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In response to my last article about Gen X Y M, Randall Tynes of Community Bank wrote: "Your newsletter dated 4/3 about Gen X, Y and M was definitely right on. I have a 4 nephews ranging from 16 to 22 years of age. They are absolutely a arrogant breed. With that said, they are at times hard working. They do expect to be compensated well right out of the gate, which of course is different from the previous generations. It will take the world showing them what it is like. The most frightening part of the latest generation in my opinion is the lack of ability to save. If they want it they go and buy it. I have seen it in my 4 nephews as well as in younger customers.They are not scared of signing 72 month note on a truck while living in a apartment. We as Bankers must guide them through these tough decisions in life. They are accustomed to getting what they want and having instant gratification."

Cole Harmonson, CEO of Far West Capital, emailed: "Being a Gen Xer myself, I have specific experience with your topic, which is a good one, I have found in managing younger employees and being managed by mostly baby boomers that the number one character trait we are looking for is authenticity. Irony and cynicism permeate the younger culture and many of our office values are can be summed up by watching the movie, Office Space. If you cant quote a few lines from that movie, you probably cant honestly connect with some of the Gen X leadership rising amongst your ranks. Yeah&Im going to go ahead and need to get you to send me that TPS report&Yeah..

Our generation has been raised to be extremely cognizant of BS and we, sometimes unfortunately, are very skeptical of motives. If the praise is deemed to patronizing or isnt truly deserved, then more harm can be done than good. In managing, the best strategy I have found is to very clearly define expectations, then align financial and non-financial incentives with those expectations, then get out of the way and give them the freedom to creatively figure out how to get it done. "Cole's words are MOST wise, and I hope many readers will heed them.

As you know, Arik didn't do too well in the State wrestling championship. It might have had to do with the "vegetative state" he was in the week before, it being Spring Break...Thanks to all of you who emailed encouragement. I was truly touched by connecting with many of you on this personal level. Thanks for caring and for sharing! As you can imagine, I'm still proud of him! Plus, he competed in the Harvest tournament, knowing full well he'll probably be turned into a pretzel. Instead he won the entire deal, having pinned three of his opponents. Next on his schedule is Western States. I'll keep you posted.

Also, as promised, I offer my family's version of the World's Best Desserts in the website: www.ananatbird.com, and eagerly welcome your own additions to the list. I also posted recipes for Passover, for those of you who celebrate the holiday and those who just want some good food.

Have a great week.

Anat

Article synopsis: Rewards program are "in", yet the expense associated with them is meaningful. Do you get good returns on your investment? Should the rewards incorporate both debit and credit cards? What are the critical flaws in current rewards programs? The article offers a different viewpoint on this trend and a proposed out-of-the-box solution.

REWARD PROGRAMS THAT WORK

Reward programs, especially for debit and credit cards, have been the bane of our industry in recent years. Everyone has them, few are clear whether they help or hurt customer loyalty, and almost all are sure they are too costly. Yet, as we consider loyalty programs in other industries, including independent credit card companies, hospitality and airlines, we know they work from our own personal experience.

When I talk to bankers about this topic, they often tell me that we are different, and therefore cannot build loyalty programs that work like the airlines plans. I disagree, but acknowledge that I have not come across a loyalty program in our industry that seems to work for customers and shareholders alike. In my quest to identify the underpinnings of such a program, I looked at the airlines plans and their evolution, to glean helpful insights for the underlying principles of their reward programs that might be transplanted into banking. Here are some thoughts:

More rewards for more value. Airlines offer greater rewards for greater value. For example, if you fly first class and PAY for first class, youll get more miles credited than if you fly coach and pay discount fares. This obvious symmetry works for both the customer and the shareholder.

Are there parallels in our business? Yes, there are! For example, a dollar kept in interest-free checking for a month is more valuable to us than a dollar kept in a CD for the same period. We can align reward points with the elements that create most value for us, such as duration, amount and type of account for deposits and loans. For example, paying 2 points for every month or day a dollar is kept at a savings account, but only 1 point for that same dollar if its kept in a CD. Weve already embarked on this road by differentiated reward points between our credit and debit cards based upon whats more valuable to us, as well as differentiating rewards for signature or pin based debit transactions. The recent flourishing of the 6% checking account is another example of such a program, where the bank keeps tally of the customers activities and, if the customer delivers on their activity promise, the bank adjusts their interest rate to reflect that. This very principle can be utilized in a broader sense to induce customers to do whats profitable for the bank for rewards which they value.

How can the customer keep track of this? Airline customers dont keep track of their miles. They cant since the matrix rewarding miles for different fares is very complex. The airlines do this for them, and send them an electronic statement monthly outlining their current reward points.

Banks can and should do the same thing, reminding customers monthly of the value they are creating by doing business with the bank in many different ways. The customer should not be expected to figure out what if the expected behavior (although the various reward levels give the customers a good idea of where the value is); the banks software should calculate it for them just like it calculates and posts monthly interest.

Rewards are too expensive. Banks assume that all rewards must be expressed in basis points. I disagree. Not all airline rewards are put in the form of free flight miles and upgrades. Airlines offer beverage coupons, different upgrade status for different customer activity (the more you fly, the greater your chance to get a free upgrade), baggage tags etc. The rewards can be very small or very large, depending upon the customers activity.

Similarly, banks do not have to provide all rewards in the form of the very expensive basis points. Instead, rewards such as mugs, note-pads, and other premium items which we buy anyway by the thousands can be used as low-end rewards that customers do appreciate. It is the unexpected nature of these small rewards that delights the customer. In other words, using only one currency for rewards is not only uneconomical but also unnecessary.

Banks can truly differentiate service levels without upsetting customers or bankers. One of the greatest challenges we have is our employees insistence on providing great service to all customers. They feel its unfair to provide good service to all, and great service to the chosen few who keep more money in our banks. The airlines have solved this quandary by somehow overcoming these objections to create multiple lines at the airport. This might be too much for many banks and bankers. However, the phone-line differentiation is something that is transparent to the branch visitor and branch employee, yet is highly valued by customers and can become an important source of cross-selling for the bank. Offering special phone lines and numbers for the best customers as an integral part of a rewards program is an egalitarian process, available to all, and can be earned by customers behavior.

In sum, I know this is an unpopular subject. Its difficult to put our arms around, and appears too complex and confusing to banker and customer alike. I believe that relationship-oriented banks can find simplified ways to reward customers for the right behaviors and put the customer in the drivers seat regarding the rewards they collect. Collaboration between marketing, finance, retail, commercial and wealth management can create a compelling value proposition to all major customer segments (or only to those the bank wishes to attract through this vehicle) as well as the shareholders, and cement the relationship by giving the customer the tools to take the initiative.