Page 1 Basker Rangachari Group Head, Strategic Alliances & Customer Loyalty Group Consumer Lending Gaining Customer Loyalty – what does it take to succeed? Cards Asia Shanghai, China Oct 2008

Agenda What is loyalty? Does it really exist? Why does loyalty matter to growing profitably? Why is my loyalty program ineffective? Trends in Loyalty – inside / outside banking What does it take to succeed ? Conclusions

What is Loyalty? Loyalty describes a customer’s commitment to do business with a particular organization, purchasing their goods and services repeatedly, and recommending the services and products to friends and associates. (Barnett,2000) Loyal Customer = consistent source of revenue over years. Loyalty cannot be taken for granted. It will continue only as long as the customer perceives receiving better value than from another supplier.

Gaining loyalty with Premium Customers Product Features, Premium Positioning Comprehensive Rewards Program Quality and Relevance of Merchant Benefits Superior Customer Service Status Recognition Status Affirmation Experiences RecipeforSuccessRecipeforSuccess Research has consistently highlighted the following key drivers of loyalty with premium customers: Sources: 1.MarketResearch.com report – US Market for Reward Cards Jack Aaronson, ROI Marketing (Clickz.com) 3.TowerGroup Research reports

What will loyal customers do ? Behaviors: Come back frequently Buy most expensive products Recommend to friends Give important suggestions Emotions: Feel attached to provider / key staff Trust the provider Resist change despite competitors’ persuasion Willing to forgive mistakes

The Virtuous Cycle of Loyalty Deliver Superior Value Continuous investment in hard-to-match capabilities Increase customer loyalty / gain repeat business Tighten connections / create behavior change Demonstrate trustworthiness Increase customer satisfaction Right Products Relevant to Segments Consistent Responsive Service Efficient Processes Creative Rewards

Page 7 Why does Loyalty matter to profitability?

Increasing focus on Loyalty Mature Industries increasing competition High acquisition costs Getting more transactions/volume Market share vs. share of customer Competitive advantage Price Service quality Loyal relationships

Impact of loyalty on profitability Empirical evidence shows: It costs 5 times more to acquire a new customer than retain one 20-40% of your customers bring 80% of your profits Banks lose 22% of customers each year (1) Improving retention by 5% increases customer NPV by 35%~90% (2) Companies that have mastered loyalty management enjoy (3) : –38% higher profit margins –40% higher revenue growth –38% higher shareholder value creation Caveat: Customer Satisfaction is NOT equal to customer loyalty 90% of customers who love a company will repeat purchases but only 30% of customers who like the company will repeat (4) 60% to 80% of lost customers were actually satisfied (King, 1996) (1)Breitkopf, David. “Mapping a Multi- Product Strategy for Points,” American Banker, 1 December (2)“US Loyalty Schemes Enter a New Phase,” Bank Marketing International, 31 October (3)Accenture Study 2005 (4)Opinion Research Corp.

CEO’s See the Challenge In a recent survey by The Conference Board, customer loyalty was cited as one of the top ten challenges for CEOs worldwide.

In Conclusion Loyalty is not dead, its just more difficult to get Balancing customer desires vs. profitable business It’s an Art ….and a Science Product + Service + Rewards + Emotion = Loyalty Clear Strategy + Segment Focus + Adequate Investment + Consistent Execution + Continuous Enhancement = Success in Gaining Loyalty !! “Profit in business comes from repeat customers, customers that boast about your product and service, and that bring friends with them” (cited in Lowernstein, 1995)

Page 12 Thank You ! Basker Rangachari Group Head, Strategic Alliances & Customer Loyalty Group Consumer Lending