Presentation to a New Zealand institutional bank and their customers. The big data arms race is supermarket retail has finally come to banking with loyalty program now capable of covering all bank products through data driven merchant funded value.

1. MAKING BUSINESS
PERSONAL :
CUSTOMER LOYALTY
Institutional
Banking
Presentation
July 2014
Simon Rowles

2. LOYALTY : RECIPROCITY
2

3. 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.
Redemption
3
Tenure Spend Interest Income
Tenure for rewards credit cards
is double that for non-loyalty
program customers (or
acquisition costs to keep the
base constant are half)
Rewards cards- 80% remain
customers after 5 years
$ 1
$ 3
$ 5
$ 1
$ 1.50
$ 3
$ 1.20
80%
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
Redemption
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
redemption
Non-rewards
cards
Type A
Rewards cards
Type B
39%
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.
No
redemption
Type A
Redemption
Type B

4. HOW ?
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.
Higher spend is correlated with
4
Program membership is correlated with customer tenure of
double compared to low rate or low fee cards.
[2]
Spend
[4]
Comms
[3]
Earn
[5]
Redeem
[5]
Tenure
[6]
Balances
Redemption of
rewards leads to
increased spend.
Cause : enrolment, communication
and particularly redemption all cause more spend.
Benefit : redemption is linked to
higher tenure and balances
Customers join
program
Customers 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.
higher revolving balances.
Key
[1]
Enrol

5. BEST CUSTOMERS SPEND (A LOT) MORE
5
Best, highest spending customers Lowest spending customers
Customer deciles
10% 10% 10% 10% 10% 10% 10% 10% 10% 10%
% of all
spend
% of all
members
Average
annual
spend per
member in
each decile
1 2 3 4 5 6 7 8 9 10
1% 3% 4% 5% 5% 6% 8% 10%
13%
46%
1 2 3 4 5 6 7 8 9 10
$78.5k - >$250k
$2.1k - $7.9k
1 2 3 4 5 6 7 8 9 10
Portfolio average $10k - $20 k average per annum

6. NOT ALL PRODUCTS HAVE THE SAME LOYALTY
CAPABLE CHARACTERISTICS
Credit
card Deposits
Mortgages Insurance
Wealth
Product Attributes
Economics to
support loyalty
investment
Gains from targeted
marketing
High transaction/
activity volume
Switching costs
Commodity offer
Loyalty enabled
differentiation
Loyalty
programs are
built for Credit
Cards : can
they deliver
value in other
products?
High alignment for loyalty
Debit
Card
Debit cards
share all the
same features
as credit
cards save for
the
economics to
support
loyalty
Low alignment for loyalty 6

7. THE BIG DATA ARMS RACE IN SUPERMARKET RETAIL
7
Tesco UK market share %
Club Card
launched
1995
-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
8

9. 9
Growth
Switch
Growth
Current
offer
Switch
Debit
Card
Accrual
EXAMPLE : HALIFAX BANK ONLINE BANKING
Activate
Confidential – Commercial in Confidence. – Not For Distribution

10. 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

11. ATTRITION – NOT RATIONAL, BUT PREDICTABLE
40%
40%
40%
40%
41%
42%
43%
47%
50%
51%
55%
57%
58%
33%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Started new exercise/diet habits
Changes in your circle of friends
Lost your job/ Laid off
Got a pet
Received an Inheritance
Bought/leased vehicle
Spouse started new job
Graduated College/university
Bought your first home
Personal injury/illness
Spouse stopped working outside home
Child born
Issue involving police/courts
Quit smoking
Sold your home/moved
Child/Spouse health issues
Started your own business
Outstanding personal achievement
Wallet/purse lost/stolen
Got Married
11
Top 20 Life event relationship to products switch of main provider
Canada study
75%
59%
51%
45%
38%
32%
Cheque
Savings
Loan
Mortgage
Credit card
Investment account
Life event and resulting rate of product attrition

12. 12
THE
CREEPY LINE
“Google policy
is to get right up to the
creepy line but not cross it.”
Eric Schmidt
Google Executive Chairman

13. 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.

14. THANK YOU
Simon Rowles
www.aimia.com
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