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Coalitions
The loyalty utopia?
To understand why coalitions work, we should define our term. A coalition loyalty programme is one in which two or more primary sponsors share a programme mechanism by which they agree to cross-sell their customers in order for them to earn a common promotional currency. The redemption offers are irrelevant; so long as the same currency is earned by buying each sponsors products and/or services.
Points may be redeemed for the sponsor's products, or they may be redeemed for something entirely different. The key is that the sponsors share their customer bases to achieve a common goal.
The value of coalition programmes lies in reduced costs and enhanced value propositions. Sponsors like it because they pay a fraction of the costs associated with running their own programme - while you might spend £2.50-£3.00 per member per year in a propriety programme, you might spend 50 pence per member per annum in a coalition. Your fellow sponsors promote your products/services to their customers. You need not send out mail shots, you buy no lists and you run no ads. The ROI can be practically off the scale!
Customers, meanwhile, love coalition programmes because they can earn more, faster and only need to have one loyalty card! They don't have to rely on your products/services to earn points. In the minds of members, each additional programme sponsor expands geometrically the earning options and redemption offers at their disposal. A typical coalition programme would have a supermarket, petrol retailer, travel operator, financial institution, telecoms and internet service provider plus other potential partners such as hotel, car-hire and B2B operations.
The marketer has a powerful proposition you could not have created on your own, access to which you get for a fraction of the cost of a standalone programme. What could be better? A coalition may, in fact, be the utopia of loyalty programmes.
So what's the catch?
Any marketing strategy so tantalising on the surface must have a downside. Coalition Programmes are not without risk.
The biggest risk is the loss of control over your customer base. You have worked diligently to cultivate loyal customers but by inviting them to join a coalition you shift their loyalty to the programme rather than to your brand alone. Once they have built equity in the programme, you customers now have a commitment to it separate from you. If you ever leave the coalition, will you be able to take them with you? And when a competitor takes your spot in the programme, will it capture many, if not all, of your best customers?
If you join a coalition you must do so with the understanding that you're in it for the long haul. Your commitment can't be for three years, or even five. You have to look twenty years down the road. This is not a casual fling-it's a marriage.
Major sponsors make coalitions run, and most of them do not see the need to wed their marketing efforts unless there is a merger involved. Without major sponsors, coalitions consist only of a lot of smaller businesses without the customer leverage or strong consensus necessary for success.
The original coalition programme?
Many marketers fail to accept that a successful coalition model has thrived for nearly two decades in the US - the Frequent Flyer model. What is the American Airlines AAdvantage programme if not the world's longest running and most successful coalition?
In addition to creating the most valuable currency of all time - the frequent flyer mile - AAdvantage and the other airline programmes have enjoyed an 18-year, virtually unbroken partnership with hotel and car rental companies, a ten-year partnership with telecoms and, a thirteen-year partnership with credit card companies.
The model does work. This experience verifies that you can thrive within a coalition structure for a long period of time.
Here's what could happen?
The time will come when companies will hit the wall with their propriety loyalty programmes. Those retailers that use their own product offering as a reward will begin to see diminishing returns. Customers that 'jumped through hoops' in year one will not jump through the same hoops in year five.
At that point, some clever entrepreneur will have an epiphany. He or she will create a programme structure with an irresistible hook for sponsors. The programme will offer a promotional currency that will cater not to customers' traditional appetite for trips and prizes, but to their dreams. Entranced by an irresistible value proposition, they will flock to join. Potential sponsors, attracted by the high upside and the low costs, will clamour for a place in the programme.
Suddenly the coalition will seem like a no-brainer. 'Why didn't we think of this before?' marketers will cry.
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