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Primedia Business Magazines & Media Inc.
BY RICHARD H. LEVEY
February 1, 2003
The two initial incarnations of Banco Popular de Puerto Rico's loyalty program might be characterized as a couple of successful shambles.
Both Premia and Exclusive Rewards offered travel, merchandise and cash prizes to customers, who racked up points for every dollar they spent on their credit cards.
The problem was that the offerings often consisted of obsolete electronic merchandise or jewelry that customers simply didn't want.
The products "didn't move with our customers' wants and needs," according to Fabio Garcia, vice president of the bank's consumer credit product division.
As a result, more than half the customers were redeeming points for cash instead of travel or merchandise, which were more profitable for the bank.
Despite all this, Premia and Exclusive rewards were considered successful: Customers enrolled were 40% to 80% more profitable to the bank than non-participants, depending on whether they had a classic or gold credit card. But there clearly was room for improvement.
Last April, Banco Popular merged the two programs under the Premia heading. (At that point, Premia was for the bank's Visa and MasterCard customers and Exclusive Rewards was for American Express cardholders.)
Under the combined program, members earn points for a variety of interactions and services, including online and telebanking activities and use of deposit, retirement, brokerage and commercial small business accounts, in addition to credit card use. They also are rewarded for the balances kept in their savings plans.
Garcia says his bank has a broader reach than some large credit card issuers. For example, MBNA "doesn't have a depositor base, the personal loans, the securities or brokerage accounts," he said. "Since we are a full-service financial institution, it makes our program more appealing."
The initial enrollment in the new Premia was limited to 80,000 of the Puerto Rico-based bank's 1.2 million customers. Fifty-five thousand of them were members of the old programs. The rest included premium customers (those with savings accounts balances above $20,000), and those segmented into a dozen test cells. Included in the cells were very lucrative customers and account holders the bank felt could be migrated to higher profitability levels.
While the program carries a $15 annual membership fee, customers who carry any sort of platinum card, or who have a private management account, are enrolled in it free as a perk. They also receive 1.5 points per dollar spent, as opposed to one point per dollar for regular program members.
"Charging a fee was based on our market research," Garcia says. "Customers said they were willing to pay if they saw the value."
Banco Popular chose the $15 cost after price research showed it would weed out dabblers.
"If we gave it for free, we could have 300,000 customers, but they may not be engaged with the program," Garcia continues. "The fee works as a self-select mechanism."
That's not the only benefit elite customers receive. For most participants, points expire on the fourth December after being earned (so the bank doesn't have to carry the points as liabilities on its books forever). Platinum-level cardholders are not subject to this rule. These cardholders tend to acquire so many points that they redeem them regardless of the time limit. "We decided to turn that into a positive in our marketing," Garcia says.
Regardless of the customer's tier, communication between Premia members and Banco Popular is still somewhat rudimentary. Much of it is done through a four-page newsletter, which features almost no customization. Account statements are printed on separate sheets of paper that are enclosed with the newsletter.
"We have looked at variable digital printing but we still have too many things to do that will have a bigger impact, such as upgrading the servers," Garcia says.
Milford OH-based Frequency Marketing Inc. provided the technology for the program. Its Loyalty Solution platform tracks points, customer behavior, redemption levels and communications for Banco Popular.
"We modified our mainframe to create the file extracts that fit the Loyalty Solution Platform," Garcia says.
That part is working just fine;it's the servers that are being taxed. "We thought our servers would last for five years, but they were at 94% capacity [at the end of 2002] due to higher enrollments and transactions [than anticipated]," he adds.
Banco Popular invested some $12 million to $15 million in the program during its first year, but that investment has now paid off. The bank hoped to end 2002 with 108,000 Premia members. As of mid-January, enrollment stood at 150,000.
"So far attrition has not been a factor," Garcia says.
Premia is currently available only in Puerto Rico, but Garcia does not rule out the possibility of extending it to the bank's mainland U.S. branches. But part of the program's charm is its local focus.
Even fulfillment is handled on the island. In its earlier version, the bank used a fulfillment firm in Michigan. Moreover, the new program focuses on rewards from Puerto Rican entities, from single-proprietor restaurants to a Sears branch located in-country. "With the new program we are helping to develop the local economy," Garcia says.
And the program offers a proven framework for mainland banks that wish to set up a similar scheme. "We believe a loyalty program of the type Banco Popular has designed could be a template for success throughout the industry," says Bill Hanifin, Frequency Marketing's director of international business.
While the program is too new to have undergone full return on investment, Garcia says that credit cards held by Premia participants tend to be more lucrative for the bank, and that members tend to do more banking online and over the phone.