5 Ways Point-Based Rewards Programs Beat Cash Rewards Every Time
(Buzz Points' Daisy Olivera shares the many advantages of Point-Based programs, compared to their cash-centric counterparts)
It is very easy for your customers as well as you to become overwhelmed and confused on what to offer – point or cash rewards? Cash back and point rewards each have their own advantages. However, point rewards offer the chance to give your customers extra value out of your rewards program. It also facilitates an environment giving your customer feelings of being more engaged when using a point-based rewards program. Your customer will perceive this as a higher value and are getting more “bang for the buck!” Here are 5 ways that a point-based bank reward program beat cash rewards every time…
1) Points are a relationship investment, cash back is transactional
As an FI you wonder “why do we need a rewards program anyway?” The answer is simple, you want to attract, retain and reward your customers for being loyal and using your products. Consumers have so many banking options today and if you want to stand out and build a relationship with them there is no better way than to build a program that does just that! Most programs that are centered on Cash-back are very transactional and all the customer does is click a button to redeem their cash and they are done. While the smaller, customer focused programs who offer various point based reward options incent their customer to think about what they want to spend their points on, how to earn more points for a particular reward and the excitement that comes from using points for a tangible purchase that they might not have made. Financial institutions have to remember that one program does not fit all customers. It is critical for institutions to offer reward cards AND cash back cards. Buzz Points’ platform supports both types of programs for this exact reason.
2) Humans value the potential for an award more than the award itself and Redeeming for an award creates its own kind of member excitement!
There is something exciting about building enough points to redeem the prize! Financial institutions need to turn their points-based rewards program into a game that will encourage customers to use the program more. Think about taking your child to an arcade and the value placed on the tickets they earn for playing games. They will find the game that rewards them the most tickets and will keep playing it to earn the most tickets possible. What happens next, they are extremely excited go to the prize counter with their tickets and chose different little prizes.
Earning points for different transactions is very similar. Everyone likes the excitement of doing something for a reward and then getting to choose a prize that we might not want to spend our cash on. This places more value on the potential for a reward more so than the actual prize we get. It sure is exciting getting to pick the prize! Not to mention the excitement of using points to enter into a contest or sweepstakes that your customer chooses to participate in. Buzz Points has developed and successfully executed many programs like this through a journey of campaigns which engage the customer to make a purchase and earn points to redeem for a contest or sweepstakes. The customer becomes excited for their chances to win and this alone drives engagement and loyalty to the FI and the program.
It appears that people will work harder for “a trip” that is valued at certain price than the actual money! This is the idea that the unknown taps into the imagination, and as a result has a more “bang for the buck” than the known rewards has. In general, people want what the money might be able to buy them -a reward and not the money itself that would be used for more practical every day purchases.
3) Point awards can be directed (e.g. to small businesses, charities, etc.)
One of the appealing aspects of a rewards program, is that a customer gets to direct what they want to use their points for and when. There are many situations where they may want to give back to their community but may not have the cash on hand to spend. That is why point-based bank rewards look and feel more like they are building a relationship, not just completing a transaction. The financial institution needs to understand their customer and identify the values and desires of their target audience (their customers) — in doing so, the FI can encourage customer loyalty by targeting those characteristics. While any FI can offer a program, some FIs will find greater success in resonating with their customers by offering value in way unrelated to money (cash rewards) by offering point awards– this will help build relationships as well as a unique connection with their customers that will foster trust, engagement and loyalty.
A point based system can be structured to work with local charities and businesses where the FI can give their customers the ability to use their points towards donations to the local community or set up earn-more locations at local businesses. The FI can also match their customers’ points or increase the value of the points if they chose to donate or shop at a local business. There are so many simple ways to structure point awards that foster relationship building and engagement instead of just giving cash back.
A point award can create things like unique experiences and donating to charities which can be tailored to seriously resonate with customers. For example, targeting certain things to millennials like streaming credits might create an excitement different than other groups. This allows the customer to “express” themselves through their redemptions. If they are mission driven, they redeem for a donation or for a cause, for example.
This also creates an opportunity for the Financial Institution to express themselves as well. They can choose rewards that “speak to” their audience they want to acquire. They can focus on local, small businesses, being socially responsible or create distinct categories for different situations, causes or times of the year.
4) Enabling point redemption for bank fees and services is its own kind of reward.
Financial Institutions should want a holistic approach and next generation rewards program where they can customize rewards to enable their customers to use point redemptions for all of their banking fees and services. This will drive growth and revenue for the FI as their customer looks at their products and services instead of shopping the market.
This approach creates an amplifier. The customer can earn points for all of these activities and then redeem and spend their points earned for even more banking benefit. Keeping it all in the system with your institution encourages the customer to resist the urge to spend or bank in anyone else’s system even with other offers out there. The customer will want the most value and “bang for the buck” that the Financial Institution is offering for their services.
5) Savings from breakage can be used to boost reward levels even more for your best customers.
As the FI’s ROI increases due to the rewards program activity, the savings can be used to invest in the program and boost reward levels as a strategic move in loyalty and retention efforts of your best customers. Let’s say 60% of points cardholders earn never get redeemed. That means an FI will payout $0.40 for every dollar in face value they issue in rewards. This can be a really good thing! Instead of just banking the savings, an FI could double down and offer higher rewards knowing you are targeting your loyal customers and the breakage from other customers will help pay for it.
An FI can present small rewards as a base offering for being a part of the program and then encourage customers’ card use by increasing the value of the rewards as they move up the loyalty ladder. For example, a program can be designed with different tiers, silver, bronze, gold, and platinum. The more products a customer uses with your FI and the more transactions they complete with their card, earns the customer more points and moves them to the next level. Each level can be structure to earn more and have better value redeeming their points.
Here are some program features to consider that are point based rewards that an FI can tier based on customer use:
- Redemption bonuses: Let you get more for “free” when you redeem points through their portal.
- Point transfer options: Flexible offers from partners that you can transfer points to. You can increase the value of your points by looking for deals within their partners’ programs.
- Category perks: For example, travel rewards come with valuable travel perks like primary auto rental coverage, airport lounge membership, trip cancellation and interruption insurance, etc.
If you’re trying to decide between offering cash back or a point based rewards program, think about your overall strategic goals…do you want to engage, retain and reward loyal customers or do you want one-off transactions? A program will need to have both options for their customers which will enable the FI to do so much more in driving enrollment, referrals and card usage if you engage your customers more and they feel the value of a flexible point rewards program.
The reality is that having a rewards program let’s your customers earn something in return for just being part of a program, and something always feels more valuable than nothing at all. Ultimately the program will drive customer engagement, retention and loyalty which is critical for all of our community FIs to be able to compete with the larger institutions.