Travel and Gifts: The Dream Incentives

When it comes to attracting new customers, there's evidence that targeted gifts, such as merchandise or travel, work better and have more lasting impact than cash.

In the past when bank marketers thought about customer incentives, the question they asked themselves was usually: "Shall we give away a toaster or cash?" Today, the options are more likely to be: "an iPod or cash," "a Coleman Patio Grill or cash," or "a Black & Decker tool set or cash."

To effectively compete in today's crowded market, banks are offering incentives to lure customers. But the question of what to offer-a gift or cash-plagues even the most experienced marketer. Because banks deal in the business of money, the first instinct is to offer the core "product"- cash. This happens despite the fact that consumer research has shown time and again that gifts can more effectively attract new customers-especially the "right" customers.

Why would a gift outperform cash? Extensive national marketing research by Incentive Federation Inc. (IFI), Worcester, Mass., has shown customers' perceptions about cash when it's offered as an incentive. Some customers perceive it as "vaporware." It is spent immediately and holds no long-term trophy value. In fact, a 2005 study by IFI showed four out of five respondents believe travel and merchandise rewards are remembered longer than cash rewards; and, two-thirds of respondents felt cash rewards are remembered for the shortest time. A customer will always know where the set of Pyrex portables is kept in the cupboard, but won't remember where the $50 was spent-a tank of gas, the mortgage, groceries. While cash lures some customers, research has shown these customers (also known as "premium shoppers") will often "chase" offers without ultimately performing the desired action, thus negatively affecting your bottom line.

Gifts are less expensive

And the banker? The goal is to keep acquisition costs down. With cash, it's difficult to accomplish this since you're always facing a fixed cost that matches the size of your offer-that is unless you find a supplier that can provide you with $50 cash for half the price. But with gifts, you can match the $50 cash offer without investing that amount. Using companies that are experts in this field, you can obtain gifts with a perceived value of $50 for about $10 apiece-automatically cutting some of your acquisition cost by 80 percent, or $40 in this case.

Another aspect to consider with cash offers is what kind of customer you're trying to attract. Banks need to determine if the desired customer would do the following things:

1. Move an account for a certain valued cash or gift reward.

2. Stay after the six-month requirement for the offer.

3. Grow with the bank by expanding wallet share.

Two affiliates of Persons Banking Co., Georgia, gave away an IceCap On the Go Cooler bag for new free-checking customers, as shown in the promotions to the left and below from The Farmers Bank, Forsyth, Ga., and Peoples Bank, Lithonla, Ga.

Too often, banks are interested in boosting acquisition in the short-term by attracting any customer, without considering whether they are supporting retention over the long-term by attracting the right customer.

With gifts, you have more flexibility to appeal to the right customer. Of course, the bank product has to be right-platinum checking account, certificate of deposit, home equity line of credit, small-business account and so forth, but in addition, the gift has to match the profile of that customer. The perceived value has to both compete in the current marketplace and attract the desired customer.

Perceived value is calculated based on brand value and gift functionality. An important note here is that the brand value does not refer to the bank's brand, but to popular consumer brands like Sony, CorningWare, Swiss Army and Apple. While it's nice to think your customer is walking away with a new account and a gift with your logo on it, the perceived value of your gift is diminished by placing an "I got this for free" emblem on it.

Therefore, the need to find a vendor who can deliver the best value and who represents the following characteristics is important.

1. Participates in industry trade shows and maintains a significant presence in other trend-setting events to identify the latest in consumer products.

2. Conducts research to evaluate actual product functionality, brand appeal and consumer preferences.

3. Tests products in a bank setting to offer gifts with proven response.

Gifts are often passed along

If the brand and functionality are right, then the perceived value will register higher than the gift cost every time. This will never happen with a cash gift. In fact, there are times a cash gift will actually be perceived as less valuable than its actual monetary worth. Keep in mind that customers also value many gifts based on-to quote the famous "Seinfeld" episode-their "re-gift" value. Most people don't need that other Igloo cooler they'll get from taking advantage of your referral-based business offer, but they have plenty of friends and family members they can give it to.

Additionally, promotions should be evaluated as branding opportunities for the bank. In the 2005 IFI survey, three-fourths of respondents felt they could build a more exciting and memorable program around travel or merchandise rather than cash. Your on-site promotion, direct mail piece, and word-of-mouth appeal from a program are extended when you have a compelling gift as the focal point. We call it "bragging rights," and it easily translates to your "branding rights." After downloading the latest on her iPod, a new bank customer is more likely to brag about how she got it than to tell her neighbor today's tank of gas was on the bank. Cash is not only less memorable, but it is also easily duplicated.

To be fair, an objection many banks have to offering gifts instead of cash incentives is the logistics of identifying the gift, obtaining the gift, and then stocking it at an appropriate level to sustain the life of the promotion. Cash is easy, even if it is more "expensive." This may have been a valid point in the early days of the toaster giveaway, but today, companies specialize in handling every aspect of your gifting campaign, including gift identification and procurement, stocking, shipping, in-branch promotion and measurement. And, the evidence supporting the return on investment and lowered costs of gift campaigns is convincing.

A free gift will not make a dramatic impact on growth unless it is a part of a marketing strategy that targets the right audience, with the right message, at the right time. A direct marketing program offering a high perceived-value gift (or higher perceived-value gift depending on the current environment) can effectively and efficiently generate results, driving account production to a higher level and often doubling core deposit acquisition.

To attract the right customers and sustain long-term relationships, the short answer to the original question is "a toaster."