Today’s banking industry is a highly competitive market, with not only brick-and-mortar banks, but a whole host of online-only banks coming into the market in the past few years. It is now more important than ever for banks to consider how they set themselves apart from their competitors with competitions, promotions, rewards, and loyalty schemes being some of the key methods a bank can use to stand out from the crowd.
Today we’ll break down the importance of an engaging and effective promotion, along with tailoring those promotions towards specific customers to ensure all possible customers are reached and represented.
Types of Promotions and Rewards Offered by UK Banks
At present, UK banks are using a variety of promotions and rewards to entice customers over to their services and to choose them above and beyond other banks. Some of the common types of promotion we find are:
- Cashback: Cashback rewards are a simple promise of returning between 1% and 5% of a transaction’s value to the customers who sign up to use certain methods of payment offered by the bank. Be they debit cards, credit cards, paying online bills and so forth.
- Loyalty Points: Some banks offer loyalty reward points which are collected over time for using their services and are redeemable for gift cards or travel vouchers.
- Sign-Up Bonuses: A very common reward promotion is to offer sign-up bonuses. This can be waiving fees for a certain length of time on certain accounts, offering a cash reward for switching to a new bank, or a cash reward for referring friends and family to switch to the same bank.
- Introductory Rates: Similar to sign-up bonuses, when a person opens a new account or switches to a new bank, they can be offered 0% interest rates for the first six months on loans or credit cards.
Using Competitions, Promotions, and Rewards to Attract New Customers
As we can see, there are many varieties of rewards and promotions already on the market. By offering sign-up bonuses, loyalty points, cash back or outstanding introductory rates, new customers can, and will, be encouraged to switch providers or open a new account. These methods and many more can be used to encourage new customers to sign up for your banking services; the question becomes, how can you effectively target your new customers and offer the rewards and promotions that will suit them best?
How to Tailor Promotions and Rewards to Different Customers
As banks reach all demographics, it is more important for banks than most businesses to consider tailoring rewards to the correct demographic. Here are a few examples:
- Students: Students often need benefits such as having no overdraft fees to ensure they always have access to money whilst waiting on student loans to come in. An alternative or complementary promotion can be cashback rewards on purchases made at bookstores or when purchasing textbooks.
- Young Professionals: This demographic could benefit from loyalty points that can be redeemed for gym memberships or travel. Offering sign-up bonuses for opening a new account and linking it to their payroll can benefit both the bank and the young professional too.
- Retirees: Banks can offer cashback rewards on groceries or fuel purchases for people who are retired. Travel insurance and reward points that can be redeemed for holidays will also be beneficial and enticing to those in retirement.
- Small Business Owners: Bonuses tailored towards cashback rewards for business purchases, introductory rates on opening business accounts, or discounts on accounting or legal services would all be perfect for a small business owner.
As well as tailoring the promotions to each customer base, banks can also consider how they market to each customer as well.
Students and young professionals are more likely to respond to ads seen on social media and recommendations from social influencers. Whereas retirees may still be more likely to respond to a letter in the post and direct mail marketing.
Using Promotions and Rewards to Engage Existing Customers
Whilst it is important to attract new customers, there is not much benefit if you neglect your current customers and allow them to leave and take up one of your competitors’ shiny new introductory offers.
So how can we ensure that existing customers retain their loyalty as well as attract new ones?
These same rewards and promotions can be applied to existing customers, and a very simple focus on growing the promotion and benefits the longer a person banks with you will make it more likely that old customers are going to stick around, and that the new customers you attract will want to stay in it for the long haul.
One simple way to keep existing customers is to offer cashback on regular transactions such as fuel, groceries, and bills. We can also consider offering better interest rates for those who ensure a certain value, e.g., £1500, is deposited or held in the account month after month, essentially ensuring the bank account is receiving someone’s payroll.
A final and simple method of promotion is anniversaries. When one year passes, send a card or small thank you note, acknowledging a customer being retained for a certain period. At the five-year mark, offer a small monetary incentive, such as £100, for being with you for years. Increase the reward every five years, and you will be giving your existing customers a reason to stay for the long haul.
Measuring the Effectiveness of Promotions and Rewards
Once we have decided on our reward or promotion scheme and how to target our new and existing customers and their respective customer base, we must understand how to determine whether the promotions have been effective or not.
There are a few metrics we can look at to help us with this:
- Customer Lifetime Value: This measures how much revenue a customer is expected to generate over their lifetime with the bank. By using this metric, banks can both understand what threshold of rewards can be used and still be profitable to the bank, meaning that customers can get rewards and promotions directly tied to their benefit to the bank. It can also tell us which rewards are attracting high-value customers who are likely to continue doing business with the bank and those who may not be quite as worth the bank’s time to try and attract.
- Customer Acquisition Cost: This metric measures how much cost is incurred by acquiring a new customer. We measure this against the customer lifetime value to get a good idea of whether our promotions are cost-effective in attracting the right customers.
- Net Promoter Score: This metric measures customer satisfaction and how likely a customer is to recommend the bank to their friends and family. The better received and the more suitable a reward or promotion is, the more likely a customer is going to share it with others and encourage them to switch as well.
Challenges and Considerations when Using Competitions, Promotions, and Rewards
As we know, banks are masters of calculation and judging the risk versus rewards, and with everything, there is always a risk, challenge, or consideration. When it comes to creating reward promotions to attract new customers and retain existing customers, there are three main factors a bank should be considering:
- Cost: The most basic metric to consider is how much it costs versus what is expected to be returned. Offering rewards and promotions to all new customers can be both costly and risky, so it is imperative we understand if the costs outweigh the benefits and if so, by how much. A great way to balance this beforehand is to consider the range of customers you currently have and how much each individual actually contributes to the bank. Measuring this against the costs of promotions tailored to each customer base, then you can ensure that if your promotion is tailored to retirees and they bring in £(x) amount per month or year, then the new customers you attract should bring a similar amount in. If the cost is less than the rewards you stand to gain, then the promotion is worthwhile.
- Short-Term Gains vs Long-term Relationships: While promotions and rewards can drive short-term gains in terms of engagement and revenue, banks need to ensure that this is being balanced by providing a service that retains a long-term customer base. If people are attracted solely for the introductory rate, they will leave as soon as a better one comes along. Thus, considering how our promotion affects us, in the long run, is of paramount importance, and looking at how to retain existing customers becomes very important in this regard.
- Regulatory Compliance: An obvious one, but it is worth mentioning. Ensuring that the promotions adhere to the relevant guidelines and regulations ensures you are on legally sound ground in terms of any customers’ complaints, and you remove the risk of incurring fines, reputation damage, and losing your customers’ trust.
Conclusion
So, competitions, rewards, and promotional schemes are wonderful tools for banks looking to engage with new and existing customers. By targeting promotions to the correct customer base, checking our metrics to ensure profitability and viability, as well as supporting existing customers alongside creating new ones, banks can be extremely well placed to dominate the market and keep their customers happy for years to come.
It is important to balance larger promotional goals with good promotional management and ensure that we are thorough in our evaluations of our potential earnings before the promotion goes out to keep our costs low and profits high.
If you want to know more about fulfilling promotions and rewards, then you can always speak to the experts here at Prizeshark.
