Rewards programmes : friend or foe?
With more than 100 loyalty and rewards programmes in South Africa the question to think about is why any company would even consider dipping their toes into this red ocean.
The underlying reasons for a rewards programme have, however, remained unchanged for many years.
Fundamental drivers
The triangle above shows the fundamental drivers of value to both advisers and companies, i.e clients who buy more, who stay longer and who claim less are more valuable than the rest.
It is interesting to note that the interests and objectives of companies and advisers are aligned yet very few companies managed to embrace this to create shared value and an overall better client experience.
Over the years companies started to focus more on individual elements of the above building blocks and as a result, the rewards programmes that were born and shaped by that thinking did not address the full value chain.
Sadly that resulted in poorly defined value propositions not only for shareholders and advisers but also for the clients, ultimately resulting in the punitive management of clients within the programme to manage costs. Hence, by narrowly focussing on improving one of the building blocks in isolation, one does more harm than good.
Value proposition for advisers
Can rewards programmes add value to a financial adviser? The short answer is yes. However, it will only do so if the programme is designed for claims management/reduction, sales and retention.
Failing to focus on any one of these will force the company to aggressively, and frequently, manage the ones they are focusing on. When determining the value proposition for clients and advisers we look at:
• Premium sizes (Sales)
• Claims and the drivers of claims (Claims management)
• Number of products (Sales and retention)
If any one of these is not improving as a result of the rewards programme then it must be adjusted to accommodate the improvement without negatively affecting the other two balancing, and sometimes competing, objectives.
The bar graph above (standardised the Bronze level) depicts the improvement of the three building blocks throughout a rewards programme. It is clear that all three of the measures are moving in the right direction as clients move through the programme but all of these are also an improvement from our experience when no rewards are attached.
The movement creates value to all parties involved. The premium size and number of products improve as a result of sound financial advice and the reduction in claims is as a result of the risk management attributes of the programme coupled with lower levels of financial stress. As clients move through the programme they extract more value. On average clients save around 10 to 15% of their total premiums on an annual basis. This is significant considering that the rewards programme premium is generally in the region of 0 to 5% of total premiums.
Advisers can add value to clients by simply highlighting, encouraging and assisting clients to utilise the areas of the programme that are valuable to them. Most rewards programmes offer clients a range of benefits from shopping through to travel (with product benefits in-between) and it is always possible to get more than what you put in, even on the entry level programmes and statuses.
What is the end game?
As rewards programmes become ubiquitous, companies will be forced to look at the underlying drivers of value of their businesses in order to profitably manage these programmes – loyalty is not a differentiator anymore.
Insurance loyalty and rewards programmes give clients tools and access mechanisms to improve their financial and physical wellbeing so the intent of the programmes are aligned with the client’s best interests. Therefore, by working with financial advisers to manage the overall wellbeing of their clients we can add unprecedented value in a post RDR world.
