MAKING BUSINESS

PERSONAL :

CUSTOMER LOYALTY

Institutional

Banking

Presentation

July 2014

Simon Rowles

LOYALTY : RECIPROCITY

2

WHY LOYALTY FOR CREDIT CARDS?OUR ANALYSIS : WE KNOW PERFORMING REWARDS CREDIT CARDS PRODUCE :

(1) MORE TENURE, (2) MORE SPEND AND (3) MORE INTEREST INCOME.

3

Rewards cards- 80% remain customers after 5 years

Tenure for rewards credit cards

is double that for non-loyalty

program customers (or

acquisition costs to keep the

base constant are half)

$ 1

$ 3

$ 5

$ 1$ 1.50

$ 3

$ 1.20

0 1 2 3 4 5

Rewards cards customers who

have redeemed in the program

spend 3 to 5 times as much as

non-rewards cards customers.

$ 1.50

Non-rewards cards

Rewards cards

Rewards cards pay 50% to 300%

more interest than non-rewards

cards.

No rewards cards - 39% remain customers after 5 years

Results from analysis of 25,000,000 credit cards in the Asia Pacific region:

No

redemption

Non-rewards cards

Rewards cards

Redemption

Type A

Redemption

Type B

39%

80%

Spend of different customers indexed to a $1 base for

non-rewards cards

Interest paid by different customers indexed to a $1

base for non-rewards cards.

Customers that remain customers - rewards cards

compared to non-rewards cards over time.

Tenure Spend Interest Income

No

redemption

Redemption

Type A

Redemption

Type B

Card loyalty programs

deliver more profit

through greater

outstanding balances,

increased spend and

greater retention……

….by overtly driving

spending up through

share of wallet

increases…

…through a repeating

cycle of earning and

redemption..

….driven by

communications.

HOW ?

4

[4]

Comms

[2]

Spend

[3]

Earn

[5]

Redeem

[5]

Tenure

[6]

Balances

Cause : enrolment, communication

and particularly redemption all cause more spend.Benefit : redemption is linked to

higher tenure and balances

Customers join

programCustomers spend

on credit card

Bank allocates base points for spend

and bonus points for spend growth.

Bank communicates points balance to customer and may offer spend growth incentive.

Redemption of

rewards leads to

increased spend.

Program membership is correlated with customer tenure of

double compared to low rate or low fee cards.

Higher spend is correlated with

higher revolving balances.

Key

[1]

Enrol

BEST CUSTOMERS SPEND (A LOT) MORE

5

10%10% 10%10% 10%10% 10%10% 10%10%

% of all

members

Average

annual

spend per

member in

each decile

% of all

spend

21 43 65 87 109

Best, highest spending customers Lowest spending customersCustomer deciles

21 43 65 87 109

21 43 65 87 109

1% 3% 4% 5% 5% 6% 8% 10%13%

46%

$78.5k - >$250k

$2.1k - $7.9k

Portfolio average $10k - $20 k average per annum

NOT ALL PRODUCTS HAVE THE SAME LOYALTY

CAPABLE CHARACTERISTICS

Credit

card Deposits

Mortgages Insurance

Wealth

High transaction/

activity volume

Switching costs

Commodity offer

Gains from targeted

marketing

Economics to

support loyalty

investment

Loyalty enabled

differentiation

Product Attributes

High alignment for loyalty

Low alignment for loyalty 6

Debit

Card

Loyalty

programs are

built for Credit

Cards : can

they deliver

value in other

products?

Debit cards

share all the

same features

as credit

cards save for

the

economics to

support

loyalty

THE BIG DATA ARMS RACE IN SUPERMARKET RETAIL

7

Club Card

launched

1995

Tesco UK market share %

-1%

1.10%

3.80%

6.20%

Morrisons(12%)

Tesco (30%) Asda(18%)

Sainsbury's(17%)

11% 13%18%

25% 26%30%

1990 1994 2000 2005 2007 2012

UK market share 2013 growth % - big 4

grocers (market share)October 30, 2013

Analysis : Every

item bought by

every customer

Supplier

funding key. 21

billion lines of

data.

Morrison's

(12%)

Tesco

(30%)

ASDA

(12%)

Sainsbury’s

(30%)

Started in 1995 by Tesco and data

agency Dunnhumby

Now adopted and innovated by 3

of the big UK 4

Growth into multiple countries

and categories

Only large NZ

retailers adopt:

New World,

Countdown,

Pharmacy

Brands.

8

THE BIG DATA ARMS RACE IN BANKING

9

Switch

Growth

GrowthCurrent

offer

Switch

Debit

Card

Accrual

EXAMPLE : HALIFAX BANK ONLINE BANKING

Activate

Confidential – Commercial in Confidence. – Not For Distribution

NEW ZEALAND: CARD BASED OFFERS

10

Base level of business 2009 - 2011

Paid for sales lift caused by promotion

Incremental sales after promotion (not paid for)

KEY

0% 10% 20% 30% 40% 50% 60% 70% 80%

Got Married

Wallet/purse lost/stolen

Outstanding personal achievement

Started your own business

Child/Spouse health issues

Sold your home/moved

Quit smoking

Issue involving police/courts

Child born

Spouse stopped working outside home

Personal injury/illness

Bought your first home

Graduated College/university

Spouse started new job

Bought/leased vehicle

Received an Inheritance

Got a pet

Lost your job/ Laid off

Changes in your circle of friends

Started new exercise/diet habits

ATTRITION – NOT RATIONAL, BUT PREDICTABLE

11

Top 20 Life event relationship to products switch of main providerCanada study

75%

59%

58%

57%

55%

51%

51%

50%

47%

45%

43%

42%

41%

40%

40%

40%

40%

38%

33%

32%

Cheque

Savings

Loan

Mortgage

Credit card

Investment account

Life event and resulting rate of product attrition

12

“Google policy is to get right up to the

creepy line but not cross it.”

Eric SchmidtGoogle Executive Chairman

THE CREEPY LINE

ADOPTING KEY LOYALTY MARKETING PRINCIPLES

WILL BUILD STRONGER CUSTOMER RELATIONSHIPS

13

Create

reciprocal

relationships

Improve the

quality of

interactions

Demonstrate

personalisation

Deliver relevant and tailored

rewards to your best

customers. Recognise that all

customers are not equal.

Customers are motivated by

rewards and recognition -

getting the right balance of

hard and experiential

benefits will inspire loyalty.

Relationships must be two-

sided, with brands getting the

information they need to

inform marketing decisions

and customers also getting

something the perceive to be

of value from the relationship.

THANK YOU

Simon Rowles

www.aimia.com

14