Why coalition loyalty schemes can always succeed

There are two basic points of view to be considered when discussing the business case for introducing – or keeping – a customer loyalty programme: Some industry observers have argued that a loyalty programme is often unnecessary because it’s just a way of spending money rewarding customers who would probably have been loyal anyway.

Others, however, have recognised that the real benefit of a loyalty programme is not necessarily felt first by the customer, and that it is the merchant that gains the necessary insight (from detailed analysis of its loyalty programme and transactional data, for example) to be able to improve the way it communicates with and deals with its customers. The customer is actually the secondary (but still the most important) recipient of the benefits of a true loyalty programme.

To say that a loyalty programme is not useful, or is a waste of marketing budget, is to have misunderstood the real purpose of the programme. Rather than offering a simplistic discount or rebate programme, a real loyalty programme offers the customer any number of incentives to allow the programme operator to collect accurate and useful data about their lifestyle, purchase choices, motivations, interests, circumstances, and in many cases even about their household and immediate family.

The reason for gathering this data is not – as a very small minority of consumers seem to fear – to create some kind of ‘Big Brother’ database of peoples’ personal habits, but to gain practical insights into ways in which the merchant could serve each customer more effectively, more easily, and more satisfyingly.

But should you adopt a single-operator model or a coalition model? There are arguments for both, but coalitions (multi-partner programmes) have many benefits, financially, operationally, and in terms of consumer perception.

With a coalition, the programme management is independent of any of the partners. The partners have contracts with the operators of the programme to issue and/or redeem the currency of the programme, and only have access to data harvested by the programme through its operator. Individual partners don’t have direct access to other partners’ data held in the programme, although the operators of the programme will usually market to other partners’ customers on behalf of another member. For example, a supermarket member could ask for mailings to be sent to the customers (or just certain segments of the customers) of a fuel retailer partner in an area where a new supermarket is being opened.

There are several essential goals that a coalition programme must achieve if it’s going to succeed, and why they’re so important. For example:

1. Rapid market penetration;

2. Delivery of attractive rewards;

3. Being the first in the market;

4. Building communication channels.

The advantages, disadvantages and structural needs of coalition programmes (compared to a non-partnered loyalty programme) are complex, and include:

·  Greater interest in the programme;
·  Members have fewer cards to carry;
·  Members earn points more quickly;
·  A greater variety of rewards;
·  Concentrated, coherent promotions;
·  Time saved in development;
·  Lower costs of development;
·  Database run by professionals;
·  Sector exclusivity;
·  Coalition marketing campaigns;
·  Higher penetration rates;
·  Real cost benefits of coalition.

Our forthcoming report ‘The Loyalty Guide 4′ (to be published at the end of March) covers all of this in detail, with over 1,000 pages of solid loyalty marketing data, practice, and theory – everything you need to know in one global report. It explains customer loyalty and engagement, metrics, best practices, concepts, technologies, models and the latest tools and innovations. It’s packed with detailed case studies, research, market sizes, forecasts, models, charts, illustrations, and materials to support new initiatives, presentations and proposals