Saturday, 24 September 2011

Halifax Bank gambles on loyalty?

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Halifax Bank announced this week that it is intending to run a lottery style monthly promotion called Halifax Savers Prize Draw. The scheme will reward savers with deposits of £5,000 or more (and who opt-in) with the chance to win one of three top prizes of £100k a month or smaller prizes of £1,000 or £100 - paying out a total of £6m in the course of the year.

While this is undoubtedly a promotion to attract new customers, it also has an interesting loyalty angle to it.

If Halifax attempted to create a "full" loyalty programme for savers this just wouldn't be rewarding enough to make it motivating. Savers are already paid out interest on their deposits and if there was much more room to manoeuvre on this to provide greater value then you would expect the bank to be looking here instead.

A lottery style programme however lets them provide a powerful retention mechanic for a fraction of the reward budget.

There are great previous examples of how powerful this can be. Research from the National Lottery Commission showed that 67% of the UK population had purchased a lottery ticket at least once and that about 40% of people played regularly (at least every week).

A more direct comparison to the Halifax programme would though be Premium Bonds, the UK government savings account which also pays out a lottery style prize. These are still proving popular with around 40% of the UK population having on average £1,131 in bonds. They have also proved increasingly popular in these tough economic times with a 26% increase in the amount saved since 2008.

Despite Harold Wilson MP, reportedly calling Premium Bonds a 'a squalid raffle…a national demoralisation' when he opposed their introduction, it seems they're the more acceptable side of gambling - with £21m of Premium bonds sold every day.

In an article back in 2010, the Daily Telegraph discussed why Premium Bonds are so popular saying:-

They remain popular primarily because, unlike most lotteries, Premium Bonds guarantee to return your capital. So they are widely regarded as a free chance for a flutter.

Just like a loyalty programme, both Premium Bonds and the new Halifax Savers Prize Draw do the same thing - provide a little extra for nothing. You still get to keep your money and uniquely with the Halifax you actually get to earn interest; however you also have a chance to get a reward. It's this reward, this promise of something for nothing which will make this scheme not only good for acquisition but also help to retain balances.

In a loyalty programme points are used to make the programme sticky, customers build up value in points and this helps to focus them on collecting more - remaining a customer and shifting/concentrating category spend. The power of this depends on how achievable the rewards are perceived to be.

In a lottery style programme however there is no increasing points balance - there is just a prize, potentially.

Instead, the stickiness in these types programmes comes from something less tangible - the gamblers fallacy. This is the fallacy of the maturity of chances, the belief that past results have an impact on future results.

If the coin keeps coming up heads, there is more chance of it coming up tails.

If the roulette wheel keeps coming up red, there is more chance it will come up black next time.

If I didn't win this month, or the previous 10 months then it's my time now.

This belief is what keeps people buying their lottery ticket and it's what will keep people retaining their savings account.

Whether you call it a lottery, a prize draw or a flutter, the gamblers motto still applies... "I’ll quit when I’m ahead".

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