Case study: Customer-centric loyalty marketing

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By: Wise Marketer Staff |

Posted on July 2, 2009

Case study: Customer-centric loyalty marketing

One of the main challenges behind the continuing succession of improvements demanded by a multi-partner loyalty programme, regardless of industry, is the vast amount of proprietary data shared by the programme's sponsors. Our contributing editor, Bill Hanifin, explains how Zions Cash Rewards rose to the challenge, at the same time achieving true customer-centric loyalty marketing.

Zions Bank's merchant-funded rewards programme, Zions Cash Rewards, was launched in 2005 with help from loyalty firm Access Development. The programme centres its value proposition on an extensive bricks-and-mortar network of 'everyday spend' merchants, which provides the bank's cardholders with a high level of shopper relevance and personal interest.

Access worked with Zions Bank to create a balance between merchant engagement, cardholder benefit, and an acceptable return on investment (ROI). The main factors that drove the decision to make such extensive use of everyday spend merchants were that more than 80% of discretionary spend is within a 10-20 mile radius of the average consumer's home, and that 95% of discretionary spend tends to occur in retail (rather than online) settings.

End of the Golden Age of loyalty? According to Hanifin, the 17 years between the launch of the GM Master Card in 1992 and the near collapse of the US financial system in 2009 might be considered the 'Golden Age of Financial Services rewards programmes'. However, for the several years now, card issuers have been working hard to answer four key questions that will help identify the way ahead for payment card-based loyalty rewards for at least the next decade:

  1. How can a rewards programme be implemented and managed at a lower cost?  
  2. How can rewards programme liability be better managed?  
  3. Can a rewards currency be used to achieve multiple goals beyond simple customer retention?  
  4. Is there "life after points", and what form will the next wave of innovation take?

Of course, the path of least resistance is to focus on cost control, and most of the leading issuers have been slashing programme costs and raising the bar to make reward redemption more difficult. Many of the big names have already been criticised for rule changes that dilute the value proposition for cardholders.

New reward models tested As a result, the financial services industry is in desperate need of loyalty innovation - and some answers are now coming to light. For example, some banks have extended their reward currencies across the entire retail bank in a relationship banking model, although there are some severe organisational and cost restraints involved.

Another concept, which has so far met with great success, is being widely adopted in the US market: merchant funded rewards programmes (also known as 'pay-for-performance models' or 'participating merchant networks'). Merchant funded rewards can be defined as "a pay-for-performance model in which the card issuer, the merchant, and the cardholder are all beneficiaries".

In these models, the merchants fund rewards for registered cardholders, and can therefore measure incremental sales against programme costs. The reward offered is typically much higher than consumers are accustomed to with other types of card-based rewards programmes. In most cases, consumers can earn anywhere from 5% to 25% of their purchase total, and they receive their rewards in the form of either cash back or points that are redeemable for prizes or discounts at their local merchants. The card issuers therefore enjoy a richer rewards programme than anything they could offer on their own, which drives customer satisfaction while at the same time reducing the cost of operation.

In addition to Zions Cash Rewards, many other banks have adopted the merchant funded model. For example, US Bank was an early adopter of the model when it added a merchant component to its Checking that Pays programme, thereby creating US Bank Premium Rewards. With suppliers spotting an opportunity for increased trade, the originally narrow set of specialised merchant network providers expanded and the market expanded rapidly.

The merchant portfolio However, the one aspect of merchant funded programmes that is approaching commoditisation most rapidly is the construct and components of the merchant portfolio. Most programmes offer an online merchant selection, and a close review of several large programmes reveals significant overlap in the participating merchant group across issuers. Recruitment and assembly of bricks-and-mortar merchants is therefore the most compelling opportunity for differentiation for card issuers today, although this requires considerable investment in both time and resources by the network owner.

In the case of Zions Cash Rewards, it was the bricks-and-mortar network that was the foundation for success. "One of our key goals was to create a programme that was truly unique in the marketplace, and delivered real value and relevance for cardholders," explained Cynthia Smith, senior vice president and director of bank card products and services for Zions Bancorporation. "Today we have over 1,600 local bricks-and-mortar merchants giving rewards of up to 50% in cash back."

It may be that organisations that successfully "crack the code" of assembling a network of local participating merchants may be the ones that start the next wave of innovation in payment card reward programmes. The opportunity to earn promotional currency with local merchants provides an aspect of personal relevance for consumers and even opens up possibilities for on-site redemption through POS terminals or prepaid cards.

The keys to the reward programme's success to date are attributed by Zions Bank to three key areas:

  • Implementation The commitment to engaging employees as programme advocates was made possible by education and incentives, while the bank was also able to leverage cross-selling opportunities with commercial accounts;  
  • Marketing The bank adopted a multi-channel approach using micro-sites, email promotion, print directories, and offline events;  
  • Continued programme evolution Zions Bank listened to and incorporated the 'voice of the customer' to effect continual improvements and used new technologies to its advantage.

Programme structure The Zions Cash Rewards programme offers cash back rewards for using a Zions Bank Visa debit or credit card with local businesses in Utah and Idaho, USA. The requirements for programme membership are simple. Each customer must have either a Zions Bank Visa debit or credit card and a cheque or savings account with the bank. All debit and credit cards are automatically enrolled, so existing customers don't have to take any special action to benefit from the programme. Consequently there is no annual membership fee.

