How would it be if your bank said "You can bank here, but you have to withdraw all your accumulated assets by year 7 because we might not be able to return your money after that". Who would open an account with a bank that could not manage its liquidity in ratio to its customers' assets?
Reward points are treated like currency - the points value being what the financial institution is prepared to offer in exchange through its glittering rewards catalog. The points have tangible value only if they can be used to satisfy a customer's expectations. Or they will sit like an unused cash mountain within an economy, threatening to destabilize if it ever comes onto the market. If a customer is not redeeming points then it points to one of two things:
The financial institution is failing to satisfy its customer's expectations, or the customer has a higher expectation than the instituion is willing to tolerate.Wait a minute. Aren't these the same? They sound the same. Let's see how they are different.
In the first case the unused points are not valued highly enough by the customer to be accumulated to a usable degree, so they sit on a ledger. There could be billions of account with only pennies-worth of points, but to a publicly-traded institution, that represents millions of dollars of liability and less money to its shareholders. So they want to clear it off the books and increase the shareholder's value (see previous blog "If all the raindrops were shareholders and customers").
In the second case the reward points are valued higher than the financial institution is willing to commit. This means that the customer has a lofty goal, and the institution has forced a timetable to achieve that goal. I don't think this is called Loyalty Marketing. It is called "your bank has you by the short and curlies, once again."
Why is the institution worried? Because they launched a ship that one day will sink unless it bails out on customers. In other words, it is a leaky tub.
Why did they adopt the strategy? Because the short term gain is tremendous. You have all the appearance of asset accumulation - all those points appear the measure of success, popularity, frequency, loyalty, continuity. Except they have the potential to become the worst possible drain on your asset reserve. How did we, the customer get taken in that this truly is Loyalty Marketing? This is more like vote buying.Politically, it is analagous to the government promising increased social benefits throughout the country upon election and later announcing that, once you achieve retirement, they will no longer be available. Yet, because it is dealing with an intangible called Loyalty, there are deemed to be no consequences. And, as a small customer it may not throw you one way or the other.
But it does demonstrate the soft underbelly of the goals-oriented enterprise and the disparity with a customer-centric enterprise. The goals-oriented enterprise looks at the cost of loyalty acquisition against the risk of being able to manage its customer's assets. When risk is too great its sets a limit on what it is prepared to pay for customer loyalty. The customer-centric enterprise builds loyalty based on its customers values and creates a reward system that meets its customer's expectations and fulfills them. It is shocking to me how much a goals-oriented enterprise will invest in relationship and loyalty marketing, only to stab its customers, and ultimately itself, in the back when its intrinsic philosophy conflicts with its customers' true values.
