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Basker Rangachari

Group Head, Strategic Alliances & Customer Loyalty

Group Consumer Lending

Gaining Customer Loyalty –

what does it take to succeed?

Cards AsiaShanghai, China16-17 Oct 2008

Agenda

What is loyalty? Does it really exist?

Why does loyalty matter to growing profitably?

Why is my loyalty program ineffective?

Trends in Loyalty – inside / outside banking

What does it take to succeed ?

Conclusions

What is Loyalty?

Loyalty describes a customer’s commitment to do business with a particular organization, purchasing their goods and services repeatedly, and recommending the services and products to friends and associates. (Barnett,2000)

Loyal Customer = consistent source of revenue over years.

Loyalty cannot be taken for granted. It will continue only as long as the customer perceives receiving better value than from another supplier.

Gaining loyalty with Premium Customers

Product Features, Premium Positioning

Comprehensive Rewards Program

Quality and Relevance of Merchant Benefits

Superior Customer Service

Status RecognitionStatus Affirmation Experiences

Recipe Recipe for for

SuccessSuccess

Recipe Recipe for for

SuccessSuccess

Research has consistently highlighted the following key drivers of loyalty with premium customers:

Sources: 1. MarketResearch.com report – US Market for Reward Cards 20052. Jack Aaronson, ROI Marketing (Clickz.com)3. TowerGroup Research reports

What will loyal customers do ?

Behaviors: Come back frequently Buy most expensive products Recommend to friends Give important suggestions

Emotions: Feel attached to provider / key staff Trust the provider Resist change despite competitors’ persuasion Willing to forgive mistakes

The Virtuous Cycle of Loyalty

Deliver Superior Value

Continuous investment in hard-to-match capabilities

Increase customer loyalty / gain repeat business

Tighten connections / create behavior change

Demonstrate trustworthiness

Increase customer satisfaction

Right Products

Relevant to Segments

Consistent Responsive Service

Efficient Processes

Creative Rewards

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Why does Loyalty matter to profitability?

Increasing focus on Loyalty

Mature Industries increasing competition High acquisition costs

Getting more transactions/volume Market share vs. share of customer

Competitive advantage Price Service quality Loyal relationships

Impact of loyalty on profitability

Empirical evidence shows:

It costs 5 times more to acquire a new customer than retain one 20-40% of your customers bring 80% of your profits Banks lose 22% of customers each year (1)

Improving retention by 5% increases customer NPV by 35%~90% (2)

Companies that have mastered loyalty management enjoy (3):– 38% higher profit margins

– 40% higher revenue growth

– 38% higher shareholder value creation

Caveat: Customer Satisfaction is NOT equal to customer loyalty 90% of customers who love a company will repeat purchases but only 30%

of customers who like the company will repeat (4)

60% to 80% of lost customers were actually satisfied (King, 1996)

(1) Breitkopf, David. “Mapping a Multi- Product Strategy for Points,” American Banker, 1 December 2004.(2) “US Loyalty Schemes Enter a New Phase,” Bank Marketing International, 31 October 2004.(3) Accenture Study 2005(4) Opinion Research Corp.

CEO’s See the Challenge

In a recent survey by The Conference Board, customer loyalty was cited as one of the top ten challenges for CEOs worldwide.

20.3%Improving productivity10

20.8%[Product] Innovation9

22.7%Speed to market8

22.9%Corporate reputation7

23.9%Stimulating innovation / creativity / enabling entrepreneurship

6

29.4%Customer loyalty / retention5

33.1%Speed, flexibility, adaptability to change4

33.4%Consistent execution of strategy by top management

3

36.1%Profit growth2

37.5%Sustained and steady top-line growth1

“Of Greatest Concern”

ChallengeRelative Ranking

20.3%Improving productivity10

20.8%[Product] Innovation9

22.7%Speed to market8

22.9%Corporate reputation7

23.9%Stimulating innovation / creativity / enabling entrepreneurship

6

29.4%Customer loyalty / retention5

33.1%Speed, flexibility, adaptability to change4

33.4%Consistent execution of strategy by top management

3

36.1%Profit growth2

37.5%Sustained and steady top-line growth1

“Of Greatest Concern”

ChallengeRelative Ranking

In Conclusion

Loyalty is not dead, its just more difficult to get

Balancing customer desires vs. profitable business

It’s an Art ….and a Science

Product + Service + Rewards + Emotion = Loyalty

Clear Strategy + Segment Focus + Adequate Investment + Consistent Execution + Continuous Enhancement = Success in Gaining Loyalty !!

“Profit in business comes from repeat customers, customers that boast about your product and service, and that bring friends with them” (cited in Lowernstein, 1995)

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Thank You !

Basker Rangachari

Group Head, Strategic Alliances & Customer Loyalty

Group Consumer Lending