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Point redemption programs looking retain customers with stock portfolios
Rewarding customer allegiance is nothing new, but we have seen a flourishing of loyalty schemes over the last few years. Not just growth in the number of services offering programs, innovation has come in the form of new ways for customers to redeem. Gone are the days of choosing from a sports bag or an airline ticket once a year; today you can redeem points instantly for reductions at the POS, enter lotteries or even put in a low-bid for an e-auction with loyalty points. The latest fascinating addition to the arsenal is stock trading with loyalty points. While the volumes involved are unlikely to make anyone a stock market millionaire any time soon, can stock trading become a serious player in the loyalty redemption arena?
There is a large demographic of loyalty customers who are unable or unwilling to buy company stocks. Few have the disposable funds available, and even fewer have a brokerage account; they simply don’t know how to get started. They see famous stocks available but cannot pull together the funds to buy a piece of the action. Loyalty schemes that enable point redemption in the form of a stock purchase could be a great way to introduce those customers not accustomed to trading to get involved. Taking a longer perspective, spending loyalty points in such a prudent fashion promotes financial responsibility and encourages people to save for their future, helping cardholders grow their nest egg of the future.
Another aim of offering more compelling redemption options is to solve the problem of low-point redemption. Lower spenders who rarely build up enough points for a significant payout also need to be meaningfully engaged in the loyalty program for it to be effective. It might take these customers years to get an airline ticket, but building a modest portfolio of stocks is a very interesting alternative.
Conversely, think about the high-point holder who travels endlessly and has little interest in a cheap flight. Here is a demographic that currently gains very little value from redeeming points – could a micro-trading account engage them? These customers with large number of unspent loyalty points represent a potential risk to any loyalty program, and stock trading could be a vital tool to keep these big earners spending their points regularly.
Over the last few years, we have seen the emergence of services that can offer loyalty programs the option to convert points into stocks. Whether the points were earned with debit, credit or prepaid card usage, and if the points were gifted, is irrelevant. All that matters is that points buy a piece of the action: Amazon, eBay, Facebook or Google.
It is a two-step process where the customer’s points are first turned into a voucher then used on a stock purchasing site to action a trade. The customer visits the loyalty portal as normal, but instead of redeeming points for a gift or a travel bonus, they click on the option to buy stocks.
From there, they are provided with a list of various stocks from which each consumer can choose. It will give the user a points value and dollar amount equal to the stocks’ worth, and once the user chooses a stock, they will be taken to a page with more details. The user will then simply choose how many stocks they wish to redeem. The user will only be able to add it to the cart if they have sufficient points. Then checkout to become a stock holder!
The key to success is to keep it easy and simple. New service sign up must be lightweight enough to not act as a deterrent; we’re trying to appeal to first time buyers that may not the most financially savvy. Start with a small list of the big names that people know i.e., Google, Apple, Facebook, Disney, etc. It may be interesting to customize the stocks on offer to reflect the location or customer preferences; a program in the northwest may prioritize Microsoft or Amazon, or offer more old-economy stocks for older customers.
We are not going to make millionaires out of everyone, especially with these micro-investment portfolios, but it is a strong differentiator and gets customers hooked early on. And think long term: low earners will probably have more spending power in a few years, so engage them now by removing the hurdles early on.
Offering stock buying as an alternative redemption tool could be especially attractive to low-point earners that don’t have enough points to spend and high-point earners with nothing worthwhile to spend points on. Not to mention the interest that all the customers in between who would also probably prefer a growing stock portfolio to a sports bag or a weekend in Florida. It represents a new way to help customers use their loyalty effectively.
It is too early to predict what kind of customer traction stock trading with loyalty points will get in the market. As schemes mature successfully, it is likely that other financial instruments could be added to include funds and bonds, but more exotic products such as options and futures are probably best left until these people migrate into private banking clients in later years.
Loyalty programs are growing in importance and customers need to be offered more options so that everyone finds benefit in loyalty programs. Although still in its infancy, stock trading is set to be a valuable weapon in the loyalty arsenal.
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