TOP of MIND - coalition programs

Brandweek,  May 7, 2001  by Rick Barlow

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Coalitions Can Support Customer Loyalty

It's the natural evolution of customer-loyalty programs: two or more companies with common goals unite to become partners in a joint network currency program. They share acquisition, marketing and administration costs and reap the benefits in terms of increased share of customer, better customer information and lower operating costs. They're called coalition programs, and they're appearing all over the globe.

A successful coalition design must satisfy the needs of three critical groups: members (consumers), the program manager (the entity created to operate the coalition) and partners (the companies sponsoring the program). To be successful, programs must adhere to certain principles gleaned from success stories around the globe.

Create Aspirational Rewards

Frequent-flyer miles are the loyalty currency of choice around the globe for a simple reason. Their perceived value in the minds of consumers is much higher than their cost to the airlines and their partners. They're loaded with "dream content"--experiences and destinations.

But frequent-flyer miles aren't getting any cheaper, and they're getting harder to use. With free travel becoming more problematic, what reward offering can satisfy the hopes and dreams of consumers and truly change their behavior? One school of thought leans toward "altruistic' rewards. The recently launched UPromise program hopes to encourage families to shop with partners to fund their children's college educations, while Canada's Equity program funds retirement. But can these long-term goals overcome consumers' short attention spans and need for instant gratification?

Whether it's travel, entertainment or merchandise, make the reward something that enhances your customers' self-image and lifestyle. Make the offer compelling by making it substantial, worth the effort of changing behavior and stretching to achieve it. Aspirational rewards have emotional appeal. They create "psychic income" by bestowing a sense of self-worth. What's more, they bestow a competitive advantage that can't be beat.

The rumor in Canada is that Shoppers Drug Mart (SDM), one of the country's largest pharmacy chains, is making noises about anchoring its own coalition program. The problem is that Air Miles has been so successful and ingrained in the minds of Canadian consumers, that attempting to compete with it is daunting.

The entrenchment of Air Miles in the minds of Canadian consumers shows the importance of being first to market with a coalition model. The opportunity to create and sustain competitive advantage is huge. Consumers become vested in the program, which makes it tough for a competitor to steal them away.

Achieve Critical Mass

Besides a weak, cash-based value proposition, the primary reason why Provident Bancorp's MeritValu program failed in 1996 was its designers' decision to build a coalition around one central sponsor and a slew of small merchant partners. Not only did consumers earn mere pennies by participating, but they also had to shop at any number of mom-and-pop stores just to earn those pennies. By failing to attract or sign any other major partners, Provident ensured that MeritValu would remain small potatoes to members.

To achieve critical mass--the point at which the earning power and value proposition work together to drive member acquisition and participation, a coalition program should have preferably three major partners. Partners ought to be category leaders, national players who contribute money prestige and members to the program, and share the risks and rewards. As the coalition grows, an ideal range of four to six major players should be the goal. If the partners are committed and the value proposition is strong enough, the program will ignite.

The goal of any coalition program is to capture as much of the members' monthly household budget as possible. The wider the variety of partner choices a member has, the more likely he is to keep his dollars within the coalition--provided the payoff is irresistible.

Perhaps no two categories are more important than food and gasoline. Both provide frequency of accrual, which is critical to sustaining program interest. Families spend an average of $120 per week on groceries and about half that amount on gasoline. While merchants may only be able to fund points at a rate of 1%, the regular, frequent purchases help keep the program top of mind and drive continued earning.

Together, the annual reward value of grocery and gas purchases may not match that generated by retail, travel and entertainment partners. But the promotional value of those frequent and essential purchases can't be overstated, Food and gasoline partners provide the weekly fuel that makes the coalition engine run.

Create a Solid Information Technology Backbone

Planning and implementing the IT infrastructure behind a coalition program is substantial. Hundreds of questions arise: How will the data be collected and transmitted? Can members interact across a wide variety of contact points? Will they be able to redeem awards at point of purchase? How will partners gain access to data? How will analytical functions be driven? What kinds of member identification devices will be used? Will the data transfer occur in real-time, or batch transfers? Who will own the data?