In boardrooms throughout America, the talk is about the need for something new – something that differentiates programs from the competition and sets brands apart. The need is for a program that truly engages its members.
Finding that "something new" is a significant challenge in a loyalty market often characterized as "mature" and "fatigued." And executives are trying a variety of approaches from experiential rewards to gamification to check-in marketing. According to the 2011 COLLOQUY Loyalty Census, however, U.S. consumers have signed up for an average of eighteen programs per household. What this demonstrates is that, despite the number of cards per household, American customers are tough to engage with offers that are sometimes indistinguishable from others already available. Simply tweaking reward options and earn rates won't deliver the differentiation that customers want.
Consumers are still interested in loyalty programs, but they want one in which the value proposition is relevant and significant enough to make shifting their purchase habits and their loyalty worthwhile.
This information strongly suggests that the "something new" is a coalition model. In a coalition, multiple companies offer customers a shared value proposition. Customers earn a common currency when they do business with any participating coalition company. They do this across an array of "everyday" purchasing categories, such as gas, grocery, clothing and banking. A third-party company runs the program, issues the currency and handles redemption. The third-party also manages the database and provides reports delivering consumer insights to enable brands to create relevant customer communications and offers.
We're seeing a movement in this direction with the creation of partnership-based programs between airlines and hotels, or merchant-funded networks, but no one has put together an everyday-shopping coalition like the ones that have been successful in other global markets, including AIR MILES and Aeroplan in Canada; Nectar in the U.K.; or, PAYBACK in Germany.
The coalition model gives customers a clear value proposition—a far broader range of reward options while significantly increasing the rate at which they earn those rewards. Given the business concerns expressed by loyalty executives and the frustrations expressed by consumers, the time for this new approach might be now.
In discussing this idea with loyalty executives, however, there are two main concerns:
• Giving up control: Executives are concerned about participating in a coalition in which they don't necessarily have the final say on branding and database principles. They also want exclusivity within the program to give them an advantage over their competitors.
For a coalition model to achieve the most value, participants must work together. The coalition program manager ensures that all entities realize significant returns from this type of partnership.
Program executives should look at a coalition model as their stand-alone program bundled within a coalition wrapper. Many coalition members also run successful proprietary programs. Through the coalition, however, they gain access to a deeper, richer set of data to analyze.
• Financial pressure: All executives and managers are under pressure in today's economy to generate short-term profits. On one hand, the differentiated value proposition of a coalition model provides an avenue to that goal. On the other hand, a loyalty program takes time to develop. It does, however, deliver a proven result. To realize the significant financial benefits, there must be a balance between long-term strategy and short-term results.
The advantages to brands that participate in a coalition are hard to ignore; and, the tradeoffs have proven to be worth it.
• A coalition produces a compelling, hard-to-duplicate customer value proposition—who doesn't want to earn faster?
• It offers a far deeper level of customer data to leverage, improving relevancy, response rates and ROI.
• It enables a customer-centric approach to pricing and store merchandising.
• Most importantly, it has proven around the world to deliver sustained, measurable, cost-effective business growth and results.
In today's marketplace, organizations can't ignore such results. Piloting a coalition is a pragmatic approach to validating results while delivering on a value proposition that consumers are ready for.
Committing to something new requires something old: belief—a belief that the time is right for a change.
Bruce Kerr, President LoyaltyOne US, is a contributing editor to COLLOQUY, a LoyaltyOne Research Group.