to track and measure the value of these programs. One finding remained constant, whether found within stories or validated by data: bank travel/loyalty programs work.

Funded by:

22.

Questions about this study, please contact: Teresa Burton 800- 628- 0993 tburton@grouptravelfamily.com