Cardholders can log in to the programme's web site to search for local merchant offers. For example, a search of merchants in the 84121 (Salt Lake City) zip code revealed offers from over 400 merchants. This is a clear indication of the programme delivering value where consumers shop most - in their own neighbourhood. The only restriction is that, while all credit card transactions are eligible for rewards, only signature debit transactions are rewarded.

Interestingly, in the event that a cardholder meets more than one reward requirement, the technology provided by Access Development identifies and pays out the highest reward value, not the lowest.

Additional rewards can be earned by shopping online via the programme's web-based shopping portal, which offers up to 20% cash back from national retailers such as,, and, among others. Cardholders can also earn up to 5% back when booking travel online. The programme uses a multi-channel communication plan to stay in touch with members and mobile savings alerts along with extended merchant funded offerings from destination to entertainment rewards are coming soon.

When a qualifying transaction is made, a confirmation email is sent to the cardholder to thank them and tell them how much the transaction with that merchant has earned them. This encourages personal engagement with the merchant and reinforces the programme's value to the cardholder, building not only loyalty and top-of-wallet status for the Zions Bank card but also increased traffic and sales for participating merchants. Cash rewards are deposited automatically into the customer's Zions Bank cheque or credit card account, and are also shown on the cardholder's monthly statement.

Participating merchants currently include restaurants, retailers, automotive shops, and health and beauty providers, among other categories. Each merchant, in consultation with Access Development, determines its cash back offers by setting spending requirements and reward amounts.

Merchant retention Another easily overlooked element of the merchant funded rewards model is the issue of merchant retention. Access Development realised that multiple reward options were going to be needed to meet individual merchant requirements. In fact, on average, there were 3 or 4 different cash back offers available for each merchant, with the aim of encouraging and rewarding different levels of cardholder spend.

For example, there might be an aggressive '50% off' promotion designed to drive new customers, as well as a number of secondary offers triggered by various spending thresholds (i.e. to help increase visit frequency, or to simply encourage greater spending).

According to Hanifin, the merchants liked the approach and the cardholders responded positively because they had more than one way to earn rewards. The overall result was a payment card reward scheme that delivers a system-wide average offer of 22% cash back per qualifying transaction, which compares well with other fixed-percentage reward programmes that offer 3% - 5%.

Branch staff 'key to success' Zions also realised that customer-facing employees were essential to the programme's success. The bank provided training for its sales force so that they could easily explain the programme benefits and encourage participation while "keeping the message simple". In addition, the bank increased its focus on in-branch support, providing associates with sales aids including buttons, posters, and brochures.

Customers looking for bank card products are led through an step-by-step process to help them decide if they want a rewards programme that offers a basic 1% cash back, or loyalty points that can be redeemed for travel and merchandise. The merchant funded element of the programme is explained as a bonus element, as it is available on all consumer cards, and customers are also now given the option to personalise their card with a photograph of their choice.

Bank personnel have also been trained to use the engagement process as a cross-selling opportunity, not only for consumer banking products but also with merchants, aiming to build the bank's acquiring business and deepen existing commercial relationships.

Zions used several marketing channels to manage programme communications including email, direct mail, and in-branch. Campaign highlights are described in this section.

The easy to grasp benefit of email is the low cost of execution, but the key for Zions Cash Rewards was the emphasis on targeting (by geography, transaction history, recent activity) and the actionable nature of each communication (i.e. driving deep links into the rewards web site). Email was also used to manage surveys, gain programme feedback and build a sense of 'the voice of the customer'.

Capturing the wallet The average US consumer has 7-8 cards and they usually centre their spending on specific cards for specific reasons (i.e. a card for petrol, a card for groceries, a card for travel expenses, and so on).

In an effort to complement the bricks-and-mortar merchant network and create even more compelling reasons to shift spending to its bank card products, Zions Bank is continuing to evolve its benefits package with a variety of merchant funded rewards options, including:

  • Online Shopping Rewards;
  • Travel Rewards;
  • Business Card Rewards;
  • Entertainment Rewards;
  • Gift Card Rewards;
  • Destination Rewards.

Six lessons learned The lessons learned from assembling this rich but clearly communicated rewards mix are instructive to any issuer considering a similar programme structure:

  1. Quality counts, not quantity Merchant offers should be filtered by quality rather than quantity. The bank was diligent in selecting key categories of interest to the cardholders and structure rich enough offers to keep cardholder interest. The job is never finished however, as programme evolution is needed to maintain relevance and consumer interest.  
  2. Careful partner selection Partner selection is a key area for consideration if programme execution is to be maintained across all programme touch points. The experience, stability, and history of new product development were all considerations when the bank evaluated its merchant partners.  
  3. Employee buy-in Employees must truly 'buy in' to the programme and remain engaged for long term success. This is accomplished only by training customer-facing employees and providing them some level of reward and recognition for their efforts.  
  4. Profit-related bonusing Bonusing was related to profitability, as customers were not rewarded for all transactions. This placed the burden of education on the bank, but also gave Zions Bank a 'hungry edge' for reaching programme profitability goals.  
  5. Multiple goals can be achieved For example, commercial relationships were strengthened and more retail banking products were opened through cross-selling.  
  6. Targeting is critical Email marketing efforts are most effective when they are extraordinarily well targeted, relevant, and creative. Games and contests were found to be good methods for testing.

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