By Marti Beller, Affinion Loyalty Group

Every few years, the financial services industry is prompted to rethink its approach to managing customer relationships. In today’s economic climate, the days of “wide-net” customer acquisition tactics are permanently on hold, and it’s time to look more closely at what the concept of customer engagement truly means in this new marketing era. For most companies, today’s customer engagement initiatives aim to solve one of the oldest problems in business: increased profitability from a shrinking viable customer base.

As with any challenge, there’s an opportunity to reinvent traditional approaches, and there’s nothing more traditional in marketing that the four Ps: product, price, place and promotion. With marketing purse strings tightening and institutions fighting to maintain a foothold among their current customers, layering the traditional marketing mix with a new set of four Ps can enhance engagement strategies to retain long-standing relationships as well as acquire new profitable customers.

Perspective: Use Your Data.

Your current customer data will prove powerful when analyzed in a new way and can help generate marketing strategies in an accelerated fashion.

We’re all familiar with the 80/20 rule, which dictates that 20 percent of customers drive 80 percent of revenues. Research shows that among consumers, 17 percent actively join and participate fully in rewards programs. The key to a successful program is to identify this profitable group and engage them according to their unique preferences. Equally important is engaging those segments that are receptive to your offering but haven’t recognized the value. Understanding the demographics and behaviors of your customer base — as simple as it sounds — can provide insight into marketing strategies that activate customer spend, create incremental revenue and reduce marketing waste.

Perspective in practice: A credit card portfolio with more than 400,000 members was struggling to engage its customers to actively spend on their cards. Many cardholders had been inactive for more than 24 months yet had still maintained an open account. In an effort to drive usage within an active (open) segment of the portfolio, a targeted direct mail piece was distributed highlighting the variety of reward offers within the program. The mailing also enticed consumers to spend through targeted incentives for attaining specific levels of spend activity during the promotional period.

The target audience was segmented into four test cells along with a control group to test the effectiveness of four levels of incentives. A series of five direct mail pieces included straightforward messaging that targeted the customers based on  segmentation and demographics. The impact of the promotion proved to be lasting, with more than 85 percent of activated card members continuing to use their cards following the promotional period.

The average cost of incentives per activated account was less than $2.50. The incremental spend generated from the promotion was sufficient enough to recoup the entire cost of the direct mail piece as well as the incentives within just three months. The average response rate was six percent across all test cells inclusive of control group, which is well above the industry average of approximately one to two percent for direct mail.

Purpose: Know Your Brand.

During times of extreme uncertainty, understanding your brand in order to promote and position it correctly to the right segment of customers will help create loyalty and reassure risk-averse customers. Start by understanding how your brand promise resonates with the most attractive segments of your customer base, which can be done through activities such as focus groups, surveys or customer forums. Then, capitalize upon that information to support optimized customer behavior and generate strong emotional attachments to your brand.

Within the loyalty sector, many consumers are looking to utilize their points or miles to gather the most value possible through their redemption options. Loyalty program owners who understand consumer trends and analyze current program offerings are better equipped to create program functionality tailored to consumer demand where appropriate.

Purpose in practice: As capacity shrinks, we’ve seen airline miles become more difficult to redeem for flights. As a result, customer satisfaction has decreased with only 48 percent of program members reporting overall satisfaction with their frequent flier rewards. A top U.S. airline recognized the need to further strengthen its brand promise in its loyalty program.

The airline anticipated the consumer need to increase the utility of frequent flier miles, and proactively developed functionality to allow consumers to redeem items with a combination of miles and dollars. This split payment functionality allows the airline to maximize the value of its miles program and further award attainability while reducing its overall cost per mile.

While the airline’s customers can choose to redeem with miles only or with any combination of miles and cash, the airline itself benefits from decreased liability and increased customer engagement by making rewards more attainable to its customers. In the first 30 days of this split payment functionality, the airline saw an increase in redemptions by 35 percent over the forecasted activity, while total client liability for those items redeemed using split payment decreased by 22 percent.

Path: Identify Your Strategic Direction.

Shrinking resources demand renewed focus on consistent marketing practices. In a sea of uncontrollable variables, know the path you’re going to follow and understand the importance of measuring against goals along the way. To use an old adage, measure twice and execute your tactics once.

Define the metrics that are most important to your organization, from the value of a lifetime customer to return on investment to acquisition or retention goals. Set a clear bar by which to measure against these metrics, and develop marketing and product strategies to reinforce these areas of measurement.

Path in practice: Many organizations seek incremental revenue to create a stronger financial foundation. Merchant-funded shopping is one way to realize additional revenue in return for driving consumer spending toward specific merchants at no cost to the issuer.

Knowing that 2.5 percent of credit and debit transactions will be part of a merchant-funded program by 2010, and that $64 billion of total purchases will take place within merchant-funded reward programs by that time, one top 10 financial institution launched a merchant-funded earnings program, available both online and offline. From day one, the strategy included methods for measuring the program’s success.

The merchant-funded program was developed to include more than 1,000 relevant merchants within an online mall, which was branded to the financial institution for a seamless customer experience. In addition, customers could gain bonus earnings through in-store shopping at participating merchants. The client received 100 percent of commissions in which the bonus earnings were funded.

During the launch of the program, and the marketing surrounding it, customers showed higher spend frequency and total spend at those merchants offering bonus rewards versus those that didn’t (which were placed into the control group). Total overall spend was proportionate to the amount of bonus awarded; customers who shopped at merchants with three and five percent bonus earnings had a higher overall spend than those in the control group. Because the client had set up the right metrics to measure against, it could rely on the accuracy of the overall program to determine success of the offerings to consumers.

Proliferation: Test and Learn.

Yesterday’s overachieving results are today’s baseline given the demand for ever more stringent metrics. Analyze data wisely and apply findings prudently to meet evolving consumer needs across a variety of channels. Use those channels creatively to test strategies and understand which approaches work best to gain customer involvement with your program. Redistribute your findings through the lens of your customers to continue to refine your practices.

Proliferation in practice: Recognizing that involvement is a precursor to customer engagement, a top 10 financial institution sought to design tools to improve the value proposition of embedded credit card enhancements.

A robust educational Web site was developed to inform customers of enhancement benefits specific to their card and to facilitate the claims process. Customers could find important information including terms and conditions, answers to frequently asked questions, downloadable claims forms and customer service contacts.

A survey assessing cardholders’ intentions was deployed, finding that 92 percent of respondents were very likely to continue using their card knowing their benefits, while 72 percent were very likely to use the benefits associated with their card.

By leveraging existing channels to test and enhance engagement among customers, the financial institution raised product awareness and perceived value while involving customers in the value proposition.

Implement the Four Ps of Customer Engagement

True customer engagement is not the result of a single action — it’s an ongoing effort to strategically layer each of the new four Ps on top of the traditional marketing mix and use this pairing to create and enhance relationships with your customers. Create a cohesive strategy in which all components of your organization and program  continually complement and evaluate customer understanding and optimization, delivery of your brand promise and customer satisfaction.

Understanding and meeting your customers’ changing needs over time to develop and position your products in ways that align with their best interests are sound ways to keep them engaged while driving usage within your program. Engaged customers increase profitability and sustain programs no matter what the current trend or environment happens to be.

About the Author:

Marti Beller is president of Affinion Loyalty Group, a global leader in innovative marketing solutions. She is a veteran in the loyalty industry with more than 14 years of experience developing and managing loyalty programs for some of the most recognizable consumer-facing brands.